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Need Help Filing A 1040x

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Need Help Filing A 1040x

Need help filing a 1040x 5. Need help filing a 1040x   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Need help filing a 1040x Short-term lease. Need help filing a 1040x Retail space. Need help filing a 1040x Qualified long-term real property. Need help filing a 1040x Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Need help filing a 1040x If there is a connection between any income you receive and your business, the income is business income. Need help filing a 1040x A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Need help filing a 1040x You can have business income even if you are not involved in the activity on a regular full-time basis. Need help filing a 1040x Income from work you do on the side in addition to your regular job can be business income. Need help filing a 1040x You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Need help filing a 1040x But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Need help filing a 1040x For information on selling business assets, see chapter 3. Need help filing a 1040x Nonemployee compensation. Need help filing a 1040x Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Need help filing a 1040x This includes amounts reported as nonemployee compensation in box 7 of the form. Need help filing a 1040x You can find more information in the instructions on the back of the Form 1099-MISC you received. Need help filing a 1040x Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Need help filing a 1040x In most cases, your business income will be in the form of cash, checks, and credit card charges. Need help filing a 1040x But business income can be in other forms, such as property or services. Need help filing a 1040x These and other types of income are explained next. Need help filing a 1040x If you are a U. Need help filing a 1040x S. Need help filing a 1040x citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Need help filing a 1040x S. Need help filing a 1040x law. Need help filing a 1040x If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Need help filing a 1040x For details, see Publication 54, Tax Guide for U. Need help filing a 1040x S. Need help filing a 1040x Citizens and Resident Aliens Abroad. Need help filing a 1040x Bartering for Property or Services Bartering is an exchange of property or services. Need help filing a 1040x You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Need help filing a 1040x If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Need help filing a 1040x Example 1. Need help filing a 1040x You are a self-employed lawyer. Need help filing a 1040x You perform legal services for a client, a small corporation. Need help filing a 1040x In payment for your services, you receive shares of stock in the corporation. Need help filing a 1040x You must include the fair market value of the shares in income. Need help filing a 1040x Example 2. Need help filing a 1040x You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Need help filing a 1040x You must include the fair rental value of the apartment in your gross receipts. Need help filing a 1040x Your landlord must include the fair market value of the work of art in his or her rental income. Need help filing a 1040x Example 3. Need help filing a 1040x You are a self-employed accountant. Need help filing a 1040x Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Need help filing a 1040x Members get in touch with other members directly and bargain for the value of the services to be performed. Need help filing a 1040x In return for accounting services you provided for the house painter's business, the house painter painted your home. Need help filing a 1040x You must include in gross receipts the fair market value of the services you received from the house painter. Need help filing a 1040x The house painter must include the fair market value of your accounting services in his or her gross receipts. Need help filing a 1040x Example 4. Need help filing a 1040x You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Need help filing a 1040x As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Need help filing a 1040x You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Need help filing a 1040x The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Need help filing a 1040x It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Need help filing a 1040x See Publication 15 (Circular E), Employer's Tax Guide. Need help filing a 1040x Example 5. Need help filing a 1040x You operate a plumbing business and use the cash method of accounting. Need help filing a 1040x You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Need help filing a 1040x Each member has access to a directory that lists the members of the club and the services available. Need help filing a 1040x Members contact each other directly and request services to be performed. Need help filing a 1040x You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Need help filing a 1040x You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Need help filing a 1040x Information returns. Need help filing a 1040x   If you are involved in a bartering transaction, you may have to file either of the following forms. Need help filing a 1040x Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Need help filing a 1040x Form 1099-MISC, Miscellaneous Income. Need help filing a 1040x For information about these forms, see the General Instructions for Certain Information Returns. Need help filing a 1040x Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Need help filing a 1040x , who provides services (maid services, etc. Need help filing a 1040x ) for guests, report the rental income and expenses on Schedule C or C-EZ. Need help filing a 1040x If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Need help filing a 1040x For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Need help filing a 1040x Real estate dealer. Need help filing a 1040x   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Need help filing a 1040x Rent you receive from real estate held for sale to customers is subject to SE tax. Need help filing a 1040x However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Need help filing a 1040x Trailer park owner. Need help filing a 1040x   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Need help filing a 1040x    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Need help filing a 1040x Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Need help filing a 1040x   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Need help filing a 1040x   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Need help filing a 1040x Hotels, boarding houses, and apartments. Need help filing a 1040x   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Need help filing a 1040x   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Need help filing a 1040x An example of a service that is not normally provided for the convenience of the occupants is maid service. Need help filing a 1040x However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Need help filing a 1040x Prepaid rent. Need help filing a 1040x   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Need help filing a 1040x This is true no matter what accounting method or period you use. Need help filing a 1040x Lease bonus. Need help filing a 1040x   A bonus you receive from a lessee for granting a lease is an addition to the rent. Need help filing a 1040x Include it in your gross receipts in the year received. Need help filing a 1040x Lease cancellation payments. Need help filing a 1040x   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Need help filing a 1040x Payments to third parties. Need help filing a 1040x   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Need help filing a 1040x A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Need help filing a 1040x Settlement payments. Need help filing a 1040x   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Need help filing a 1040x Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Need help filing a 1040x ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Need help filing a 1040x Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Need help filing a 1040x If you receive any of those payments, include them in your gross receipts as explained in that discussion. Need help filing a 1040x Interest and Dividend Income Interest and dividends may be considered business income. Need help filing a 1040x Interest. Need help filing a 1040x   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Need help filing a 1040x Interest received on loans is business income if you are in the business of lending money. Need help filing a 1040x Uncollectible loans. Need help filing a 1040x   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Need help filing a 1040x If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Need help filing a 1040x See Bad Debts in chapter 8. Need help filing a 1040x Unstated interest. Need help filing a 1040x   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Need help filing a 1040x See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Need help filing a 1040x Dividends. Need help filing a 1040x   Generally, dividends are business income to dealers in securities. Need help filing a 1040x For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Need help filing a 1040x If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Need help filing a 1040x   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Need help filing a 1040x To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Need help filing a 1040x Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Need help filing a 1040x General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Need help filing a 1040x Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Need help filing a 1040x If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Need help filing a 1040x Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Need help filing a 1040x Price reduced after purchase. Need help filing a 1040x   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Need help filing a 1040x Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Need help filing a 1040x Deductible debt. Need help filing a 1040x   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Need help filing a 1040x Example. Need help filing a 1040x You get accounting services for your business on credit. Need help filing a 1040x Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Need help filing a 1040x Your accountant forgives part of the amount you owe for the accounting services. Need help filing a 1040x How you treat the canceled debt depends on your method of accounting. Need help filing a 1040x Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Need help filing a 1040x Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Need help filing a 1040x   For information on the cash and accrual methods of accounting, see chapter 2. Need help filing a 1040x Exclusions Do not include canceled debt in income in the following situations. Need help filing a 1040x However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Need help filing a 1040x For more information, see Form 982. Need help filing a 1040x The cancellation takes place in a bankruptcy case under title 11 of the U. Need help filing a 1040x S. Need help filing a 1040x Code (relating to bankruptcy). Need help filing a 1040x See Publication 908, Bankruptcy Tax Guide. Need help filing a 1040x The cancellation takes place when you are insolvent. Need help filing a 1040x You can exclude the canceled debt to the extent you are insolvent. Need help filing a 1040x See Publication 908. Need help filing a 1040x The canceled debt is a qualified farm debt owed to a qualified person. Need help filing a 1040x See chapter 3 in Publication 225, Farmer's Tax Guide. Need help filing a 1040x The canceled debt is a qualified real property business debt. Need help filing a 1040x This situation is explained later. Need help filing a 1040x The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Need help filing a 1040x See Form 982. Need help filing a 1040x If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Need help filing a 1040x If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Need help filing a 1040x Debt. Need help filing a 1040x   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Need help filing a 1040x Qualified real property business debt. Need help filing a 1040x   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Need help filing a 1040x If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Need help filing a 1040x Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Need help filing a 1040x However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Need help filing a 1040x Cancellation of qualified real property business debt. Need help filing a 1040x   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Need help filing a 1040x It was incurred or assumed in connection with real property used in a trade or business. Need help filing a 1040x It was secured by such real property. Need help filing a 1040x It was incurred or assumed at either of the following times. Need help filing a 1040x Before January 1, 1993. Need help filing a 1040x After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Need help filing a 1040x It is debt to which you choose to apply these rules. Need help filing a 1040x   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Need help filing a 1040x   You cannot exclude more than either of the following amounts. Need help filing a 1040x The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Need help filing a 1040x The total adjusted bases of depreciable real property held by you immediately before the cancellation. Need help filing a 1040x These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Need help filing a 1040x Do not take into account depreciable real property acquired in contemplation of the cancellation. Need help filing a 1040x Election. Need help filing a 1040x   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Need help filing a 1040x You must file your return by the due date (including extensions). Need help filing a 1040x If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Need help filing a 1040x For more information, see When To File in the form instructions. Need help filing a 1040x Other Income The following discussion explains how to treat other types of business income you may receive. Need help filing a 1040x Restricted property. Need help filing a 1040x   Restricted property is property that has certain restrictions that affect its value. Need help filing a 1040x If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Need help filing a 1040x However, you can choose to be taxed in the year you receive the property. Need help filing a 1040x For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Need help filing a 1040x Gains and losses. Need help filing a 1040x   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Need help filing a 1040x Instead, you must report these gains and losses on other forms. Need help filing a 1040x For more information, see chapter 3. Need help filing a 1040x Promissory notes. Need help filing a 1040x   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Need help filing a 1040x In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Need help filing a 1040x Lost income payments. Need help filing a 1040x   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Need help filing a 1040x Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Need help filing a 1040x Damages. Need help filing a 1040x   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Need help filing a 1040x Patent infringement. Need help filing a 1040x Breach of contract or fiduciary duty. Need help filing a 1040x Antitrust injury. Need help filing a 1040x Economic injury. Need help filing a 1040x   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Need help filing a 1040x Your deduction is the smaller of the following amounts. Need help filing a 1040x The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Need help filing a 1040x Your loss from the injury that you have not yet deducted. Need help filing a 1040x Punitive damages. Need help filing a 1040x   You must also include punitive damages in income. Need help filing a 1040x Kickbacks. Need help filing a 1040x   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Need help filing a 1040x However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Need help filing a 1040x Recovery of items previously deducted. Need help filing a 1040x   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Need help filing a 1040x However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Need help filing a 1040x If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Need help filing a 1040x Example. Need help filing a 1040x Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Need help filing a 1040x He also had 2 personal exemptions for a total of $7,800. Need help filing a 1040x He would not pay income tax even if he did not deduct the bad debt. Need help filing a 1040x Therefore, he will not report as income any part of the $300 he may recover in any future year. Need help filing a 1040x Exception for depreciation. Need help filing a 1040x   This rule does not apply to depreciation. Need help filing a 1040x You recover depreciation using the rules explained next. Need help filing a 1040x Recapture of depreciation. Need help filing a 1040x   In the following situations, you have to recapture the depreciation deduction. Need help filing a 1040x This means you include in income part or all of the depreciation you deducted in previous years. Need help filing a 1040x Listed property. Need help filing a 1040x   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Need help filing a 1040x You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Need help filing a 1040x Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Need help filing a 1040x For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Need help filing a 1040x That chapter explains how to determine whether property is used more than 50% in your business. Need help filing a 1040x Section 179 property. Need help filing a 1040x   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Need help filing a 1040x You do this by including in income on Schedule C part of the deduction you took. Need help filing a 1040x Use Part IV of Form 4797 to figure the amount to include on Schedule C. Need help filing a 1040x See chapter 2 in Publication 946 to find out when you recapture the deduction. Need help filing a 1040x Sale or exchange of depreciable property. Need help filing a 1040x   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Need help filing a 1040x You figure the income due to depreciation recapture in Part III of Form 4797. Need help filing a 1040x For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Need help filing a 1040x Items That Are Not Income In some cases the property or money you receive is not income. Need help filing a 1040x Appreciation. Need help filing a 1040x   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Need help filing a 1040x Consignments. Need help filing a 1040x   Consignments of merchandise to others to sell for you are not sales. Need help filing a 1040x The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Need help filing a 1040x Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Need help filing a 1040x Merchandise you have shipped out on consignment is included in your inventory until it is sold. Need help filing a 1040x   Do not include merchandise you receive on consignment in your inventory. Need help filing a 1040x Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Need help filing a 1040x Construction allowances. Need help filing a 1040x   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Need help filing a 1040x Under a short-term lease of retail space. Need help filing a 1040x For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Need help filing a 1040x Amount you can exclude. Need help filing a 1040x   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Need help filing a 1040x Short-term lease. Need help filing a 1040x   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Need help filing a 1040x The following rules apply in determining whether the lease is for 15 years or less. Need help filing a 1040x Take into account options to renew when figuring whether the lease is for 15 years or less. Need help filing a 1040x But do not take into account any option to renew at fair market value determined at the time of renewal. Need help filing a 1040x Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Need help filing a 1040x Retail space. Need help filing a 1040x   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Need help filing a 1040x Qualified long-term real property. Need help filing a 1040x   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Need help filing a 1040x Exchange of like-kind property. Need help filing a 1040x   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Need help filing a 1040x This means that the gain is not taxable and the loss is not deductible. Need help filing a 1040x A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Need help filing a 1040x For more information, see Form 8824. Need help filing a 1040x Leasehold improvements. Need help filing a 1040x   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Need help filing a 1040x However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Need help filing a 1040x Loans. Need help filing a 1040x   Money borrowed through a bona fide loan is not income. Need help filing a 1040x Sales tax. Need help filing a 1040x   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Need help filing a 1040x Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Need help filing a 1040x Direct seller. Need help filing a 1040x   You must report all income you receive as a direct seller on Schedule C or C-EZ. Need help filing a 1040x This includes any of the following. Need help filing a 1040x Income from sales—payments you receive from customers for products they buy from you. Need help filing a 1040x Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Need help filing a 1040x Prizes, awards, and gifts you receive from your selling business. Need help filing a 1040x You must report this income regardless of whether it is reported to you on an information return. Need help filing a 1040x   You are a direct seller if you meet all the following conditions. Need help filing a 1040x You are engaged in one of the following trades or businesses. Need help filing a 1040x Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Need help filing a 1040x Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Need help filing a 1040x Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Need help filing a 1040x Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Need help filing a 1040x Executor or administrator. Need help filing a 1040x   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Need help filing a 1040x A nonprofessional fiduciary (personal representative) and both of the following apply. Need help filing a 1040x The estate includes an active trade or business in which you actively participate. Need help filing a 1040x Your fees are related to the operation of that trade or business. Need help filing a 1040x A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Need help filing a 1040x    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Need help filing a 1040x Fishing crew member. Need help filing a 1040x    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Need help filing a 1040x Insurance agent, former. Need help filing a 1040x   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Need help filing a 1040x You received payments after your agreement to perform services for the company ended. Need help filing a 1040x You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Need help filing a 1040x You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Need help filing a 1040x The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Need help filing a 1040x The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Need help filing a 1040x Insurance agent, retired. Need help filing a 1040x   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Need help filing a 1040x Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Need help filing a 1040x   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Need help filing a 1040x Newspaper carrier or distributor. Need help filing a 1040x   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Need help filing a 1040x You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Need help filing a 1040x Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Need help filing a 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Need help filing a 1040x   This rule applies whether or not you hire others to help you make deliveries. Need help filing a 1040x It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Need help filing a 1040x Newspaper or magazine vendor. Need help filing a 1040x   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Need help filing a 1040x You sell newspapers or magazines to ultimate consumers. Need help filing a 1040x You sell them at a fixed price. Need help filing a 1040x Your earnings are based on the difference between the sales price and your cost of goods sold. Need help filing a 1040x   This rule applies whether or not you are guaranteed a minimum amount of earnings. Need help filing a 1040x It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Need help filing a 1040x Notary public. Need help filing a 1040x   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Need help filing a 1040x These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Need help filing a 1040x Public official. Need help filing a 1040x   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Need help filing a 1040x This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Need help filing a 1040x Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Need help filing a 1040x   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Need help filing a 1040x Real estate agent or direct seller. Need help filing a 1040x   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Need help filing a 1040x Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Need help filing a 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Need help filing a 1040x Securities dealer. Need help filing a 1040x   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Need help filing a 1040x For more information, see sections 1256 and 1402(i). Need help filing a 1040x Securities trader. Need help filing a 1040x   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Need help filing a 1040x As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Need help filing a 1040x However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Need help filing a 1040x For more information about securities traders, see Publication 550, Investment Income and Expenses. Need help filing a 1040x Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Need help filing a 1040x This section discusses some of the more common differences that may affect business transactions. Need help filing a 1040x Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Need help filing a 1040x If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Need help filing a 1040x Dealers in real estate are not allowed to use inventories. Need help filing a 1040x For more information on inventories, see chapter 2. Need help filing a 1040x Income paid to a third party. Need help filing a 1040x   All income you earn is taxable to you. Need help filing a 1040x You cannot avoid tax by having the income paid to a third party. Need help filing a 1040x Example. Need help filing a 1040x You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Need help filing a 1040x The amount paid to your son is gross income to you. Need help filing a 1040x Cash discounts. Need help filing a 1040x   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Need help filing a 1040x For income tax purposes, you can use either of the following two methods to account for cash discounts. Need help filing a 1040x Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Need help filing a 1040x Credit the cash discount to a discount income account. Need help filing a 1040x You must use the chosen method every year for all your purchase discounts. Need help filing a 1040x   If you use the second method, the credit balance in the account at the end of your tax year is business income. Need help filing a 1040x Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Need help filing a 1040x When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Need help filing a 1040x Trade discounts. Need help filing a 1040x   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Need help filing a 1040x Do not enter these discounts on your books of account. Need help filing a 1040x Instead, use only the net amount as the cost of the merchandise purchased. Need help filing a 1040x For more information, see Trade discounts in chapter 6. Need help filing a 1040x Payment placed in escrow. Need help filing a 1040x   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Need help filing a 1040x However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Need help filing a 1040x Sales returns and allowances. Need help filing a 1040x   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Need help filing a 1040x Advance payments. Need help filing a 1040x   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Need help filing a 1040x Insurance proceeds. Need help filing a 1040x   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Need help filing a 1040x You cannot deduct the reimbursed part of a casualty or theft loss. Need help filing a 1040x   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Need help filing a 1040x Prev  Up  Next   Home   More Online Publications
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Need help filing a 1040x 1. Need help filing a 1040x   Bona Fide Residence Table of Contents Presence TestDays of Presence in the United States or Relevant Possession Significant Connection Tax HomeExceptions Closer ConnectionException for Year of Move Special Rules in the Year of a MoveYear of Moving to a Possession Year of Moving From a Possession Reporting a Change in Bona Fide ResidenceWho Must File Penalty for Not Filing Form 8898 In order to qualify for certain tax benefits (see chapter 3), you must be a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI for the entire tax year. Need help filing a 1040x Generally, you are a bona fide resident of one of these possessions (the relevant possession) if, during the tax year, you: Meet the presence test, Do not have a tax home outside the relevant possession, and Do not have a closer connection to the United States or to a foreign country than to the relevant possession. Need help filing a 1040x Special rule for members of the U. Need help filing a 1040x S. Need help filing a 1040x Armed Forces. Need help filing a 1040x   If you are a member of the U. Need help filing a 1040x S. Need help filing a 1040x Armed Forces who qualified as a bona fide resident of the relevant possession in an earlier tax year, your absence from that possession during the current tax year in compliance with military orders will not affect your status as a bona fide resident. Need help filing a 1040x Likewise, being in a possession solely in compliance with military orders will not qualify you for bona fide residency. Need help filing a 1040x Also see the special income source rule for members of the U. Need help filing a 1040x S. Need help filing a 1040x Armed Forces in chapter 2, under Compensation for Labor or Personal Services . Need help filing a 1040x Special rule for civilian spouse of active duty member of the U. Need help filing a 1040x S. Need help filing a 1040x Armed Forces. Need help filing a 1040x   If you are the civilian spouse of an active duty servicemember, under Military Spouses Residency Relief Act (MSRRA) you can choose to keep your prior residence or domicile for tax purposes (tax residence) when accompanying the servicemember spouse, who is relocating under military orders, to a new military duty station in one of the 50 states, the District of Columbia, or a U. Need help filing a 1040x S. Need help filing a 1040x possession. Need help filing a 1040x Before relocating, you and your spouse must have the same tax residence. Need help filing a 1040x If you are a civilian spouse and choose to keep your prior tax residence after such relocation, the source of income for services performed (for example, wages, salaries, tips, or self-employment) by you is considered to be (the jurisdiction of) the prior tax residence. Need help filing a 1040x As a result, the amount of income tax withholding (from Form(s) W-2, Wage and Tax Statement) that you are able to claim on your federal return, as well as the need to file a state or U. Need help filing a 1040x S. Need help filing a 1040x possession return, may be affected. Need help filing a 1040x For more information, consult with state, local, or U. Need help filing a 1040x S. Need help filing a 1040x possession tax authorities regarding your tax obligations under MSRRA. Need help filing a 1040x Presence Test If you are a U. Need help filing a 1040x S. Need help filing a 1040x citizen or resident alien, you will satisfy the presence test for the entire tax year if you meet one of the following conditions. Need help filing a 1040x You were present in the relevant possession for at least 183 days during the tax year. Need help filing a 1040x You were present in the relevant possession for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. Need help filing a 1040x During each year of the 3-year period, you must be present in the relevant possession for at least 60 days. Need help filing a 1040x You were present in the United States for no more than 90 days during the tax year. Need help filing a 1040x You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant possession than in the United States during the tax year. Need help filing a 1040x Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Need help filing a 1040x You had no significant connection to the United States during the tax year. Need help filing a 1040x Special rule for nonresident aliens. Need help filing a 1040x   Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Need help filing a 1040x Instead, nonresident aliens must meet the substantial presence test discussed in chapter 1 of Publication 519. Need help filing a 1040x In that discussion, substitute the name of the possession for “United States” and “U. Need help filing a 1040x S. Need help filing a 1040x ” wherever they appear. Need help filing a 1040x Disregard the discussion in that chapter about a Closer Connection to a Foreign Country. Need help filing a 1040x Days of Presence in the United States or Relevant Possession Generally, you are treated as being present in the United States or in the relevant possession on any day that you are physically present in that location at any time during the day. Need help filing a 1040x Days of presence in a possession. Need help filing a 1040x   You are considered to be present in the relevant possession on any of the following days. Need help filing a 1040x Any day you are physically present in that possession at any time during the day. Need help filing a 1040x Any day you are outside of the relevant possession in order to receive, or to accompany any of the following family members to receive, qualifying medical treatment (see Qualifying Medical Treatment , later). Need help filing a 1040x Your parent. Need help filing a 1040x Your spouse. Need help filing a 1040x Your child, who is your son, daughter, stepson, or stepdaughter. Need help filing a 1040x This includes an adopted child or child lawfully placed with you for legal adoption. Need help filing a 1040x This also includes a foster child who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Need help filing a 1040x Any day you are outside the relevant possession because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Need help filing a 1040x   If, during a single day, you are physically present: In the United States and in the relevant possession, that day is considered a day of presence in the relevant possession; or In two possessions, that day is considered a day of presence in the possession where your tax home is located (see Tax Home , later). Need help filing a 1040x Days of presence in the United States. Need help filing a 1040x   You are considered to be present in the United States on any day that you are physically present in the United States at any time during the day. Need help filing a 1040x However, do not count the following days as days of presence in the United States. Need help filing a 1040x Any day you are temporarily present in the United States in order to receive, or to accompany a parent, spouse, or child who is receiving, qualifying medical treatment. Need help filing a 1040x “Child” is defined under item 2c earlier. Need help filing a 1040x “Qualifying medical treatment” is defined later. Need help filing a 1040x Any day you are temporarily present in the United States because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Need help filing a 1040x Any day you are in the United States for less than 24 hours when you are traveling between two places outside the United States. Need help filing a 1040x Any day you are temporarily present in the United States as a professional athlete to compete in a charitable sports event (defined later). Need help filing a 1040x Any day you are temporarily in the United States as a student (defined later). Need help filing a 1040x Any day you are in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Need help filing a 1040x Qualifying Medical Treatment Such treatment is generally provided by (or under the supervision of) a physician for an illness, injury, impairment, or physical or mental condition. Need help filing a 1040x The treatment generally involves: Any period of inpatient care that requires an overnight stay in a hospital or hospice, and any period immediately before or after that inpatient care to the extent it is medically necessary, or Any temporary period of inpatient care in a residential medical care facility for medically necessary rehabilitation services. Need help filing a 1040x With respect to each qualifying medical treatment, you must prepare (or obtain) and maintain documentation supporting your claim that such treatment meets the criteria to be considered days of presence in the relevant possession. Need help filing a 1040x You must be able to produce this documentation within 30 days if requested by the IRS or tax administrator for the relevant possession. Need help filing a 1040x You must keep the following documentation. Need help filing a 1040x Records that provide: The patient's name and relationship to you (if the medical treatment is provided to a person you accompany); The name and address of the hospital, hospice, or residential medical care facility where the medical treatment was provided; The name, address, and telephone number of the physician who provided the medical treatment; The date(s) on which the medical treatment was provided; and Receipt(s) of payment for the medical treatment. Need help filing a 1040x Signed certification by the providing or supervising physician that the medical treatment met the requirements for being qualified medical treatment, and setting forth: The patient's name, A reasonably detailed description of the medical treatment provided by (or under the supervision of) the physician, The dates on which the medical treatment was provided, and The medical facts that support the physician's certification and determination that the treatment was medically necessary. Need help filing a 1040x Charitable Sports Event A charitable sports event is one that meets all of the following conditions. Need help filing a 1040x The main purpose is to benefit a qualified charitable organization. Need help filing a 1040x The entire net proceeds go to charity. Need help filing a 1040x Volunteers perform substantially all the work. Need help filing a 1040x In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in the charitable sports event. Need help filing a 1040x You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. Need help filing a 1040x Student To qualify as a student, you must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by a school described in (1) above or by a state, county, or local government agency. Need help filing a 1040x The 5 calendar months do not have to be consecutive. Need help filing a 1040x Full-time student. Need help filing a 1040x   A full-time student is a person who is enrolled for the number of hours or courses the school considers to be full-time attendance. Need help filing a 1040x However, school attendance exclusively at night is not considered full-time attendance. Need help filing a 1040x School. Need help filing a 1040x   The term “school” includes elementary schools, middle schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. Need help filing a 1040x It does not include on-the-job training courses, correspondence schools, and schools offering courses only through the Internet. Need help filing a 1040x Significant Connection One way in which you can meet the presence test is to have no significant connection to the United States during the tax year. Need help filing a 1040x This section looks at the factors that determine if a significant connection exists. Need help filing a 1040x You are treated as having a significant connection to the United States if you: Have a permanent home in the United States, Are currently registered to vote in any political subdivision of the United States, or Have a spouse or child (see item 2c under Days of presence in a possession , earlier) who is under age 18 whose main home is in the United States, other than: A child who is in the United States because he or she is the child of divorced or legally separated parents and is living with a custodial parent under a custodial decree or multiple support agreement, or A child who is in the United States as a student. Need help filing a 1040x For the purpose of determining if you have a significant connection to the United States, the term “spouse” does not include a spouse from whom you are legally separated under a decree of divorce or separate maintenance. Need help filing a 1040x Permanent home. Need help filing a 1040x   A permanent home generally includes an accommodation such as a house, an apartment, or a furnished room that is either owned or rented by you or your spouse. Need help filing a 1040x The dwelling unit must be available at all times, continuously, not only for short stays. Need help filing a 1040x Exception for rental property. Need help filing a 1040x   If you or your spouse own the dwelling unit and at any time during the tax year it is rented to someone else at fair rental value, it will be considered your permanent home only if you or your spouse use that property for personal purposes for more than the greater of: 14 days, or 10% of the number of days during that tax year that the property is rented to others at a fair rental value. Need help filing a 1040x   You are treated as using rental property for personal purposes on any day the property is not being rented to someone else at fair rental value for the entire day. Need help filing a 1040x   A day of personal use of a dwelling unit is also any day that the unit is used by any of the following persons. Need help filing a 1040x You or any other person who has an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement. Need help filing a 1040x A member of your family or a member of the family of any other person who has an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Need help filing a 1040x Family includes only brothers and sisters, half-brothers and half-sisters, spouses, ancestors (parents, grandparents, etc. Need help filing a 1040x ), and lineal descendants (children, grandchildren, etc. Need help filing a 1040x ). Need help filing a 1040x Anyone under an arrangement that lets you use some other dwelling unit. Need help filing a 1040x Anyone at less than a fair rental price. Need help filing a 1040x   However, any day you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Need help filing a 1040x Whether your property is used mainly for this purpose is determined in light of all the facts and circumstances, such as: The amount of time you devote to repair and maintenance work, How often during the tax year you perform repair and maintenance work on this property, and The presence and activities of companions. Need help filing a 1040x   See Publication 527, Residential Rental Property, for more information about personal use of a dwelling unit. Need help filing a 1040x Example—significant connection. Need help filing a 1040x Ann Green, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, is a sales representative for a company based in Guam. Need help filing a 1040x Ann lives with her spouse and young children in their house in Guam, where she is also registered to vote. Need help filing a 1040x Her business travel requires her to spend 120 days in the United States and another 120 days in foreign countries. Need help filing a 1040x When traveling on business, Ann generally stays at hotels but sometimes stays with her brother, who lives in the United States. Need help filing a 1040x Ann's stays are always of short duration and she asks her brother's permission to stay with him. Need help filing a 1040x Her brother's house is not her permanent home, nor does she have any other accommodations in the United States that would be considered her permanent home. Need help filing a 1040x Ann satisfies the presence test because she has no significant connection to the United States. Need help filing a 1040x Example—presence test. Need help filing a 1040x Eric and Wanda Brown live for part of the year in a condominium, which they own, in the CNMI. Need help filing a 1040x They also own a house in Maine where they live for 120 days every year to be near their grown children and grandchildren. Need help filing a 1040x The Browns are retired and their only income is from pension payments, dividends, interest, and social security benefits. Need help filing a 1040x In 2013, they spent only 175 days in the CNMI because of a 70-day vacation to Europe and Asia. Need help filing a 1040x Thus, in 2013, the Browns were not present in the CNMI for at least 183 days, were present in the United States for more than 90 days, and had a significant connection to the United States because of their permanent home. Need help filing a 1040x However, the Browns still satisfied the presence test with respect to the CNMI because they had no earned income in the United States and were physically present for more days in the CNMI than in the United States. Need help filing a 1040x Tax Home You will have met the tax home test if you did not have a tax home outside the relevant possession during any part of the tax year. Need help filing a 1040x Your tax home is your regular or main place of business, employment, or post of duty regardless of where you maintain your family home. Need help filing a 1040x If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Need help filing a 1040x If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Need help filing a 1040x Exceptions There are some special rules regarding tax home that provide exceptions to the general rule stated above. Need help filing a 1040x Students and Government Officials Disregard the following days when determining whether you have a tax home outside the relevant possession. Need help filing a 1040x Days you were temporarily in the United States as a student (see Student under Days of Presence in the United States or Relevant Possession, earlier). Need help filing a 1040x Days you were in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Need help filing a 1040x Seafarers You will not be considered to have a tax home outside the relevant possession solely because you are employed on a ship or other seafaring vessel that is predominantly used in local and international waters. Need help filing a 1040x For this purpose, a vessel is considered to be predominantly used in local and international waters if, during the tax year, the total amount of time it is used in international waters and in the waters within 3 miles of the relevant possession exceeds the total amount of time it is used in the territorial waters of the United States, another possession, or any foreign country. Need help filing a 1040x Example. Need help filing a 1040x In 2013, Sean Silverman, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, was employed by a fishery and spent 250 days at sea on a fishing vessel. Need help filing a 1040x When not at sea, Sean lived with his spouse at a house they own in American Samoa. Need help filing a 1040x The fishing vessel on which Sean works departs and arrives at various ports in American Samoa, other possessions, and foreign countries, but was in international or American Samoa's local waters for 225 days. Need help filing a 1040x For purposes of determining bona fide residency of American Samoa, Sean will not be considered to have a tax home outside that possession solely because of his employment on board the fishing vessel. Need help filing a 1040x Year of Move If you are moving to or from a possession during the year, you may still be able to meet the tax home test for that year. Need help filing a 1040x See Special Rules in the Year of a Move , later in this chapter. Need help filing a 1040x Closer Connection You will have met the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or a foreign country than to the relevant U. Need help filing a 1040x S. Need help filing a 1040x possession. Need help filing a 1040x You will be considered to have a closer connection to a possession than to the United States or to a foreign country if you have maintained more significant contacts with the possession(s) than with the United States or foreign country. Need help filing a 1040x In determining if you have maintained more significant contacts with the relevant possession, the facts and circumstances to be considered include, but are not limited to, the following. Need help filing a 1040x The location of your permanent home. Need help filing a 1040x The location of your family. Need help filing a 1040x The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family. Need help filing a 1040x The location of social, political, cultural, professional, or religious organizations with which you have a current relationship. Need help filing a 1040x The location where you conduct your routine personal banking activities. Need help filing a 1040x The location where you conduct business activities (other than those that go into determining your tax home). Need help filing a 1040x The location of the jurisdiction in which you hold a driver's license. Need help filing a 1040x The location of the jurisdiction in which you vote. Need help filing a 1040x The location of charitable organizations to which you contribute. Need help filing a 1040x The country of residence you designate on forms and documents. Need help filing a 1040x The types of official forms and documents you file, such as Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or Form W-9, Request for Taxpayer Identification Number and Certification. Need help filing a 1040x Your connections to the relevant possession will be compared to the total of your connections with the United States and foreign countries. Need help filing a 1040x Your answers to the questions on Form 8898, Part III, will help establish the jurisdiction to which you have a closer connection. Need help filing a 1040x Example—closer connection to the United States. Need help filing a 1040x Marcos Reyes, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, moved to Puerto Rico in 2013 to start an investment consulting and venture capital business. Need help filing a 1040x His spouse and two teenage children remained in California to allow the children to complete high school. Need help filing a 1040x He traveled back to the United States regularly to see his spouse and children, to engage in business activities, and to take vacations. Need help filing a 1040x Marcos had an apartment available for his full-time use in Puerto Rico, but remained a joint owner of the residence in California where his spouse and children lived. Need help filing a 1040x Marcos and his family had automobiles and personal belongings such as furniture, clothing, and jewelry located at both residences. Need help filing a 1040x Although Marcos was a member of the Puerto Rico Chamber of Commerce, he also belonged to and had current relationships with social, political, cultural, and religious organizations in California. Need help filing a 1040x Marcos received mail in California, including bank and brokerage statements and credit card bills. Need help filing a 1040x He conducted his personal banking activities in California. Need help filing a 1040x He held a California driver's license and was also registered to vote there. Need help filing a 1040x Based on all of the particular facts and circumstances pertaining to Marcos, he was not a bona fide resident of Puerto Rico in 2013 because he had a closer connection to the United States than to Puerto Rico. Need help filing a 1040x Closer connection to another possession. Need help filing a 1040x   Generally, possessions are not treated as foreign countries. Need help filing a 1040x Therefore, a closer connection to a possession other than the relevant possession will not be treated as a closer connection to a foreign country. Need help filing a 1040x Example—tax home and closer connection to possession. Need help filing a 1040x Pearl Blackmon, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, is a permanent employee of a hotel in Guam, but works only during the tourist season. Need help filing a 1040x For the remainder of each year, Pearl lives with her spouse and children in the CNMI, where she has no outside employment. Need help filing a 1040x Most of Pearl's personal belongings, including her automobile, are located in the CNMI. Need help filing a 1040x She is registered to vote in, and has a driver's license issued by, the CNMI. Need help filing a 1040x She does her personal banking in the CNMI and routinely lists her CNMI address as her permanent address on forms and documents. Need help filing a 1040x Pearl satisfies the presence test with respect to both Guam and the CNMI. Need help filing a 1040x She satisfies the tax home test with respect to Guam, because her regular place of business is in Guam. Need help filing a 1040x Pearl satisfies the closer connection test with respect to both Guam and the CNMI, because she does not have a closer connection to the United States or to any foreign country. Need help filing a 1040x Pearl is considered a bona fide resident of Guam, the location of her tax home. Need help filing a 1040x Exception for Year of Move If you are moving to or from a possession during the year, you may still be able to meet the closer connection test for that year. Need help filing a 1040x See Special Rules in the Year of a Move , next. Need help filing a 1040x Special Rules in the Year of a Move If you are moving to or from a possession during the year, you may still be able to meet the tax home and closer connection tests for that year. Need help filing a 1040x Year of Moving to a Possession You will satisfy the tax home and closer connection tests in the tax year of changing your residence to the relevant possession if you meet all of the following. Need help filing a 1040x You have not been a bona fide resident of the relevant possession in any of the 3 tax years immediately preceding your move. Need help filing a 1040x In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the last 183 days of the tax year. Need help filing a 1040x You are a bona fide resident of the relevant possession for each of the 3 tax years immediately following your move. Need help filing a 1040x Example. Need help filing a 1040x Dwight Wood, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, files returns on a calendar year basis. Need help filing a 1040x He lived in the United States from January 2007 through May 2013. Need help filing a 1040x In June 2013 he moved to the USVI, purchased a house, and accepted a permanent job with a local employer. Need help filing a 1040x From July 1 through December 31, 2013 (more than 183 days), Dwight's principal place of business was in the USVI and, during that time, he did not have a closer connection to the United States or a foreign country than to the USVI. Need help filing a 1040x If he is a bona fide resident of the USVI during all of 2014 through 2016, he will satisfy the tax home and closer connection tests for 2013. Need help filing a 1040x If Dwight also satisfies the presence test in 2013, he will be considered a bona fide resident of the USVI for the entire 2013 tax year. Need help filing a 1040x Year of Moving From a Possession In the year you cease to be a bona fide resident of American Samoa, the CNMI, Guam, or the USVI, you will satisfy the tax home and closer connection tests with respect to the relevant possession if you meet all of the following. Need help filing a 1040x You have been a bona fide resident of the relevant possession for each of the 3 tax years immediately preceding your change of residence. Need help filing a 1040x In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the first 183 days of the tax year. Need help filing a 1040x You are not a bona fide resident of the relevant possession for any of the 3 tax years immediately following your move. Need help filing a 1040x Example. Need help filing a 1040x Jean Aspen, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, files returns on a calendar year basis. Need help filing a 1040x From January 2010 through December 2012, Jean was a bona fide resident of American Samoa. Need help filing a 1040x Jean continued to live there until September 6, 2013, when she accepted new employment and moved to Hawaii. Need help filing a 1040x Jean's principal place of business from January 1 through September 5, 2013 (more than 183 days), was in American Samoa, and during that period Jean did not have a closer connection to the United States or a foreign country than to American Samoa. Need help filing a 1040x If Jean continues to live and work in Hawaii for the rest of 2013 and throughout years 2014 through 2016, she will satisfy the tax home and closer connection tests for 2013 with respect to American Samoa. Need help filing a 1040x If Jean also satisfies the presence test in 2013, she will be considered a bona fide resident for the entire 2013 tax year. Need help filing a 1040x Puerto Rico You will be considered a bona fide resident of Puerto Rico for the part of the tax year preceding the date on which you move if you: Are a U. Need help filing a 1040x S. Need help filing a 1040x citizen, Are a bona fide resident of Puerto Rico for at least 2 tax years immediately preceding the tax year of the move, Cease to be a bona fide resident of Puerto Rico during the tax year, Cease to have a tax home in Puerto Rico during the tax year, and Have a closer connection to Puerto Rico than to the United States or a foreign country throughout the part of the tax year preceding the date on which you cease to have a tax home in Puerto Rico. Need help filing a 1040x Example. Need help filing a 1040x Randy White, a U. Need help filing a 1040x S. Need help filing a 1040x citizen, files returns on a calendar year basis. Need help filing a 1040x For all of 2011 and 2012, Randy was a bona fide resident of Puerto Rico. Need help filing a 1040x From January through April 2013, Randy continued to reside and maintain his principal place of business in and closer connection to Puerto Rico. Need help filing a 1040x On May 5, 2013, Randy moved and changed his tax home to Nevada. Need help filing a 1040x Later that year he established a closer connection to the United States than to Puerto Rico. Need help filing a 1040x Randy did not satisfy the presence test for 2013 with respect to Puerto Rico, nor the tax home or closer connection tests. Need help filing a 1040x However, because Randy was a bona fide resident of Puerto Rico for at least 2 tax years before he moved to Nevada in 2013, he was a bona fide resident of Puerto Rico from January 1 through May 4, 2013. Need help filing a 1040x Reporting a Change in Bona Fide Residence If you became or ceased to be a bona fide resident of a U. Need help filing a 1040x S. Need help filing a 1040x possession, you may need to file Form 8898. Need help filing a 1040x This applies to the U. Need help filing a 1040x S. Need help filing a 1040x possessions of American Samoa, the CNMI, Guam, Puerto Rico, and the USVI. Need help filing a 1040x Who Must File You must file Form 8898 for the tax year in which you meet both of the following conditions. Need help filing a 1040x Your worldwide gross income (defined below) in that tax year is more than $75,000. Need help filing a 1040x You meet one of the following. Need help filing a 1040x You take a position for U. Need help filing a 1040x S. Need help filing a 1040x tax purposes that you became a bona fide resident of a U. Need help filing a 1040x S. Need help filing a 1040x possession after a tax year for which you filed a U. Need help filing a 1040x S. Need help filing a 1040x income tax return as a citizen or resident alien of the United States but not as a bona fide resident of the possession. Need help filing a 1040x You are a citizen or resident alien of the United States who takes the position for U. Need help filing a 1040x S. Need help filing a 1040x tax purposes that you ceased to be a bona fide resident of a U. Need help filing a 1040x S. Need help filing a 1040x possession after a tax year for which you filed an income tax return (with the IRS, the possession tax authority, or both) as a bona fide resident of the possession. Need help filing a 1040x You take the position for U. Need help filing a 1040x S. Need help filing a 1040x tax purposes that you became a bona fide resident of Puerto Rico or American Samoa after a tax year for which you were required to file an income tax return as a bona fide resident of the CNMI, Guam, or the USVI. Need help filing a 1040x Worldwide gross income. Need help filing a 1040x   Worldwide gross income means all income you received in the form of money, goods, property, and services, including any income from sources outside the United States (even if you can exclude part or all of it) and before any deductions, credits, or rebates. Need help filing a 1040x Example. Need help filing a 1040x You are a U. Need help filing a 1040x S. Need help filing a 1040x citizen who moved to the CNMI in December 2012, but did not become a bona fide resident of that possession until the 2013 tax year. Need help filing a 1040x You must file Form 8898 for the 2013 tax year if your worldwide gross income for that year was more than $75,000. Need help filing a 1040x Penalty for Not Filing Form 8898 If you are required to file Form 8898 for any tax year and you fail to file it, you may owe a penalty of $1,000. Need help filing a 1040x You may also owe this penalty if you do not include all the information required by the form or the form includes incorrect information. Need help filing a 1040x In either case, you will not owe this penalty if you can show that such failure is due to reasonable cause and not willful neglect. Need help filing a 1040x This is in addition to any criminal penalty that may be imposed. Need help filing a 1040x Prev  Up  Next   Home   More Online Publications