File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Free Tax Filing 2011

Can I File 2011 Taxes OnlineFederal Tax Amended ReturnFree State File TaxesForm 1040ezSample 1040x Filled OutDfas MilTax Rates And TablesAmmended ReturnCan I File 2010 Taxes In 2012H&r Block Free State FileFree State Tax Forms Online1040x Tax Form For 2013Free Online Taxes 2012Free Ez Tax1040ez File Online FreeH&r Block EfileH&r Block Tax Estimator1040x IrsFree Internet Tax FilingFile 1040ez Online FreeIrs Tax FormsTurbo Tax 1040nrHow To Amend A Tax ReturnTaxact Online 2012Amend ReturnForm 1040 Ez1040nr FreeMilitary Turbo TaxEz 1040 Form 20111040x Form For 2010Free Taxes H&r BlockTaxact 2011 Login Tax ReturnNeed To Amend 2010 Tax ReturnFile State Taxes Free OnlineAmend A ReturnFile Free Tax ReturnIrs1040ezHttps Taxes Hrblock Com Hrblock Login Updatepassword HrbxFile Taxes From 2012State Tax Free

Free Tax Filing 2011

Free tax filing 2011 8. Free tax filing 2011   Paying Tax Through Withholding or Estimated Tax Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Notification of Alien Status Withholding From CompensationWithholding on Wages Withholding on Pensions Withholding on Tip Income Independent Contractors Withholding From Other IncomeTax Withheld on Partnership Income Withholding on Scholarships and Fellowship Grants Income Entitled to Tax Treaty BenefitsStudents, teachers, and researchers. Free tax filing 2011 Tax Withheld on Real Property Sales Social Security and Medicare TaxesStudents and Exchange Visitors Agricultural Workers Self-Employment Tax International Social Security Agreements Estimated Tax Form 1040-ES (NR)Fiscal year. Free tax filing 2011 Introduction This chapter discusses how to pay your U. Free tax filing 2011 S. Free tax filing 2011 income tax as you earn or receive income during the year. Free tax filing 2011 In general, the federal income tax is a pay as you go tax. Free tax filing 2011 There are two ways to pay as you go. Free tax filing 2011 Withholding. Free tax filing 2011 If you are an employee, your employer probably withholds income tax from your pay. Free tax filing 2011 Tax may also be withheld from certain other income—including pensions, bonuses, commissions, and gambling winnings. Free tax filing 2011 In each case, the amount withheld is paid to the U. Free tax filing 2011 S. Free tax filing 2011 Treasury in your name. Free tax filing 2011 Estimated tax. Free tax filing 2011 If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Free tax filing 2011 People who are in business for themselves generally will have to pay their tax this way. Free tax filing 2011 You may have to pay estimated tax if you receive income such as dividends, interest, rent, and royalties. Free tax filing 2011 Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well. Free tax filing 2011 Topics - This chapter discusses: How to notify your employer of your alien status, Income subject to withholding of income tax, Exemptions from withholding, Social security and Medicare taxes, and Estimated tax rules. Free tax filing 2011 Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 901 U. Free tax filing 2011 S. Free tax filing 2011 Tax Treaties Form (and Instructions) W-4 Employee's Withholding Allowance Certificate W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) W-8ECI Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States W-9 Request for Taxpayer Identification Number and Certification 1040-ES (NR) U. Free tax filing 2011 S. Free tax filing 2011 Estimated Tax for Nonresident Alien Individuals 8233 Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons of U. Free tax filing 2011 S. Free tax filing 2011 Real Property Interests 13930 Application for Central Withholding Agreement See chapter 12 for information about getting these publications and forms. Free tax filing 2011 Notification of Alien Status You must let your employer know whether you are a resident or a nonresident alien so your employer can withhold the correct amount of tax from your wages. Free tax filing 2011 If you are a resident alien under the rules discussed in chapter 1, you must file Form W-9 or a similar statement with your employer. Free tax filing 2011 If you are a nonresident alien under those rules, you must furnish to your employer Form 8233 or Form W-8BEN, establishing that you are a foreign person, or Form W-4, establishing that your compensation is subject to graduated withholding at the same rates as resident aliens or U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 If you are a resident alien and you receive income other than wages (such as dividends and royalties) from sources within the United States, file Form W-9 or similar statement with the withholding agent (generally, the payer of the income) so the agent will not withhold tax on the income at the 30% (or lower treaty) rate. Free tax filing 2011 If you receive this type of income as a nonresident alien, file Form W-8BEN with the withholding agent so that the agent will withhold tax at the 30% (or lower treaty) rate. Free tax filing 2011 However, if the income is effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business, file Form W-8ECI instead. Free tax filing 2011 Withholding From Compensation The following discussion generally applies only to nonresident aliens. Free tax filing 2011 Tax is withheld from resident aliens in the same manner as U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Therefore, your compensation, unless it is specifically excluded from the term “wages” by law, or is exempt from tax by treaty, is subject to graduated withholding. Free tax filing 2011 Withholding on Wages If you are an employee and you receive wages subject to graduated withholding, you will be required to fill out a Form W-4. Free tax filing 2011 Also fill out Form W-4 for a scholarship or fellowship grant to the extent it represents payment for past, present, or future services and for which you are not claiming a tax treaty withholding exemption on Form 8233 (discussed later under Income Entitled to Tax Treaty Benefits). Free tax filing 2011 These are services you are required to perform as an employee and as a condition of receiving the scholarship or fellowship (or tuition reduction). Free tax filing 2011 Nonresident aliens should fill out Form W-4 using the following instructions instead of the instructions on the Form W-4. Free tax filing 2011 This is because of the restrictions on a nonresident alien's filing status, the limited number of personal exemptions a nonresident alien is allowed, and because a nonresident alien cannot claim the standard deduction. Free tax filing 2011 Enter your social security number (SSN) on line 2. Free tax filing 2011 Do not enter an individual taxpayer identification number (ITIN). Free tax filing 2011 Check only “Single” marital status on line 3 (regardless of your actual marital status). Free tax filing 2011 Claim only one allowance on line 5, unless you are a resident of Canada, Mexico, or South Korea, or a U. Free tax filing 2011 S. Free tax filing 2011 national. Free tax filing 2011 Write “Nonresident Alien” or “NRA” on the dotted line on line 6. Free tax filing 2011 You can request additional withholding on line 6 at your option. Free tax filing 2011 Do not claim “Exempt” withholding status on line 7. Free tax filing 2011 A U. Free tax filing 2011 S. Free tax filing 2011 national is an individual who, although not a U. Free tax filing 2011 S. Free tax filing 2011 citizen, owes his or her allegiance to the United States. Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 nationals include American Samoans, and Northern Mariana Islanders who chose to become U. Free tax filing 2011 S. Free tax filing 2011 nationals instead of U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 See Withholding on Scholarships and Fellowship Grants later, for how to fill out Form W-4 if you receive a U. Free tax filing 2011 S. Free tax filing 2011 source scholarship or fellowship grant that is not a payment for services. Free tax filing 2011 Students and business apprentices from India. Free tax filing 2011   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you may claim an additional withholding allowance for the standard deduction. Free tax filing 2011 You can claim an additional withholding allowance for your spouse only if your spouse will have no gross income for 2013 and cannot be claimed as a dependent on another U. Free tax filing 2011 S. Free tax filing 2011 taxpayer's 2013 return. Free tax filing 2011 You may also claim an additional withholding allowance for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 Household employees. Free tax filing 2011   If you work as a household employee, your employer does not have to withhold income tax. Free tax filing 2011 However, you may agree to voluntary income tax withholding by filing a Form W-4 with your employer. Free tax filing 2011 The agreement goes into effect when your employer accepts the agreement by beginning the withholding. Free tax filing 2011 You or your employer may end the agreement by letting the other know in writing. Free tax filing 2011 Agricultural workers. Free tax filing 2011   If you are an agricultural worker on an H-2A visa, your employer does not have to withhold income tax. Free tax filing 2011 However, your employer will withhold income tax only if you and your employer agree to withhold. Free tax filing 2011 In that case, you must provide your employer with a properly completed Form W-4. Free tax filing 2011 You can find more information about not having tax withheld at www. Free tax filing 2011 irs. Free tax filing 2011 gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Free tax filing 2011 Wages Exempt From Withholding Wages that are exempt from U. Free tax filing 2011 S. Free tax filing 2011 income tax under an income tax treaty are generally exempt from withholding. Free tax filing 2011 For information on how to claim this exemption from withholding, see Income Entitled to Tax Treaty Benefits , later. Free tax filing 2011 Wages paid to aliens who are residents of American Samoa, Canada, Mexico, Puerto Rico, or the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands may be exempt from withholding. Free tax filing 2011 The following paragraphs explain these exemptions. Free tax filing 2011 Residents of Canada or Mexico engaged in transportation-related employment. Free tax filing 2011   Certain residents of Canada or Mexico who enter or leave the United States at frequent intervals are not subject to withholding on their wages. Free tax filing 2011 These persons either: Perform duties in transportation service between the United States and Canada or Mexico, or Perform duties connected to the construction, maintenance, or operation of a waterway, viaduct, dam, or bridge crossed by, or crossing, the boundary between the United States and Canada or the boundary between the United States and Mexico. Free tax filing 2011    This employment is subject to withholding of social security and Medicare taxes unless the services are performed for a railroad. Free tax filing 2011   To qualify for the exemption from withholding during a tax year, a Canadian or Mexican resident must give the employer a statement in duplicate with name, address, and identification number, certifying that the resident: Is not a U. Free tax filing 2011 S. Free tax filing 2011 citizen or resident, Is a resident of Canada or Mexico, whichever applies, and Expects to perform duties previously described during the tax year in question. Free tax filing 2011   The statement can be in any form, but it must be dated and signed by the employee and must include a written declaration that it is made under the penalties of perjury. Free tax filing 2011 Residents of American Samoa and Puerto Rico. Free tax filing 2011   If you are a nonresident alien employee who is a resident of American Samoa or Puerto Rico, wages for services performed in American Samoa or Puerto Rico are generally not subject to withholding unless you are an employee of the United States or any of its agencies in American Samoa or Puerto Rico. Free tax filing 2011 Residents of the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands. Free tax filing 2011   Nonresident aliens who are bona fide residents of the U. Free tax filing 2011 S Virgin Islands are not subject to withholding of U. Free tax filing 2011 S. Free tax filing 2011 tax on income earned while temporarily employed in the United States. Free tax filing 2011 This is because those persons pay their income tax to the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands. Free tax filing 2011 To avoid having tax withheld on income earned in the United States, bona fide residents of the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands should write a letter, in duplicate, to their employers, stating that they are bona fide residents of the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands and expect to pay tax on all income to the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands. Free tax filing 2011 Withholding on Pensions If you receive a pension as a result of personal services performed in the United States, the pension income is subject to the 30% (or lower treaty) rate of withholding. Free tax filing 2011 You may, however, have tax withheld at graduated rates on the portion of the pension that arises from the performance of services in the United States after December 31, 1986. Free tax filing 2011 You must fill out Form W-8BEN and give it to the withholding agent or payer before the income is paid or credited to you. Free tax filing 2011 Withholding on Tip Income Tips you receive during the year for services performed in the United States are subject to U. Free tax filing 2011 S. Free tax filing 2011 income tax. Free tax filing 2011 Include them in taxable income. Free tax filing 2011 In addition, tips received while working for one employer, amounting to $20 or more in a month, are subject to graduated withholding. Free tax filing 2011 Independent Contractors If there is no employee-employer relationship between you and the person for whom you perform services, your compensation is subject to the 30% (or lower treaty) rate of withholding. Free tax filing 2011 However, if you are engaged in a trade or business in the United States during the tax year, your compensation for personal services as an independent contractor (independent personal services) may be entirely or partly exempt from withholding if you reach an agreement with the Internal Revenue Service on the amount of withholding required. Free tax filing 2011 An agreement that you reach with the IRS regarding withholding from your compensation for independent personal services is effective for payments covered by the agreement after it is agreed to by all parties. Free tax filing 2011 You must agree to timely file an income tax return for the current tax year. Free tax filing 2011 Central withholding agreements. Free tax filing 2011   If you are a nonresident alien entertainer or athlete performing or participating in athletic events in the United States, you may be able to enter into a withholding agreement with the IRS for reduced withholding provided certain requirements are met. Free tax filing 2011 Under no circumstances will such a withholding agreement reduce taxes withheld to less than the anticipated amount of income tax liability. Free tax filing 2011   File Form 13930 and the required attachments with the IRS to request a central withholding agreement. Free tax filing 2011 Either you or your authorized representative can file the form. Free tax filing 2011 It should be sent to the IRS at least 45 days before the tour begins or the event occurs. Free tax filing 2011 Exceptions will be considered on a case by case basis. Free tax filing 2011   For more information on the CWA program, go to www. Free tax filing 2011 irs. Free tax filing 2011 gov/Individuals/International-Taxpayers/Central-Withholding-Agreements. Free tax filing 2011 Final payment exemption. Free tax filing 2011   Your final payment of compensation during the tax year for independent personal services may be entirely or partly exempt from withholding. Free tax filing 2011 This exemption is available only once during your tax year and applies to a maximum of $5,000 of compensation. Free tax filing 2011 To obtain this exemption, you or your agent must give the following statements and information to the Commissioner or his delegate. Free tax filing 2011 A statement by each withholding agent from whom you have received gross income effectively connected with a trade or business in the United States during the tax year, showing the amount of income paid and the tax withheld. Free tax filing 2011 Each statement must be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Free tax filing 2011 A statement by the withholding agent from whom you expect to receive the final payment of compensation, showing the amount of the payment and the amount of tax that would be withheld if a final payment exemption were not granted. Free tax filing 2011 This statement must also be signed by the withholding agent and verified by a declaration that it is made under penalties of perjury. Free tax filing 2011 A statement by you that you do not intend to receive any other income effectively connected with a trade or business in the United States during the current tax year. Free tax filing 2011 The amount of tax that has been withheld or paid under any other provision of the Internal Revenue Code or regulations for any income effectively connected with your trade or business in the United States during the current tax year. Free tax filing 2011 The amount of your outstanding tax liabilities, if any, including interest and penalties, from the current tax year or prior tax periods. Free tax filing 2011 Any provision of an income tax treaty under which a partial or complete exemption from withholding may be claimed, the country of your residence, and a statement of sufficient facts to justify an exemption under the treaty. Free tax filing 2011 A statement signed by you, and verified by a declaration that it is made under penalties of perjury, that all the information given is true and that to your knowledge no relevant information has been omitted. Free tax filing 2011   If satisfied with the information, the IRS will determine the amount of your tentative income tax for the tax year on gross income effectively connected with your trade or business in the United States. Free tax filing 2011 Ordinary and necessary business expenses can be taken into account if proven to the satisfaction of the Commissioner or his delegate. Free tax filing 2011   The Commissioner or his delegate will send you a letter, directed to the withholding agent, showing the amount of the final payment of compensation that is exempt from withholding and the amount that can be paid to you because of the exemption. Free tax filing 2011 You must give two copies of the letter to the withholding agent and must also attach a copy of the letter to your income tax return for the tax year for which the exemption is effective. Free tax filing 2011 Allowance for Personal Exemption Withholding on payments for independent personal services is generally based on the amount of your compensation payment minus the value of one exemption ($3,950 for 2014). Free tax filing 2011 To determine the income for independent personal services performed in the United States to which the 30% (or lower treaty) rate will apply, you are allowed one personal exemption if you are not a U. Free tax filing 2011 S. Free tax filing 2011 national and are not a resident of Canada, Mexico, or South Korea. Free tax filing 2011 For purposes of 30% withholding, the exemption is prorated at $10. Free tax filing 2011 82 a day in 2014 for the period that labor or personal services are performed in the United States. Free tax filing 2011 To claim an exemption from withholding on the personal exemption amount, fill out the applicable parts of Form 8233 and give it to the withholding agent. Free tax filing 2011 Example. Free tax filing 2011 Eric Johannsen, who is a resident of Country X worked under a contract with a U. Free tax filing 2011 S. Free tax filing 2011 firm (not as an employee) in the United States for 100 days during 2014 before returning to his country. Free tax filing 2011 He earned $6,000 for the services performed (not considered wages) in the United States. Free tax filing 2011 Eric is married and has three dependent children. Free tax filing 2011 His wife is not employed and has no income subject to U. Free tax filing 2011 S. Free tax filing 2011 tax. Free tax filing 2011 The amount of the personal exemption to be allowed against the income for his personal services performed within the United States in 2014 is $1,082 (100 days × $10. Free tax filing 2011 82), and withholding at 30% is applied against the balance. Free tax filing 2011 Thus, $1,475. Free tax filing 2011 40 in tax is withheld from Eric's earnings (30% of $4,918 ($6,000 − $1,082). Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 nationals or residents of Canada, Mexico, or South Korea. Free tax filing 2011   If you are a nonresident alien who is a resident of Canada, Mexico, or South Korea, or who is a national of the United States, you are subject to the same 30% withholding on your compensation for independent personal services performed in the United States. Free tax filing 2011 However, if you are a U. Free tax filing 2011 S. Free tax filing 2011 national or a resident of Canada or Mexico, you are allowed the same personal exemptions as U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 For the 30% (or lower treaty) rate withholding, you can take $10. Free tax filing 2011 82 per day for each allowable exemption in 2014. Free tax filing 2011 If you are a resident of South Korea, you are allowed personal exemptions for yourself and for your spouse and children who live with you in the United States at any time during the tax year. Free tax filing 2011 However, the additional exemptions for your spouse and children must be further prorated as explained in chapter 5 under Exemptions . Free tax filing 2011 Students and business apprentices from India. Free tax filing 2011   If you are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you are allowed an exemption for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Free tax filing 2011 S. Free tax filing 2011 taxpayer's 2014 return. Free tax filing 2011 You are also allowed an exemption for each dependent not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 For the 30% (or lower treaty rate) withholding on compensation for independent personal services performed in the United States, you are allowed $10. Free tax filing 2011 82 per day for each allowable exemption in 2014. Free tax filing 2011 Refund of Taxes Withheld in Error Multi-level marketing. Free tax filing 2011   If you are a distributor for a multi-level marketing company who had taxes withheld in error, file a U. Free tax filing 2011 S. Free tax filing 2011 income tax return (Form 1040NR, Form 1040NR-EZ, or Form 1120-F) or, if a tax return has already been filed, a claim for refund (Form 1040X or amended Form 1120-F) to recover the amount withheld in error. Free tax filing 2011 You must also attach to the U. Free tax filing 2011 S. Free tax filing 2011 income tax return or claim for refund supporting information that includes, but is not limited to, the following items. Free tax filing 2011 A copy of your Form W-2, Form 1042-S, or Form 1099 to prove the amount of taxes withheld. Free tax filing 2011 A statement explaining why income reported on your Form W-2, Form 1042-S, or Form 1099 is not subject to U. Free tax filing 2011 S. Free tax filing 2011 taxation. Free tax filing 2011 A statement listing all the dates you entered and left the United States during the taxable year. Free tax filing 2011 If the compensation is multi-year compensation, the statement must list all the dates you entered and left the United States during each of the taxable years to which the compensation is attributable. Free tax filing 2011 A copy of any documents or records that show the number of days you actually were present in the United States during the years listed. Free tax filing 2011 A statement providing: (a) the number of days (or unit of time less than a day, if appropriate) that personal services were performed in the United States in connection with recruiting, training, and supporting your lower-tier distributors; and (b) the total number of days (or unit of time less than a day, if appropriate) that personal services were performed globally in connection with recruiting, training, and supporting your lower-tier distributors. Free tax filing 2011 Any further relevant document or record supporting your claim that the taxes were withheld in error. Free tax filing 2011 Withholding From Other Income Other income subject to 30% withholding generally includes fixed or determinable income such as interest (other than portfolio interest), dividends, pensions and annuities, and gains from certain sales and exchanges, discussed in chapter 4. Free tax filing 2011 It also includes 85% of social security benefits paid to nonresident aliens. Free tax filing 2011 Refund of taxes withheld in error on social security benefits paid to resident aliens. Free tax filing 2011   Social security benefits paid to a lawful permanent resident (green card holder) are not subject to 30% withholding. Free tax filing 2011 For U. Free tax filing 2011 S. Free tax filing 2011 income tax purposes, green card holders continue to be resident aliens until their lawful permanent resident status under immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Free tax filing 2011 See Green Card Test in chapter 1. Free tax filing 2011 If you are a green card holder and tax was withheld in error on your social security benefits because you have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. Free tax filing 2011 SSA will refund taxes erroneously withheld if the refund can be processed during the same calendar year in which the tax was withheld. Free tax filing 2011 If SSA cannot refund the taxes withheld, you must file a Form 1040 or 1040A with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301 to determine if you are entitled to a refund. Free tax filing 2011 You must also attach the following to your Form 1040 or 1040A. Free tax filing 2011 A copy of Form SSA-1042S, Social Security Benefit Statement. Free tax filing 2011 A copy of the “green card. Free tax filing 2011 ” A signed declaration that includes the following statements: The SSA should not have withheld income tax from my social security benefits because I am a U. Free tax filing 2011 S. Free tax filing 2011 lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Free tax filing 2011 I am filing a U. Free tax filing 2011 S. Free tax filing 2011 income tax return for the tax year as a resident alien reporting all of my worldwide income. Free tax filing 2011 I have not claimed benefits for the tax year under an income tax treaty as the resident of a country other than the United States. Free tax filing 2011 Other income not subject to withholding of 30% (or lower treaty) rate. Free tax filing 2011   The following income is not subject to withholding at the 30% (or lower treaty) rate if you file Form W-8ECI with the payer of the income. Free tax filing 2011 Income (other than compensation) that is effectively connected with your U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 Income from real property that you choose to treat as effectively connected with a U. Free tax filing 2011 S. Free tax filing 2011 trade or business. Free tax filing 2011 See Income From Real Property in chapter 4 for details about this choice. Free tax filing 2011   Special rules for withholding on partnership income, scholarships, and fellowships are explained next. Free tax filing 2011 Tax Withheld on Partnership Income If you are a foreign partner in a U. Free tax filing 2011 S. Free tax filing 2011 or foreign partnership, the partnership will withhold tax on your share of effectively connected taxable income (ECTI) from the partnership. Free tax filing 2011 You may be able to reduce your ECTI subject to withholding by certain partner-level deductions. Free tax filing 2011 Generally, you must use Form 8804-C for this purpose. Free tax filing 2011 See the Instructions for Form 8804-C for more information. Free tax filing 2011 The withholding rate on your share of effectively connected income is generally the highest rate of tax specified under section 1 of the Code (39. Free tax filing 2011 6% for 2014). Free tax filing 2011 However, the partnership may withhold at the highest rate that applies to a particular type of income allocable to you if you gave the partnership the appropriate documentation. Free tax filing 2011 Long-term capital gain is an example of a particular type of income to which the highest tax rate applies. Free tax filing 2011 Claim the tax withheld as a credit on your 2014 Form 1040NR. Free tax filing 2011 The partnership will give you a statement on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, showing the tax withheld. Free tax filing 2011 A partnership that is publicly traded will withhold tax on your actual distributions of effectively connected income. Free tax filing 2011 In this case the partnership will give you a statement on Form 1042-S, Foreign Person's U. Free tax filing 2011 S. Free tax filing 2011 Source Income Subject to Withholding. Free tax filing 2011 Withholding on Scholarships and Fellowship Grants There is no withholding on a qualified scholarship received by a candidate for a degree. Free tax filing 2011 See chapter 3. Free tax filing 2011 If you are a nonresident alien student or grantee with an “F,” “J,” “M,” or “Q” visa and you receive a U. Free tax filing 2011 S. Free tax filing 2011 source grant or scholarship that is not fully exempt, the withholding agent (usually the payer of the scholarship) withholds tax at 14% (or lower treaty rate) of the taxable part of the grant or scholarship that is not a payment for services. Free tax filing 2011 However, if you are not a candidate for a degree and the grant does not meet certain requirements, tax will be withheld at the 30% (or lower treaty) rate. Free tax filing 2011 Any part of a scholarship or fellowship grant that is a payment for services is subject to graduated withholding as discussed earlier under Withholding on Wages. Free tax filing 2011 Alternate Withholding Procedure Your withholding agent may choose to use an alternate procedure by asking you to fill out Form W-4 and the Personal Allowances Worksheet (attached to Form W-4). Free tax filing 2011 Use the following instructions instead of the Form W-4 instructions to complete the worksheet. Free tax filing 2011 Line A. Free tax filing 2011   Enter the total of the following amounts on line A. Free tax filing 2011 Personal exemption. Free tax filing 2011   Include the prorated part of your allowable personal exemption. Free tax filing 2011 Figure the amount by multiplying the number of days you expect to be in the United States in 2014 by the daily exemption amount ($10. Free tax filing 2011 82). Free tax filing 2011 Expenses. Free tax filing 2011   Include expenses that will be deductible on your return. Free tax filing 2011 These include away-from-home expenses (meals, lodging, and transportation), certain state and local income taxes, charitable contributions, and casualty losses, discussed earlier under Itemized Deductions in chapter 5. Free tax filing 2011 They also include business expenses, moving expenses, and the IRA deduction discussed under Deductions in chapter 5. Free tax filing 2011 Nontaxable grant or scholarship. Free tax filing 2011   Include the part of your grant or scholarship that is not taxable under U. Free tax filing 2011 S. Free tax filing 2011 law or under a tax treaty. Free tax filing 2011 Line B. Free tax filing 2011   Enter -0- unless the following paragraph applies to you. Free tax filing 2011   If you are a student who qualifies under Article 21(2) of the United States-India Income Tax Treaty, and you are not claiming deductions for away-from-home expenses or other itemized deductions (discussed earlier), enter the standard deduction on line B. Free tax filing 2011 The standard deduction amount for 2013 is $6,100. Free tax filing 2011 Lines C and D. Free tax filing 2011   Enter -0- on both lines unless the following paragraphs apply to you. Free tax filing 2011   If you are a resident of Canada, Mexico, South Korea, or a U. Free tax filing 2011 S. Free tax filing 2011 national, an additional daily exemption amount may be allowed for your spouse and each of your dependents. Free tax filing 2011   If you are a resident of India who is eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty, you can claim an additional daily exemption amount for your spouse only if your spouse will have no gross income for 2014 and cannot be claimed as a dependent on another U. Free tax filing 2011 S. Free tax filing 2011 taxpayer's 2014 return. Free tax filing 2011 You can also claim an additional amount for each of your dependents not admitted to the United States on “F-2,” “J-2,” or “M-2” visas if they meet the same rules that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011   Enter any additional amount for your spouse on line C. Free tax filing 2011 Enter any additional amount for your dependents on line D. Free tax filing 2011 Lines E, F, and G. Free tax filing 2011   No entries should be made on lines E, F, and G. Free tax filing 2011 Line H. Free tax filing 2011   Add the amounts on lines A through D and enter the total on line H. Free tax filing 2011 Form W-4. Free tax filing 2011   Complete lines 1 through 4 of Form W-4. Free tax filing 2011 Sign and date the form and give it with the Personal Allowances Worksheet to your withholding agent. Free tax filing 2011   If you file a Form W-4 to reduce or eliminate the withholding on your scholarship or grant, you must file an annual U. Free tax filing 2011 S. Free tax filing 2011 income tax return to be allowed the exemptions and deductions you claimed on that form. Free tax filing 2011 If you are in the United States during more than one tax year, you must attach a statement to your yearly Form W-4 indicating that you have filed a U. Free tax filing 2011 S. Free tax filing 2011 income tax return for the previous year. Free tax filing 2011 If you have not been in the United States long enough to be required to file a return, you must attach a statement to your Form W-4 saying you will file a U. Free tax filing 2011 S. Free tax filing 2011 income tax return when required. Free tax filing 2011 After the withholding agent has accepted your Form W-4, tax will be withheld on your scholarship or grant at the graduated rates that apply to wages. Free tax filing 2011 The gross amount of the income is reduced by the amount on line H of the worksheet and the withholding tax is figured on the remainder. Free tax filing 2011 You will receive a Form 1042-S from the withholding agent (usually the payer of your grant) showing the gross amount of your taxable scholarship or fellowship grant less the withholding allowance amount, the tax rate, and the amount of tax withheld. Free tax filing 2011 Use this form to prepare your annual U. Free tax filing 2011 S. Free tax filing 2011 income tax return. Free tax filing 2011 Income Entitled to Tax Treaty Benefits If a tax treaty between the United States and your country provides an exemption from, or a reduced rate of, tax for certain items of income, you should notify the payor of the income (the withholding agent) of your foreign status to claim a tax treaty withholding exemption. Free tax filing 2011 Generally, you do this by filing either Form W-8BEN or Form 8233 with the withholding agent. Free tax filing 2011 File Form W-8BEN for income that is not personal services income. Free tax filing 2011 File Form 8233 for personal services income as discussed next. Free tax filing 2011 Employees and independent contractors. Free tax filing 2011   If you perform personal services as an employee or as an independent contractor and you can claim an exemption from withholding on that personal service income because of a tax treaty, give Form 8233 to each withholding agent from whom amounts will be received. Free tax filing 2011   Even if you submit Form 8233, the withholding agent may have to withhold tax from your income. Free tax filing 2011 This is because the factors on which the treaty exemption is based may not be determinable until after the close of the tax year. Free tax filing 2011 In this case, you must file Form 1040NR (or Form 1040NR-EZ if you qualify) to recover any overwithheld tax and to provide the IRS with proof that you are entitled to the treaty exemption. Free tax filing 2011 Students, teachers, and researchers. Free tax filing 2011   Students, teachers, and researchers must attach the appropriate statement shown in Appendix A (for students) or Appendix B (for teachers and researchers) at the end of this publication to the Form 8233 and give it to the withholding agent. Free tax filing 2011 For treaties not listed in the appendices, attach a statement in a format similar to those for other treaties. Free tax filing 2011   If you received a scholarship or fellowship and personal services income from the same withholding agent, use Form 8233 to claim an exemption from withholding based on a tax treaty for both types of income. Free tax filing 2011 Special events and promotions. Free tax filing 2011   Withholding at the full 30% rate is required for payments made to a nonresident alien or foreign corporation for gate receipts (or television or other receipts) from rock music festivals, boxing promotions, and other entertainment or sporting events, unless the withholding agent has been specifically advised otherwise by letter from the IRS. Free tax filing 2011 Form 13930 is used to request a reduction in withholding. Free tax filing 2011 Withholding may be required even if the income may be exempt from taxation by provisions of a tax treaty. Free tax filing 2011 One reason for this is that the partial or complete exemption is usually based on factors that cannot be determined until after the close of the tax year. Free tax filing 2011 You will be required to pay U. Free tax filing 2011 S. Free tax filing 2011 tax, at the time of your departure from the United States, on any income for which you incorrectly claimed a treaty exemption. Free tax filing 2011 For more details on treaty provisions that apply to compensation, see Publication 901. Free tax filing 2011 Tax Withheld on Real Property Sales If you are a nonresident alien and you dispose of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest, the transferee (buyer) of the property generally must withhold a tax equal to 10% of the amount realized on the disposition. Free tax filing 2011 A distribution by a qualified investment entity to a nonresident alien shareholder that is treated as gain from the sale or exchange of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest by the shareholder is subject to withholding at 35%. Free tax filing 2011 Withholding is also required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates. Free tax filing 2011 These rules are covered in Publication 515. Free tax filing 2011 For information on the tax treatment of dispositions of U. Free tax filing 2011 S. Free tax filing 2011 real property interests, see Real Property Gain or Loss in chapter 4. Free tax filing 2011 If you are a partner in a domestic partnership, and the partnership disposes of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest at a gain, the partnership will withhold tax on the amount of gain allocable to its foreign partners. Free tax filing 2011 Your share of the income and tax withheld will be reported to you on Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, or Form 1042-S, Foreign Person's U. Free tax filing 2011 S. Free tax filing 2011 Source Income Subject to Withholding (in the case of a publicly traded partnership). Free tax filing 2011 Withholding is not required in the following situations. Free tax filing 2011 The property is acquired by the buyer for use as a residence and the amount realized (sales price) is not more than $300,000. Free tax filing 2011 The property disposed of is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. Free tax filing 2011 However, this exception does not apply to certain dispositions of substantial amounts of non-publicly traded interests in publicly traded corporations. Free tax filing 2011 The property disposed of is an interest in a U. Free tax filing 2011 S. Free tax filing 2011 corporation that is not regularly traded on an established market and you (the seller) give the buyer a copy of a statement issued by the corporation certifying that the interest is not a U. Free tax filing 2011 S. Free tax filing 2011 real property interest. Free tax filing 2011 You (the seller) give the buyer a certification stating, under penalties of perjury, that you are not a foreign person, and containing your name, U. Free tax filing 2011 S. Free tax filing 2011 taxpayer identification number, and home address. Free tax filing 2011 You can give the certification to a qualified substitute. Free tax filing 2011 The qualified substitute gives the buyer a statement, under penalties of perjury, that the certification is in the possession of the qualified substitute. Free tax filing 2011 For this purpose, a qualified substitute is (a) the person (including any attorney or title company) responsible for closing the transaction, other than your agent, and (b) the buyer's agent. Free tax filing 2011 The buyer receives a withholding certificate from the Internal Revenue Service. Free tax filing 2011 You give the buyer written notice that you are not required to recognize any gain or loss on the transfer because of a nonrecognition provision in the Internal Revenue Code or a provision in a U. Free tax filing 2011 S. Free tax filing 2011 tax treaty. Free tax filing 2011 The buyer must file a copy of the notice with the Ogden Service Center, P. Free tax filing 2011 O. Free tax filing 2011 Box 409101, Ogden, UT 84409. Free tax filing 2011 You must verify the notice as true and sign it under penalties of perjury. Free tax filing 2011 The notice must contain the following information. Free tax filing 2011 A statement that the notice is a notice of nonrecognition under regulation section 1. Free tax filing 2011 1445-2(d)(2). Free tax filing 2011 Your name, taxpayer identification number, and home address. Free tax filing 2011 A statement that you are not required to recognize any gain or loss on the transfer. Free tax filing 2011 A brief description of the transfer. Free tax filing 2011 A brief summary of the law and facts supporting your claim that recognition of gain or loss is not required. Free tax filing 2011 You may not give the buyer a written notice for any of the following transfers: the sale of your main home on which you exclude gain, a like-kind exchange that does not qualify for nonrecognition treatment in its entirety, or a deferred like-kind exchange that has not been completed at the time the buyer must file Form 8288. Free tax filing 2011 Instead, a withholding certificate (described next) must be obtained. Free tax filing 2011 The amount you realize on the transfer of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest is zero. Free tax filing 2011 The property is acquired by the United States, a U. Free tax filing 2011 S. Free tax filing 2011 state or possession, a political subdivision, or the District of Columbia. Free tax filing 2011 The distribution is from a domestically controlled qualified investment entity (QIE) and is treated as a distribution of a U. Free tax filing 2011 S. Free tax filing 2011 real property interest only because an interest in the entity was disposed of in an applicable wash sale transaction. Free tax filing 2011 For the definition of a QIE, see Qualified investment entities under Real Property Gain or Loss, earlier. Free tax filing 2011 See Wash sale under Real Property Gain or Loss in chapter 4. Free tax filing 2011 The certifications in (3) and (4) must be disregarded by the buyer if the buyer or qualified substitute has actual knowledge, or receives notice from a seller's or buyer's agent (or substitute), that they are false. Free tax filing 2011 This also applies to the qualified substitute's statement under (4). Free tax filing 2011 Withholding certificates. Free tax filing 2011   The tax required to be withheld on a disposition can be reduced or eliminated under a withholding certificate issued by the IRS. Free tax filing 2011 Either you or the buyer can request a withholding certificate. Free tax filing 2011   A withholding certificate can be issued due to any of the following. Free tax filing 2011 The IRS determines that reduced withholding is appropriate because either: The amount required to be withheld would be more than your maximum tax liability, or Withholding of the reduced amount would not jeopardize collection of the tax. Free tax filing 2011 All of your realized gain is exempt from U. Free tax filing 2011 S. Free tax filing 2011 tax. Free tax filing 2011 You or the buyer enters into an agreement for the payment of tax providing security for the tax liability. Free tax filing 2011   Get Publication 515 and Form 8288-B for information on procedures to request a withholding certificate. Free tax filing 2011 Credit for tax withheld. Free tax filing 2011   The buyer must report and pay over the withheld tax within 20 days after the transfer using Form 8288, U. Free tax filing 2011 S. Free tax filing 2011 Withholding Tax Return for Dispositions by Foreign Persons of U. Free tax filing 2011 S. Free tax filing 2011 Real Property Interests. Free tax filing 2011 This form is filed with the IRS with copies A and B of Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Free tax filing 2011 S. Free tax filing 2011 Real Property Interests. Free tax filing 2011 Copy B of this statement will be stamped received by the IRS and returned to you (the seller) if the statement is complete and includes your taxpayer identification number (TIN). Free tax filing 2011 You must file Copy B with your tax return to take credit for the tax withheld. Free tax filing 2011   A stamped copy of Form 8288-A will not be provided to you if your TIN is not included on that form. Free tax filing 2011 The IRS will send you a letter requesting the TIN and providing instructions for how to get a TIN. Free tax filing 2011 When you provide the IRS with a TIN, the IRS will provide you with a stamped Copy B of Form 8288-A. Free tax filing 2011 Social Security and Medicare Taxes If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Free tax filing 2011 Your payments of these taxes contribute to your coverage under the U. Free tax filing 2011 S. Free tax filing 2011 social security system. Free tax filing 2011 Social security coverage provides retirement benefits, survivors and disability benefits, and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements. Free tax filing 2011 In most cases, the first $113,700 of taxable wages received in 2013 for services performed in the United States is subject to social security tax. Free tax filing 2011 All taxable wages are subject to Medicare tax. Free tax filing 2011 Your employer deducts these taxes from each wage payment. Free tax filing 2011 Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. Free tax filing 2011 You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 2013 is more than $7,049. Free tax filing 2011 40. Free tax filing 2011 Use the appropriate worksheet in chapter 3 of Publication 505, Tax Withholding and Estimated Tax, to figure your credit. Free tax filing 2011 If any one employer deducted more than $7,049. Free tax filing 2011 40, you cannot claim a credit for that amount. Free tax filing 2011 Ask your employer to refund the excess. Free tax filing 2011 If your employer does not refund the excess, you can file a claim for refund using Form 843. Free tax filing 2011 In general, U. Free tax filing 2011 S. Free tax filing 2011 social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer. Free tax filing 2011 In limited situations, these taxes apply to wages for services performed outside the United States. Free tax filing 2011 Your employer should be able to tell you if social security and Medicare taxes apply to your wages. Free tax filing 2011 You cannot make voluntary payments if no taxes are due. Free tax filing 2011 Additional Medicare Tax. Free tax filing 2011   Beginning in 2013, in addition to the Medicare tax, a 0. Free tax filing 2011 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income that are more than: $250,000 if married filing jointly, $125,000 if married filing separately, or $200,000 for any other filing status. Free tax filing 2011   There are no special rules for nonresident aliens for purposes of Additional Medicare Tax. Free tax filing 2011 Wages, RRTA compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Free tax filing 2011   Your employer is responsible for withholding the 0. Free tax filing 2011 9% Additional Medicare Tax on Medicare wages or RRTA compensation it pays to you in excess of $200,000 in the calendar year. Free tax filing 2011 If you intend to file a joint return and you anticipate that you and your spouse's individual wages are not going to be more than $200,000 but your combined wages and self-employment income are going to be more than $250,000, you may want to request additional withholding on Form W-4 and/or make estimated tax payments. Free tax filing 2011   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Free tax filing 2011    See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Free tax filing 2011 For more information on Additional Medicare Tax, go to IRS. Free tax filing 2011 gov and enter “Additional Medicare Tax” in the search box. Free tax filing 2011   Self-employed individuals may also be required to pay Additional Medicare Tax. Free tax filing 2011 See Self-Employment Tax , later. Free tax filing 2011 Students and Exchange Visitors Generally, services performed by you as a nonresident alien temporarily in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act are not covered under the social security program if the services are performed to carry out the purpose for which you were admitted to the United States. Free tax filing 2011 This means that there will be no withholding of social security or Medicare taxes from the pay you receive for these services. Free tax filing 2011 These types of services are very limited, and generally include only on-campus work, practical training, and economic hardship employment. Free tax filing 2011 Social security and Medicare taxes will be withheld from your pay for these services if you are considered a resident alien as discussed in chapter 1, even though your nonimmigrant classification (“F,” “J,” “M,” or “Q”) remains the same. Free tax filing 2011 Services performed by a spouse or minor child of nonimmigrant aliens with the classification of “F-2,” “J-2,” “M-2,” and “Q-3” are covered under social security. Free tax filing 2011 Nonresident Alien Students If you are a nonresident alien temporarily admitted to the United States as a student, you generally are not permitted to work for a wage or salary or to engage in business while you are in the United States. Free tax filing 2011 In some cases, a student admitted to the United States in “F-1,” “M-1,” or “J-1” status is granted permission to work. Free tax filing 2011 Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien. Free tax filing 2011 Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school. Free tax filing 2011 The U. Free tax filing 2011 S. Free tax filing 2011 Citizenship and Immigration Services (USCIS) permits on-campus work for students in “F-1” status if it does not displace a U. Free tax filing 2011 S. Free tax filing 2011 resident. Free tax filing 2011 On-campus work means work performed on the school's premises. Free tax filing 2011 On-campus work includes work performed at an off-campus location that is educationally affiliated with the school. Free tax filing 2011 On-campus work under the terms of a scholarship, fellowship, or assistantship is considered part of the academic program of a student taking a full course of study and is permitted by the USCIS. Free tax filing 2011 Social security and Medicare taxes are not withheld from pay for this work unless the student is considered a resident alien. Free tax filing 2011 If services performed by a nonresident alien student are not considered as performed to carry out the purpose for which the student was admitted to the United States, social security and Medicare taxes will be withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Free tax filing 2011 Exchange Visitors Exchange visitors are temporarily admitted to the United States under section 101(a)(15)(J) of the Immigration and Nationality Act. Free tax filing 2011 Social security and Medicare taxes are not withheld on pay for services of an exchange visitor who has been given permission to work and who possesses or obtains a letter of authorization from the sponsor unless the exchange visitor is considered a resident alien. Free tax filing 2011 If services performed by an exchange visitor are not considered as performed to carry out the purpose for which the visitor was admitted to the United States, social security and Medicare taxes are withheld from pay for the services unless the pay is exempt under the Internal Revenue Code. Free tax filing 2011 Nonresident aliens temporarily admitted to the United States as participants in international cultural exchange programs under section 101(a)(15)(Q) of the Immigration and Nationality Act may be exempt from social security and Medicare taxes. Free tax filing 2011 The employer must be the petitioner through whom the alien obtained the “Q” visa. Free tax filing 2011 Social security and Medicare taxes are not withheld from pay for this work unless the alien is considered a resident alien. Free tax filing 2011 Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes, contact the employer who withheld the taxes for a refund. Free tax filing 2011 If you are unable to get a full refund of the amount from your employer, file a claim for refund with the Internal Revenue Service on Form 843, Claim for Refund and Request for Abatement. Free tax filing 2011 Attach the following items to Form 843. Free tax filing 2011 A copy of your Form W-2 to prove the amount of social security and Medicare taxes withheld. Free tax filing 2011 A copy of your visa. Free tax filing 2011 Form I-94 (or other documentation showing your dates of arrival or departure). Free tax filing 2011 If you have an F-1 visa, documentation showing permission to work in the U. Free tax filing 2011 S. Free tax filing 2011 If you have a J-1 visa, documentation showing permission to work in the U. Free tax filing 2011 S. Free tax filing 2011 If you are engaged in optional practical training or employment due to severe economic necessity, documentation showing permission to work in the U. Free tax filing 2011 S. Free tax filing 2011 A statement from your employer indicating the amount of the reimbursement your employer provided and the amount of the credit or refund your employer claimed or you authorized your employer to claim. Free tax filing 2011 If you cannot obtain this statement from your employer, you must provide this information on your own statement and explain why you are not attaching a statement from your employer or on Form 8316 claiming your employer will not issue the refund. Free tax filing 2011 If you were exempt from social security and Medicare tax for only part of the year, pay statements showing the tax paid during the period you were exempt. Free tax filing 2011 File Form 843 (with attachments) with the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0038. Free tax filing 2011 Do not use Form 843 to request a refund of Additional Medicare Tax. Free tax filing 2011 If Additional Medicare Tax was withheld from your pay in error, you can claim a credit for any withheld Additional Medicare Tax against the total tax liability shown on your tax return by filing Form 8959 with Form 1040 or 1040NR. Free tax filing 2011 If Additional Medicare Tax was withheld in error in a prior year for which you already filed Form 1040 or 1040NR, you must file Form 1040X, Amended U. Free tax filing 2011 S. Free tax filing 2011 Individual Income Tax Return, for the prior year in which the wages or compensation were originally received to recover the Additional Medicare Tax withheld in error. Free tax filing 2011 See the Instructions for Form 1040X. Free tax filing 2011 Agricultural Workers Agricultural workers temporarily admitted into the United States on H-2A visas are exempt from social security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa. Free tax filing 2011 You can find more information about not having tax withheld at www. Free tax filing 2011 irs. Free tax filing 2011 gov/Individuals/International-Taxpayers/Foreign-Agricultural-Workers. Free tax filing 2011 Self-Employment Tax Self-employment tax is the social security and Medicare taxes for individuals who are self-employed. Free tax filing 2011 Nonresident aliens are not subject to self-employment tax unless an international social security agreement in effect determines that they are covered under the U. Free tax filing 2011 S. Free tax filing 2011 social security system. Free tax filing 2011 Residents of the U. Free tax filing 2011 S. Free tax filing 2011 Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are considered U. Free tax filing 2011 S. Free tax filing 2011 residents for this purpose and are subject to the self-employment tax. Free tax filing 2011 Resident aliens must pay self-employment tax under the same rules that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens. Free tax filing 2011 However, a resident alien employed by an international organization, a foreign government, or a wholly-owned instrumentality of a foreign government is not subject to the self-employment tax on income earned in the United States. Free tax filing 2011 Self-employment income you receive while you are a resident alien is subject to self-employment tax even if it was paid for services you performed as a nonresident alien. Free tax filing 2011 Example. Free tax filing 2011 Bill Jones is an author engaged in the business of writing books. Free tax filing 2011 Bill had several books published in a foreign country while he was a citizen and resident of that country. Free tax filing 2011 During 2013, Bill entered the United States as a resident alien. Free tax filing 2011 After becoming a U. Free tax filing 2011 S. Free tax filing 2011 resident, he continued to receive royalties from his foreign publisher. Free tax filing 2011 Bill reports his income and expenses on the cash basis (he reports income on his tax return when received and deducts expenses when paid). Free tax filing 2011 Bill's 2013 self-employment income includes the royalties received after he became a U. Free tax filing 2011 S. Free tax filing 2011 resident even though the books were published while he was a nonresident alien. Free tax filing 2011 This royalty income is subject to self-employment tax. Free tax filing 2011 Reporting self-employment tax. Free tax filing 2011   Use Schedule SE (Form 1040) to report and figure your self-employment tax. Free tax filing 2011 Then enter the tax on Form 1040, line 56, or Form 1040NR, line 54. Free tax filing 2011 Attach Schedule SE to Form 1040 or Form 1040NR. Free tax filing 2011 Additional Medicare Tax. Free tax filing 2011   Self-employed individuals must pay a 0. Free tax filing 2011 9% Additional Medicare Tax on self-employment income that exceeds one of the following threshold amounts (based on your filing status): Married filing jointly — $250,000; Married filing separately — $125,000; Single, Head of household, or Qualifying widow(er) — $200,000. Free tax filing 2011   If you have both wages and self-employment income, the threshold amount for applying the Additional Medicare Tax on the self-employment income is reduced (but not below zero) by the amount of wages subject to Additional Medicare Tax. Free tax filing 2011 A self-employment loss should not be considered for purposes of this tax   If you file Form 1040NR, you must pay Additional Medicare Tax if the total of your wages and your self-employment income was more than $125,000 if married (Box 3, 4, or 5 on page 1 of Form 1040NR), or $200,000 if single or qualifying widow(er) (Box 1, 2, or 6 on page 1 of Form 1040NR). Free tax filing 2011   See Form 8959, Additional Medicare Tax, and the Instructions for Form 8959 to determine whether you are required to pay Additional Medicare Tax. Free tax filing 2011 For more information on Additional Medicare Tax, go to IRS. Free tax filing 2011 gov and enter “Additional Medicare Tax” in the search box. Free tax filing 2011 Deduction for employer-equivalent portion of self-employment tax. Free tax filing 2011   If you must pay self-employment tax, you can deduct a portion of the self-employment tax paid in figuring your adjusted gross income. Free tax filing 2011 This deduction is figured on Schedule SE (Form 1040). Free tax filing 2011 Note. Free tax filing 2011 No portion of the Additional Medicare Tax is deductible for self-employment tax. Free tax filing 2011 More information. Free tax filing 2011   Get Publication 334, Tax Guide for Small Business, for more information about self-employment tax. Free tax filing 2011 International Social Security Agreements The United States has entered into social security agreements with foreign countries to coordinate social security coverage and taxation of workers employed for part or all of their working careers in one of the countries. Free tax filing 2011 These agreements are commonly referred to as totalization agreements. Free tax filing 2011 Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Free tax filing 2011 The agreements generally make sure that social security taxes (including self-employment tax) are paid only to one country. Free tax filing 2011 Agreements are in effect with the following countries. Free tax filing 2011 Australia. Free tax filing 2011 Austria. Free tax filing 2011 Belgium. Free tax filing 2011 Canada. Free tax filing 2011 Chile. Free tax filing 2011 Czech Republic. Free tax filing 2011 Denmark. Free tax filing 2011 Finland. Free tax filing 2011 France. Free tax filing 2011 Germany. Free tax filing 2011 Greece. Free tax filing 2011 Ireland. Free tax filing 2011 Italy. Free tax filing 2011 Japan. Free tax filing 2011 Korea, South. Free tax filing 2011 Luxembourg. Free tax filing 2011 The Netherlands. Free tax filing 2011 Norway. Free tax filing 2011 Poland. Free tax filing 2011 Portugal. Free tax filing 2011 Spain. Free tax filing 2011 Sweden. Free tax filing 2011 Switzerland. Free tax filing 2011 The United Kingdom. Free tax filing 2011 Agreements with other countries are expected to enter into force in the future. Free tax filing 2011 Employees. Free tax filing 2011   Generally, under these agreements, you are subject to social security taxes only in the country where you are working. Free tax filing 2011 However, if you are temporarily sent to work for the same employer in the United States and your pay would normally be subject to social security taxes in both countries, most agreements provide that you remain covered only by the social security system of the country from which you were sent. Free tax filing 2011 You can get more information on any agreement by contacting the U. Free tax filing 2011 S. Free tax filing 2011 Social Security Administration at the address given later. Free tax filing 2011 If you have access to the Internet, you can get more information at www. Free tax filing 2011 socialsecurity. Free tax filing 2011 gov/international. Free tax filing 2011   To establish that your pay is subject only to foreign social security taxes and is exempt from U. Free tax filing 2011 S. Free tax filing 2011 social security taxes (including the Medicare tax) under an agreement, you or your employer should request a certificate of coverage from the appropriate agency of the foreign country. Free tax filing 2011 This will usually be the same agency to which you or your employer pays your foreign social security taxes. Free tax filing 2011 The foreign agency will be able to tell you what information is needed for them to issue the certificate. Free tax filing 2011 Your employer should keep a copy of the certificate because it may be needed to show why you are exempt from U. Free tax filing 2011 S. Free tax filing 2011 social security taxes. Free tax filing 2011 Only wages paid on or after the effective date of the agreement can be exempt from U. Free tax filing 2011 S. Free tax filing 2011 social security taxes. Free tax filing 2011    Some of the countries with which the United States has agreements will not issue certificates of coverage. Free tax filing 2011 In this case, either you or your employer should request a statement that your wages are not covered by the U. Free tax filing 2011 S. Free tax filing 2011 social security system. Free tax filing 2011 Request the statement from the following address. Free tax filing 2011 U. Free tax filing 2011 S. Free tax filing 2011 Social Security Administration Office of International Programs P. Free tax filing 2011 O. Free tax filing 2011 Box 17741 Baltimore, MD 21235-7741 Self-employed individuals. Free tax filing 2011   Under most agreements, self-employed individuals are covered by the social security system of the country where they reside. Free tax filing 2011 However, under some agreements, you may be exempt from U. Free tax filing 2011 S. Free tax filing 2011 self-employment tax if you temporarily transfer your business activity to or from the United States. Free tax filing 2011   If you believe that your self-employment income is subject only to U. Free tax filing 2011 S. Free tax filing 2011 self-employment tax and is exempt from foreign social security taxes, request a certificate of coverage from the U. Free tax filing 2011 S. Free tax filing 2011 Social Security Administration at the address given earlier. Free tax filing 2011 This certificate will establish your exemption from foreign social security taxes. Free tax filing 2011   To establish that your self-employment income is subject only to foreign social security taxes and is exempt from U. Free tax filing 2011 S. Free tax filing 2011 self-employment tax, request a certificate of coverage from the appropriate agency of the foreign country. Free tax filing 2011 If the foreign country will not issue the certificate, you should request a statement that your income is not covered by the U. Free tax filing 2011 S. Free tax filing 2011 social security system. Free tax filing 2011 Request it from the U. Free tax filing 2011 S. Free tax filing 2011 Social Security Administration at the address given earlier. Free tax filing 2011 Attach a photocopy of either statement to Form 1040 each year you are exempt. Free tax filing 2011 Also print “Exempt, see attached statement” on the line for self-employment tax. Free tax filing 2011 Estimated Tax Form 1040-ES (NR) You may have income from which no U. Free tax filing 2011 S. Free tax filing 2011 income tax is withheld. Free tax filing 2011 Or the amount of tax withheld may be less than the income tax you estimate you will owe at the end of the year. Free tax filing 2011 If so, you may have to pay estimated tax. Free tax filing 2011 Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax and you expect your withholding and certain refundable credits to be less than the smaller of: 90% of the tax to be shown on your 2014 income tax return, or 100% of the tax shown on your 2013 income tax return (if your 2013 return covered all 12 months of the year). Free tax filing 2011 If your adjusted gross income for 2013 was more than $150,000 ($75,000 if your filing status for 2014 is married filing separately), substitute 110% for 100% in (2) above if you are not a farmer or fisherman. Free tax filing 2011 Item (2) does not apply if you did not file a 2013 return. Free tax filing 2011 A nonresident alien should use Form 1040-ES (NR) to figure and pay estimated tax. Free tax filing 2011 If you pay by check, make it payable to the "United States Treasury. Free tax filing 2011 " How to estimate your tax for 2014. Free tax filing 2011   If you filed a 2013 return on Form 1040NR or Form 1040NR-EZ and expect your income, number of exemptions, and total deductions for 2014 to be nearly the same, you should use your 2013 return as a guide to complete the Estimated Tax Worksheet in the Form 1040-ES (NR) instructions. Free tax filing 2011 If you did not file a return for 2013, or if your income, exemptions, deductions, or credits will be different for 2014, you must estimate these amounts. Free tax filing 2011 Figure your estimated tax liability using the Tax Rate Schedule in the 2014 Form 1040-ES (NR) instructions for your filing status. Free tax filing 2011 Note. Free tax filing 2011 If you expect to be a resident of Puerto Rico during the entire year, use Form 1040-ES or Formulario 1040-ES (PR). Free tax filing 2011 When to pay estimated tax. Free tax filing 2011   Make your first estimated tax payment by the due date for filing the previous year's Form 1040NR or Form 1040NR-EZ. Free tax filing 2011 If you have wages subject to the same withholding rules that apply to U. Free tax filing 2011 S. Free tax filing 2011 citizens, you must file Form 1040NR or Form 1040NR-EZ and make your first estimated tax payment by April 15, 2014. Free tax filing 2011 If you do not have wages subject to withholding, file your income tax return and make your first estimated tax payment by June 16, 2014. Free tax filing 2011   If your first estimated tax payment is due April 15, 2014, you can pay your estimated tax in full at that time or in four equal installments by the dates shown next. Free tax filing 2011 1st installment April 15, 2014 2nd installment June 16, 2014 3rd installment Sept. Free tax filing 2011 15, 2014 4th installment Jan. Free tax filing 2011 15, 2015 If your first payment is not due until June 16, 2014, you can pay your estimated tax in full at that time or: ½ of your estimated tax by June 16, 2014, 1/4 of the tax by September 15, 2014, and 1/4 by January 15, 2015. Free tax filing 2011    You do not have to make the payment due January 15, 2015, if you file your 2014 Form 1040NR or 1040NR-EZ by February 2, 2015, and pay the entire balance due with your return. Free tax filing 2011 Fiscal year. Free tax filing 2011   If your return is not on a calendar year basis, your due dates are the 15th day of the 4th, 6th, and 9th months of your fiscal year, and the 1st month of the following fiscal year. Free tax filing 2011 If any date falls on a Saturday, Sunday, or legal holiday, use the next day that is not a Saturday, Sunday, or legal holiday. Free tax filing 2011 Changes in income, deductions, or exemptions. Free tax filing 2011   Even if you are not required to make an estimated tax payment in April or June, your circumstances may change so that you will have to make estimated tax payments later. Free tax filing 2011 This can happen if you receive additional income or if any of your deductions are reduced or eliminated. Free tax filing 2011 If so, see the instructions for Form 1040-ES (NR) and Publication 505 for information on figuring your estimated tax. Free tax filing 2011 Amended estimated tax. Free tax filing 2011   If, after you have made estimated tax payments, you find your estimated tax is substantially increased or decreased because of a change in your income or exemptions, you should adjust your remaining estimated tax payments. Free tax filing 2011 To do this, see the instructions for Form 1040-ES (NR) and Publication 505. Free tax filing 2011 Penalty for failure to pay estimated income tax. Free tax filing 2011   You will be subject to a penalty for underpayment of installments of estimated tax except in certain situations. Free tax filing 2011 These situations are explained on Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts. Free tax filing 2011 Prev  Up  Next   Home   More Online Publications
Español

Defense & International Relations Podcasts from the Government

Government podcasts on topics such as State Department Stories, Pentagon Channel, DoD Briefings, and Air Force News.

The Free Tax Filing 2011

Free tax filing 2011 4. Free tax filing 2011   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Free tax filing 2011 Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Free tax filing 2011 Net unrelated income. Free tax filing 2011 Net unrelated loss. Free tax filing 2011 Control. Free tax filing 2011 Income from property financed with qualified 501(c)(3) bonds. Free tax filing 2011 Disposition of property received from taxable subsidiary and used in unrelated business. Free tax filing 2011 Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Free tax filing 2011 If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Free tax filing 2011 In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Free tax filing 2011 Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Free tax filing 2011 For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Free tax filing 2011 Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Free tax filing 2011 Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Free tax filing 2011 Dividends, interest, annuities and other investment income. Free tax filing 2011   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Free tax filing 2011 Exception for insurance activity income of a controlled foreign corporation. Free tax filing 2011   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Free tax filing 2011 The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Free tax filing 2011 Certain exceptions to this rule apply. Free tax filing 2011 For more information, see section 512(b)(17). Free tax filing 2011 Other exceptions. Free tax filing 2011   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Free tax filing 2011 Income from lending securities. Free tax filing 2011   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Free tax filing 2011   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Free tax filing 2011 The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Free tax filing 2011 Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Free tax filing 2011 Royalties. Free tax filing 2011   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Free tax filing 2011   To be considered a royalty, a payment must relate to the use of a valuable right. Free tax filing 2011 Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Free tax filing 2011 Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Free tax filing 2011 However, royalties do not include payments for personal services. Free tax filing 2011 Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Free tax filing 2011   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Free tax filing 2011   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Free tax filing 2011 However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Free tax filing 2011 To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Free tax filing 2011 To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Free tax filing 2011 Exceptions. Free tax filing 2011   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Free tax filing 2011 Rents. Free tax filing 2011   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Free tax filing 2011 Rents from personal property are not excluded. Free tax filing 2011 However, special rules apply to “mixed leases” of both real and personal property. Free tax filing 2011 Mixed leases. Free tax filing 2011   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Free tax filing 2011 If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Free tax filing 2011 If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Free tax filing 2011   Property is placed in service when the lessee first may use it under the terms of a lease. Free tax filing 2011 For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Free tax filing 2011   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Free tax filing 2011   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Free tax filing 2011 Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Free tax filing 2011 Exception for rents based on net profit. Free tax filing 2011   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Free tax filing 2011 Exception for income from personal services. Free tax filing 2011   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Free tax filing 2011 Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Free tax filing 2011 Other exceptions. Free tax filing 2011   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Free tax filing 2011 ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Free tax filing 2011 See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Free tax filing 2011 Income from research. Free tax filing 2011   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Free tax filing 2011 However, the extent of the exclusion depends on the nature of the organization and the type of research. Free tax filing 2011   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Free tax filing 2011   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Free tax filing 2011   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Free tax filing 2011   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Free tax filing 2011 In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Free tax filing 2011 Gains and losses from disposition of property. Free tax filing 2011   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Free tax filing 2011   It should be noted that the last exception relates only to cut timber. Free tax filing 2011 The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Free tax filing 2011 Lapse or termination of options. Free tax filing 2011   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Free tax filing 2011 The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Free tax filing 2011 Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Free tax filing 2011 Exception. Free tax filing 2011   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Free tax filing 2011 Gain or loss on disposition of certain brownfield property. Free tax filing 2011   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Free tax filing 2011 See sections 512(b)(19) and 514(b)(1)(E). Free tax filing 2011 Income from services provided under federal license. Free tax filing 2011   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Free tax filing 2011   This exclusion applies only if the following requirements are met. Free tax filing 2011 The trade or business must have been operated by the order or by the institution before May 27, 1959. Free tax filing 2011 The trade or business must provide services under a license issued by a federal regulatory agency. Free tax filing 2011 More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Free tax filing 2011 The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Free tax filing 2011 Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Free tax filing 2011 Exception. Free tax filing 2011    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Free tax filing 2011 Member income of mutual or cooperative electric companies. Free tax filing 2011   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Free tax filing 2011 Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Free tax filing 2011 For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Free tax filing 2011 Exception. Free tax filing 2011   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Free tax filing 2011 The limit on dues paid by an associate member is $148 for 2011. Free tax filing 2011   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Free tax filing 2011 Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Free tax filing 2011 They cannot be directly connected with excluded income. Free tax filing 2011 For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Free tax filing 2011 Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Free tax filing 2011 For an exception, see Expenses attributable to exploitation of exempt activities, later. Free tax filing 2011 Expenses attributable solely to unrelated business. Free tax filing 2011   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Free tax filing 2011   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Free tax filing 2011 Expenses attributable to dual use of facilities or personnel. Free tax filing 2011   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Free tax filing 2011 The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Free tax filing 2011 Example 1. Free tax filing 2011 A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Free tax filing 2011 The school provides the tennis courts, housing, and dining facilities. Free tax filing 2011 The contracted individual hires the instructors, recruits campers, and provides supervision. Free tax filing 2011 The income the school receives from this activity is from a dual use of the facilities and personnel. Free tax filing 2011 The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Free tax filing 2011 Example 2. Free tax filing 2011 An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Free tax filing 2011 The president devotes approximately 10% of his time to the unrelated business. Free tax filing 2011 To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Free tax filing 2011 Expenses attributable to exploitation of exempt activities. Free tax filing 2011   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Free tax filing 2011 (See Exploitation of exempt functions under Not substantially related in chapter 3. Free tax filing 2011 ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Free tax filing 2011 Exception. Free tax filing 2011   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Free tax filing 2011 The unrelated business exploits the exempt activity. Free tax filing 2011 The unrelated business is a type normally conducted for profit by taxable organizations. Free tax filing 2011 The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Free tax filing 2011 The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Free tax filing 2011   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Free tax filing 2011 Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Free tax filing 2011 Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Free tax filing 2011 (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Free tax filing 2011 ) Figuring unrelated business taxable income (UBTI). Free tax filing 2011   The UBTI of an advertising activity is the amount shown in the following chart. Free tax filing 2011 IF gross advertising income is . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 THEN UBTI is . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Free tax filing 2011 Equal to or less than direct advertising costs Zero. Free tax filing 2011   • Circulation income and readership costs are not taken into account. Free tax filing 2011   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Free tax filing 2011   The terms used in the chart are explained in the following discussions. Free tax filing 2011 Periodical Income Gross advertising income. Free tax filing 2011   This is all the income from the unrelated advertising activities of an exempt organization periodical. Free tax filing 2011 Circulation income. Free tax filing 2011   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Free tax filing 2011 It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Free tax filing 2011 It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Free tax filing 2011 Allocable membership receipts. Free tax filing 2011   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Free tax filing 2011   The amount used to allocate membership receipts is the amount shown in the following chart. Free tax filing 2011   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Free tax filing 2011 The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Free tax filing 2011 IF . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 THEN the amount used to allocate membership receipts is . Free tax filing 2011 . Free tax filing 2011 . Free tax filing 2011 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Free tax filing 2011 The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Free tax filing 2011 Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Free tax filing 2011 U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Free tax filing 2011 One of U's activities is publishing a monthly periodical distributed to all of its members. Free tax filing 2011 U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Free tax filing 2011 Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Free tax filing 2011 Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Free tax filing 2011 Example 2. Free tax filing 2011 Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Free tax filing 2011 Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Free tax filing 2011 U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Free tax filing 2011 Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Free tax filing 2011 Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Free tax filing 2011 Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Free tax filing 2011 U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Free tax filing 2011 Periodical Costs Direct advertising costs. Free tax filing 2011   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Free tax filing 2011   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Free tax filing 2011 Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Free tax filing 2011   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Free tax filing 2011 For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Free tax filing 2011 Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Free tax filing 2011   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Free tax filing 2011 Readership costs. Free tax filing 2011   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Free tax filing 2011 Costs partly attributable to other activities. Free tax filing 2011   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Free tax filing 2011 When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Free tax filing 2011 The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Free tax filing 2011 Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Free tax filing 2011 Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Free tax filing 2011 It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Free tax filing 2011 Consolidated treatment, once adopted, must be followed consistently and is binding. Free tax filing 2011 This treatment can be changed only with the consent of the Internal Revenue Service. Free tax filing 2011 An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Free tax filing 2011 Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Free tax filing 2011 The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Free tax filing 2011 For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Free tax filing 2011 The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Free tax filing 2011 Example. Free tax filing 2011 Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Free tax filing 2011 Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Free tax filing 2011 Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Free tax filing 2011 The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Free tax filing 2011 The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Free tax filing 2011 It is not engaged in for profit. Free tax filing 2011 Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Free tax filing 2011 It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Free tax filing 2011 Modifications Net operating loss deduction. Free tax filing 2011   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Free tax filing 2011 However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Free tax filing 2011 For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Free tax filing 2011   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Free tax filing 2011 This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Free tax filing 2011 Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Free tax filing 2011   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Free tax filing 2011   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Free tax filing 2011   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Free tax filing 2011 For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Free tax filing 2011   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Free tax filing 2011 Charitable contributions deduction. Free tax filing 2011   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Free tax filing 2011   To be deductible, the contribution must be paid to another qualified organization. Free tax filing 2011 For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Free tax filing 2011   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Free tax filing 2011 Deduction limits. Free tax filing 2011   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Free tax filing 2011 See the Instructions for Form 990-T for more information. Free tax filing 2011    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Free tax filing 2011 However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Free tax filing 2011   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Free tax filing 2011 A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Free tax filing 2011 Suspension of deduction limits for farmers and ranchers. Free tax filing 2011   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Free tax filing 2011 See the Instructions for Form 990-T for details. Free tax filing 2011 Specific deduction. Free tax filing 2011   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Free tax filing 2011 However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Free tax filing 2011   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Free tax filing 2011 Exception. Free tax filing 2011   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Free tax filing 2011 In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Free tax filing 2011   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Free tax filing 2011 The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Free tax filing 2011 The local units cannot file separate returns. Free tax filing 2011 However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Free tax filing 2011 See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Free tax filing 2011 Example. Free tax filing 2011 X is an association of churches and is divided into local units A, B, C, and D. Free tax filing 2011 Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Free tax filing 2011 X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Free tax filing 2011 Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Free tax filing 2011 If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Free tax filing 2011 No distinction is made between limited and general partners. Free tax filing 2011 The organization is required to notify the partnership of its tax-exempt status. Free tax filing 2011 Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Free tax filing 2011 The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Free tax filing 2011 The partnership is required to provide the organization this information on Schedule K-1. Free tax filing 2011 Example. Free tax filing 2011 An exempt educational organization is a partner in a partnership that operates a factory. Free tax filing 2011 The partnership also holds stock in a corporation. Free tax filing 2011 The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Free tax filing 2011 Different tax years. Free tax filing 2011   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Free tax filing 2011 S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Free tax filing 2011 For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Free tax filing 2011 The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Free tax filing 2011 Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Free tax filing 2011 To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Free tax filing 2011 Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Free tax filing 2011 These organizations must figure unrelated business taxable income under special rules. Free tax filing 2011 Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Free tax filing 2011 ). Free tax filing 2011 (See Exclusions under Income, earlier. Free tax filing 2011 ) Therefore, they are generally subject to unrelated business income tax on this income. Free tax filing 2011 The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Free tax filing 2011 The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Free tax filing 2011 Losses from nonexempt activities. Free tax filing 2011   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Free tax filing 2011 Example. Free tax filing 2011 A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Free tax filing 2011 The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Free tax filing 2011 Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Free tax filing 2011 Modifications. Free tax filing 2011   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Free tax filing 2011 Exempt function income. Free tax filing 2011   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Free tax filing 2011 Exempt function income also includes income set aside for qualified purposes. Free tax filing 2011 Income that is set aside. Free tax filing 2011   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Free tax filing 2011 In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Free tax filing 2011   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Free tax filing 2011 Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Free tax filing 2011 These rules are explained in section 512(a)(3)(E)(ii). Free tax filing 2011   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Free tax filing 2011 In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Free tax filing 2011   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Free tax filing 2011 However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Free tax filing 2011 The income set aside must have been includible in gross income for that earlier year. Free tax filing 2011 Nonrecognition of gain. Free tax filing 2011   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Free tax filing 2011 The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Free tax filing 2011   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Free tax filing 2011 Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Free tax filing 2011 The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Free tax filing 2011 For details, see section 512(a)(4) and the regulations under that section. Free tax filing 2011 Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Free tax filing 2011 The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Free tax filing 2011 All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Free tax filing 2011 Excess qualifying specified payments. Free tax filing 2011   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Free tax filing 2011 Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Free tax filing 2011   If a controlled participant is not required to file a U. Free tax filing 2011 S. Free tax filing 2011 income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Free tax filing 2011 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Free tax filing 2011 S. Free tax filing 2011 Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Free tax filing 2011 S. Free tax filing 2011 Corporation or a Foreign Corporation Engaged in a U. Free tax filing 2011 S. Free tax filing 2011 Trade or Business, or any Form 8865, Return of U. Free tax filing 2011 S. Free tax filing 2011 Persons With Respect to Certain Foreign Partnerships, filed for that participant. Free tax filing 2011 Addition to tax for valuation misstatements. Free tax filing 2011   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Free tax filing 2011 See section 512(b)(13)(E)(ii) for more information. Free tax filing 2011 Net unrelated income. Free tax filing 2011   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Free tax filing 2011 Net unrelated loss. Free tax filing 2011   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Free tax filing 2011 Control. Free tax filing 2011   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Free tax filing 2011 For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Free tax filing 2011   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Free tax filing 2011 Income from property financed with qualified 501(c)(3) bonds. Free tax filing 2011 If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Free tax filing 2011 No deduction is allowed for interest on the private activity bond. Free tax filing 2011 See sections 150(b)(3) and (c) for more information. Free tax filing 2011 Disposition of property received from taxable subsidiary and used in unrelated business. Free tax filing 2011 A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Free tax filing 2011 The assets are treated as if sold at fair market value. Free tax filing 2011 Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Free tax filing 2011 S. Free tax filing 2011 and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Free tax filing 2011 A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Free tax filing 2011 However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Free tax filing 2011 In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Free tax filing 2011 A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Free tax filing 2011 This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Free tax filing 2011 In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Free tax filing 2011 If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Free tax filing 2011 If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Free tax filing 2011 Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Free tax filing 2011 Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Free tax filing 2011 Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Free tax filing 2011 The amount of income included is proportionate to the debt on the property. Free tax filing 2011 Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Free tax filing 2011 It includes rental real estate, tangible personal property, and corporate stock. Free tax filing 2011 Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Free tax filing 2011 The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Free tax filing 2011 That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Free tax filing 2011 Example 1. Free tax filing 2011 Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Free tax filing 2011 The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Free tax filing 2011 Example 2. Free tax filing 2011 X, an exempt organization, forms a partnership with A and B. Free tax filing 2011 The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Free tax filing 2011 X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Free tax filing 2011 The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Free tax filing 2011 The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Free tax filing 2011 The loan is secured by a mortgage on the entire office building. Free tax filing 2011 By agreement with Y bank, X is not personally liable for payment of the mortgage. Free tax filing 2011 X has acquisition indebtedness of $7 million. Free tax filing 2011 This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Free tax filing 2011 Example 3. Free tax filing 2011 A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Free tax filing 2011 The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Free tax filing 2011 Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Free tax filing 2011 The union has no outstanding debt on the property. Free tax filing 2011 The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Free tax filing 2011 The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Free tax filing 2011 Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Free tax filing 2011 In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Free tax filing 2011 Accordingly, the debt is not acquisition indebtedness. Free tax filing 2011 Change in use of property. Free tax filing 2011   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Free tax filing 2011 Example. Free tax filing 2011 Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Free tax filing 2011 Last year, the university rented the apartment building to the public for nonexempt purposes. Free tax filing 2011 The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Free tax filing 2011 Continued debt. Free tax filing 2011   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Free tax filing 2011 This is true even if the original property was not debt-financed property. Free tax filing 2011 Example. Free tax filing 2011 To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Free tax filing 2011 The office building was not debt-financed property. Free tax filing 2011 The organization later sold the building for $1 million without repaying the $400,000 loan. Free tax filing 2011 It used the sale proceeds to buy an apartment building it rents to the general public. Free tax filing 2011 The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Free tax filing 2011 Property acquired subject to mortgage or lien. Free tax filing 2011   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Free tax filing 2011 Example. Free tax filing 2011 An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Free tax filing 2011 The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Free tax filing 2011 Liens similar to a mortgage. Free tax filing 2011   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Free tax filing 2011 A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Free tax filing 2011 However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Free tax filing 2011 Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Free tax filing 2011 Exception for property acquired by gift, bequest, or devise. Free tax filing 2011   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Free tax filing 2011 However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Free tax filing 2011   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Free tax filing 2011   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Free tax filing 2011 Modifying existing debt. Free tax filing 2011   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Free tax filing 2011 When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Free tax filing 2011 Extension or renewal. Free tax filing 2011   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Free tax filing 2011   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Free tax filing 2011 Debt increase. Free tax filing 2011   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Free tax filing 2011 Example. Free tax filing 2011 An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Free tax filing 2011 The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Free tax filing 2011 A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Free tax filing 2011 Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Free tax filing 2011 These include the following. Free tax filing 2011 Debts incurred in performing an exempt purpose. Free tax filing 2011 Annuity obligations. Free tax filing 2011 Securities loans. Free tax filing 2011 Real property debts of qualified organizations. Free tax filing 2011 Certain Federal financing. Free tax filing 2011 Debt incurred in performing exempt purpose. Free tax filing 2011   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Free tax filing 2011 For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Free tax filing 2011 Annuity obligation. Free tax filing 2011   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Free tax filing 2011 It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Free tax filing 2011 Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Free tax filing 2011 It must be payable over the lives of either one or two individuals living when issued. Free tax filing 2011 It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Free tax filing 2011 Example. Free tax filing 2011 X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Free tax filing 2011 In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Free tax filing 2011 The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Free tax filing 2011 The present value of this annuity is $81,156, determined from IRS valuation tables. Free tax filing 2011 Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Free tax filing 2011 Securities loans. Free tax filing 2011   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Free tax filing 2011 This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Free tax filing 2011   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from