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Self Employed Taxes

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Self Employed Taxes

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The Self Employed Taxes

Self employed taxes Publication 929 - Main Content Table of Contents Part 1. Self employed taxes Rules for All Dependents Filing RequirementsEarned Income Only Unearned Income Only Both Earned and Unearned Income Other Filing Requirements Should a Return Be Filed Even If Not Required? Responsibility for Child's ReturnThird party designee. Self employed taxes Designated as representative. Self employed taxes IRS notice. Self employed taxes Standard DeductionStandard Deduction of Zero Dependent's Own Exemption Withholding From WagesExceptions. Self employed taxes Part 2. Self employed taxes Tax on Unearned Income of Certain ChildrenWhich Parent's Return To Use Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, Lines A–C) Step 1. Self employed taxes Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Self employed taxes Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Self employed taxes Figuring the Child's Tax (Form 8615, Part III) Alternative Minimum Tax Illustrated Example Part 1. Self employed taxes Rules for All Dependents This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding. Self employed taxes Filing Requirements Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind. Self employed taxes A dependent may have to file a return even if his or her income is less than the amount that would normally require a return. Self employed taxes See Other Filing Requirements, later. Self employed taxes The following sections apply to dependents with: Earned income only, Unearned income only, and Both earned and unearned income. Self employed taxes  To find out whether a dependent must file, read the section that applies, or use Table 1. Self employed taxes Earned Income Only A dependent whose gross income is only earned income must file a return if the gross income is more than the amount listed in the following table. Self employed taxes Marital Status Amount Single   Under 65 and not blind $6,100 Either 65 or older or blind $7,600 65 or older and blind $9,100 Married*   Under 65 and not blind $6,100 Either 65 or older or blind $7,300 65 or older and blind $8,500 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Self employed taxes Example. Self employed taxes William is 16. Self employed taxes His mother claims an exemption for him on her income tax return. Self employed taxes He worked part time on weekends during the school year and full time during the summer. Self employed taxes He earned $7,000 in wages. Self employed taxes He did not have any unearned income. Self employed taxes He must file a tax return because he has earned income only and his gross income is more than $6,100. Self employed taxes If he is blind, he does not have to file a return because his gross income is not more than $7,600. Self employed taxes Unearned Income Only A dependent whose gross income is only unearned income must file a return if the gross income is more than the amount listed in the following table. Self employed taxes Marital Status Amount Single   Under 65 and not blind $1,000 Either 65 or older or blind $2,500 65 or older and blind $4,000 Married*   Under 65 and not blind $1,000 Either 65 or older or blind $2,200 65 or older and blind $3,400 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Self employed taxes Example. Self employed taxes Sarah is 18 and single. Self employed taxes Her parents can claim an exemption for her on their income tax return. Self employed taxes She received $1,970 of taxable interest and dividend income. Self employed taxes She did not work during the year. Self employed taxes She must file a tax return because she has unearned income only and her gross income is more than $1,000. Self employed taxes If she is blind, she does not have to file a return because she has unearned income only and her gross income is not more than $2,500. Self employed taxes Election to report child's unearned income on parent's return. Self employed taxes   A parent of a child under age 19 (or under age 24 if a full-time student) may be able to elect to include the child's interest and dividend income on the parent's return. Self employed taxes See Parent's Election To Report Child's Interest and Dividends in Part 2. Self employed taxes If the parent makes this election, the child does not have to file a return. Self employed taxes Both Earned and Unearned Income A dependent who has both earned and unearned income generally must file a return if the dependent's gross income is more than line 5 of the following worksheet. Self employed taxes Filing Requirement Worksheet for Most Dependents 1. Self employed taxes Enter dependent's earned income plus $350     2. Self employed taxes Minimum amount   $1,000 3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger amount     4. Self employed taxes Maximum amount   6,100 5. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount     6. Self employed taxes Enter the dependent's gross income. Self employed taxes If line 6 is more than line 5, the dependent must file an income tax return. Self employed taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Self employed taxes       Table 1. Self employed taxes 2013 Filing Requirements for Dependents If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. Self employed taxes   See the definitions of “dependent,”“earned income,”“unearned income,” and “gross income” in the Glossary. Self employed taxes   Single dependents—Were you either age 65 or older or blind?     No. Self employed taxes You must file a return if any of the following apply. Self employed taxes       Your unearned income was over $1,000. Self employed taxes Your earned income was over $6,100. Self employed taxes Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Self employed taxes         Yes. Self employed taxes You must file a return if any of the following apply. Self employed taxes     Your unearned income was over $2,500 ($4,000 if 65 or older and blind), Your earned income was over $7,600 ($9,100 if 65 or older and blind), Your gross income was more than the larger of—       $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). Self employed taxes       Married dependents—Were you either age 65 or older or blind?     No. Self employed taxes You must file a return if any of the following apply. Self employed taxes       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Self employed taxes Your unearned income was over $1,000. Self employed taxes Your earned income was over $6,100. Self employed taxes Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Self employed taxes       Yes. Self employed taxes You must file a return if any of the following apply. Self employed taxes       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Self employed taxes Your unearned income was over $2,200 ($3,400 if 65 or older and blind), Your earned income was over $7,300 ($8,500 if 65 or older and blind), Your gross income was more than the larger of—       $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). Self employed taxes       Example 1. Self employed taxes Joe is 20, single, not blind, and a full-time college student. Self employed taxes He does not provide more than half of his own support, and his parents claim an exemption for him on their income tax return. Self employed taxes He received $200 taxable interest income and earned $2,750 from a part-time job. Self employed taxes He does not have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) is not more than $3,100, the amount on line 5 of his filled-in Filing Requirement Worksheet for Most Dependents (shown next). Self employed taxes Filled-in Example 1 Filing Requirement Worksheet  for Most Dependents 1. Self employed taxes Enter dependent's earned income plus $350   $ 3,100 2. Self employed taxes Minimum amount   1,000 3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger amount   3,100 4. Self employed taxes Maximum amount   6,100 5. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount   3,100 6. Self employed taxes Enter the dependent's gross income. Self employed taxes If line 6 is more than line 5, the dependent must file an income tax return. Self employed taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Self employed taxes   $ 2,950   Example 2. Self employed taxes The facts are the same as in Example 1 except that Joe had $600 taxable interest income. Self employed taxes He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100, the amount on line 5 of his filled-in worksheet (shown next). Self employed taxes Filled-in Example 2 Filing Requirement Worksheet for Most Dependents 1. Self employed taxes Enter dependent's earned income plus $350   $ 3,100 2. Self employed taxes Minimum amount   1,000 3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger amount   3,100 4. Self employed taxes Maximum amount   6,100 5. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount   3,100 6. Self employed taxes Enter the dependent's gross income. Self employed taxes If line 6 is more than line 5, the dependent must file an income tax return. Self employed taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Self employed taxes   $ 3,350   Age 65 or older or blind. Self employed taxes A dependent who is age 65 or older or blind must file a return if his or her gross income is more than line 7 of the following worksheet. Self employed taxes Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Self employed taxes Enter dependent's earned income plus $350     2. Self employed taxes Minimum amount   $1,000 3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger amount     4. Self employed taxes Maximum amount   6,100 5. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount     6. Self employed taxes Enter the amount from the following table that applies to the dependent       Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Self employed taxes Add lines 5 and 6. Self employed taxes Enter the total     8. Self employed taxes Enter the dependent's gross income. Self employed taxes If line 8 is more than line 7, the dependent must file an income tax return. Self employed taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more     Example 3. Self employed taxes The facts are the same as in Example 2 except that Joe is also blind. Self employed taxes He does not have to file a return because his gross income of $3,350 is not more than $4,600, the amount on line 7 of his filled-in Filing Requirement Worksheet for Dependents Who Are Age 65 or Older or Blind (shown next). Self employed taxes   Filled-in Example 3 Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Self employed taxes Enter dependent's earned income plus $350   $3,100 2. Self employed taxes Minimum amount   1,000 3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger amount   3,100 4. Self employed taxes Maximum amount   6,100 5. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount   3,100 6. Self employed taxes Enter the amount from the following table that applies to the dependent   1,500   Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Self employed taxes Add lines 5 and 6. Self employed taxes Enter the total   4,600 8. Self employed taxes Enter the dependent's gross income. Self employed taxes If line 8 is more than line 7, the dependent must file an income tax return. Self employed taxes If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more   $3,350 Other Filing Requirements Some dependents may have to file a tax return even if their income is less than the amount that would normally require them to file a return. Self employed taxes A dependent must file a tax return if he or she owes any other taxes, such as: Social security and Medicare taxes on tips not reported to his or her employer or on wages received from an employer who did not withhold these taxes, Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance, Alternative minimum tax, Additional tax on a health savings account from Form 8889, Part III, Recapture taxes, such as the tax from recapture of an education credit, or Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. Self employed taxes But if the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself. Self employed taxes A dependent must also file a tax return if he or she: Had wages of $108. Self employed taxes 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or Had net earnings from self-employment of at least $400. Self employed taxes Spouse itemizes. Self employed taxes   A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned). Self employed taxes Should a Return Be Filed Even If Not Required? Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies. Self employed taxes Income tax was withheld from his or her income. Self employed taxes He or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit. Self employed taxes See the tax return instructions to find out who qualifies for these credits. Self employed taxes  By filing a return, the dependent can get a refund. Self employed taxes Responsibility for Child's Return Generally, a child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. Self employed taxes If a child cannot file his or her own return for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child. Self employed taxes Signing the child's return. Self employed taxes   If the child cannot sign his or her return, a parent or guardian must sign the child's name followed by the words “By (signature), parent (or guardian) for minor child. Self employed taxes ” Authority of parent or guardian. Self employed taxes   A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return. Self employed taxes   In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. Self employed taxes That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return. Self employed taxes Third party designee. Self employed taxes   A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. Self employed taxes The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee. Self employed taxes   If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. Self employed taxes This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. Self employed taxes See the return instructions for more information. Self employed taxes Designated as representative. Self employed taxes   A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Self employed taxes Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. Self employed taxes See Publication 947, Practice Before the IRS and Power of Attorney, for more information. Self employed taxes   If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives. Self employed taxes IRS notice. Self employed taxes   If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. Self employed taxes The notice will show who to contact. Self employed taxes The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority. Self employed taxes Child's earnings. Self employed taxes   For federal income tax purposes, amounts a child earns by performing services are included in the gross income of the child and not the gross income of the parent. Self employed taxes This is true even if, under state law, the parent has the right to the earnings and may actually have received them. Self employed taxes If the child does not pay the tax due on this income, the parent may be liable for the tax. Self employed taxes Child's expenses. Self employed taxes   Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent. Self employed taxes Example. Self employed taxes You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. Self employed taxes You made the payments out of your child's earnings. Self employed taxes These items can be deducted only on the child's return. Self employed taxes Standard Deduction The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of: $1,000, or The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,100). Self employed taxes However, the standard deduction may be higher for a dependent who: Is 65 or older, or Is blind. Self employed taxes Certain dependents cannot claim any standard deduction. Self employed taxes See Standard Deduction of Zero , later. Self employed taxes Worksheet 1. Self employed taxes   Use Worksheet 1 to figure the dependent's standard deduction. Self employed taxes Worksheet 1. Self employed taxes Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse, if filing jointly) as a dependent. Self employed taxes If you were 65 or older and/or blind, check the correct number of boxes below. Self employed taxes Put the total number of boxes checked in box c and go to line 1. Self employed taxes a. Self employed taxes You 65 or older   Blind   b. Self employed taxes Your spouse, if claiming  spouse's exemption 65 or older   Blind   c. Self employed taxes Total boxes checked         1. Self employed taxes Enter your earned income (defined below) plus $350. Self employed taxes If none, enter -0-. Self employed taxes 1. Self employed taxes     2. Self employed taxes Minimum amount. Self employed taxes   2. Self employed taxes $1,000   3. Self employed taxes Compare lines 1 and 2. Self employed taxes Enter the larger of the two amounts here. Self employed taxes 3. Self employed taxes     4. Self employed taxes Enter on line 4 the amount shown below for your filing status. Self employed taxes       Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 4. Self employed taxes     5. Self employed taxes Standard deduction. Self employed taxes         a. Self employed taxes Compare lines 3 and 4. Self employed taxes Enter the smaller amount here. Self employed taxes If under 65 and not blind, stop here. Self employed taxes This is your standard deduction. Self employed taxes Otherwise, go on to line 5b. Self employed taxes 5a. Self employed taxes     b. Self employed taxes If 65 or older or blind, multiply $1,500 ($1,200 if married) by the number in box c above. Self employed taxes Enter the result here. Self employed taxes 5b. Self employed taxes     c. Self employed taxes Add lines 5a and 5b. Self employed taxes This is your standard deduction for 2013. Self employed taxes 5c. Self employed taxes     Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Self employed taxes It also includes any amount received as a scholarship that you must include in income. Self employed taxes   Example 1. Self employed taxes Michael is single, age 15, and not blind. Self employed taxes His parents can claim him as a dependent on their tax return. Self employed taxes He has taxable interest income of $800 and wages of $150. Self employed taxes He enters $500 (his earned income plus $350) on line 1 of Worksheet 1. Self employed taxes On line 3, he enters $1,000, the larger of $500 or $1,000. Self employed taxes Michael enters $6,100 on line 4. Self employed taxes On line 5a, he enters $1,000, the smaller of $1,000 or $6,100. Self employed taxes His standard deduction is $1,000. Self employed taxes Example 2. Self employed taxes Judy, a full-time student, is single, age 22, and not blind. Self employed taxes Her parents can claim her as a dependent on their tax return. Self employed taxes She has dividend income of $275 and wages of $2,500. Self employed taxes She enters $2,850 (her earned income plus $350) on line 1 of Worksheet 1. Self employed taxes On line 3, she enters $2,850, the larger of $2,850 or $1,000. Self employed taxes She enters $6,100 on line 4. Self employed taxes On line 5a, she enters $2,850 (the smaller of $2,850 or $6,100) as her standard deduction. Self employed taxes Example 3. Self employed taxes Amy, who is single, is claimed as a dependent on her parents' tax return. Self employed taxes She is 18 years old and blind. Self employed taxes She has taxable interest income of $1,000 and wages of $2,000. Self employed taxes She enters $2,350 (her earned income plus $350) on line 1 of Worksheet 1. Self employed taxes She enters $2,350 (the larger of $2,350 or $1,000) on line 3, $6,100 on line 4, and $2,350 (the smaller of $2,350 or $6,100) on line 5a. Self employed taxes Because Amy is blind, she checks the box for blindness and enters “1” in box c at the top of Worksheet 1. Self employed taxes She enters $1,500 (the number in box c times $1,500) on line 5b. Self employed taxes Her standard deduction on line 5c is $3,850 ($2,350 + $1,500). Self employed taxes Standard Deduction of Zero The standard deduction for the following dependents is zero. Self employed taxes A married dependent filing a separate return whose spouse itemizes deductions. Self employed taxes A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period. Self employed taxes A nonresident or dual-status alien dependent, unless the dependent is married to a U. Self employed taxes S. Self employed taxes citizen or resident alien at the end of the year and chooses to be treated as a U. Self employed taxes S. Self employed taxes resident for the year. Self employed taxes See Publication 519, U. Self employed taxes S. Self employed taxes Tax Guide for Aliens, for information on making this choice. Self employed taxes Example. Self employed taxes Jennifer, who is a dependent of her parents, is entitled to file a joint return with her husband. Self employed taxes However, her husband elects to file a separate return and itemize his deductions. Self employed taxes Because he itemizes, Jennifer's standard deduction on her return is zero. Self employed taxes She can, however, itemize any of her allowable deductions. Self employed taxes Dependent's Own Exemption A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. Self employed taxes This is true even if the other taxpayer does not actually claim the exemption. Self employed taxes Example. Self employed taxes James and Barbara can claim their child, Ben, as a dependent on their return. Self employed taxes Ben is a college student who works during the summer and must file a tax return. Self employed taxes Ben cannot claim his own exemption on his return. Self employed taxes This is true even if James and Barbara do not claim him as a dependent on their return. Self employed taxes Withholding From Wages Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. Self employed taxes If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. Self employed taxes The exemption from withholding does not apply to social security and Medicare taxes. Self employed taxes Conditions for exemption from withholding. Self employed taxes   An employee can claim exemption from withholding for 2014 only if he or she meets both of the following conditions. Self employed taxes For 2013, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability. Self employed taxes For 2014, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability. Self employed taxes Dependents. Self employed taxes   An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true. Self employed taxes The employee's gross income will be more than $1,000, the minimum standard deduction for 2014. Self employed taxes The employee's unearned income will be more than $350. Self employed taxes Exceptions. Self employed taxes   An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee: Is age 65 or older, Is blind, or Will claim on his or her 2014 tax return: Adjustments to income, Tax credits, or Itemized deductions. Self employed taxes The above exceptions do not apply to supplemental wages greater than $1,000,000. Self employed taxes For more information, see Exemption From Withholding in chapter 1 of Publication 505. Self employed taxes Example. Self employed taxes Guy is 17 and a student. Self employed taxes During the summer he works part time at a grocery store. Self employed taxes He expects to earn about $1,200 this year. Self employed taxes He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. Self employed taxes The only other income he expects during the year is $375 interest on a savings account. Self employed taxes He expects that his parents will be able to claim him as a dependent on their tax return. Self employed taxes He is not blind and will not claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return. Self employed taxes Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his gross income will be more than $1,000 (the minimum standard deduction amount) and his unearned income will be more than $350. Self employed taxes Claiming exemption from withholding. Self employed taxes    To claim exemption from withholding, an employee must enter “Exempt” in the space provided on Form W-4, line 7. Self employed taxes The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer. Self employed taxes Renewing an exemption from withholding. Self employed taxes   An exemption from withholding is good for only one year. Self employed taxes An employee must file a new Form W-4 by February 15 each year to continue the exemption. Self employed taxes Part 2. Self employed taxes Tax on Unearned Income of Certain Children The two rules that follow may affect the tax on the unearned income of certain children. Self employed taxes If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Self employed taxes (See Parent's Election To Report Child's Interest and Dividends , later. Self employed taxes ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Self employed taxes (See Tax for Certain Children Who Have Unearned Income , later. Self employed taxes ) For these rules, the term “child” includes a legally adopted child and a stepchild. Self employed taxes These rules apply whether or not the child is a dependent. Self employed taxes These rules do not apply if neither of the child's parents were living at the end of the year. Self employed taxes Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Self employed taxes The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Self employed taxes Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Self employed taxes Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Self employed taxes Parents are married. Self employed taxes   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Self employed taxes Parents not living together. Self employed taxes   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Self employed taxes If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Self employed taxes   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501. Self employed taxes Parents are divorced. Self employed taxes   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. Self employed taxes Custodial parent remarried. Self employed taxes   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Self employed taxes Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Self employed taxes Do not use the return of the noncustodial parent. Self employed taxes   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Self employed taxes If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Self employed taxes Parents never married. Self employed taxes   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. Self employed taxes If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Self employed taxes Widowed parent remarried. Self employed taxes   If a widow or widower remarries, the new spouse is treated as the child's other parent. Self employed taxes The rules explained earlier under Custodial parent remarried apply. Self employed taxes Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Self employed taxes If you do, your child will not have to file a return. Self employed taxes You can make this election only if all the following conditions are met. Self employed taxes Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Self employed taxes Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Self employed taxes The child's gross income was less than $10,000. Self employed taxes The child is required to file a return unless you make this election. Self employed taxes The child does not file a joint return for the year. Self employed taxes No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Self employed taxes No federal income tax was withheld from your child's income under the backup withholding rules. Self employed taxes You are the parent whose return must be used when applying the special tax rules for children. Self employed taxes (See Which Parent's Return To Use , earlier. Self employed taxes ) These conditions are also shown in Figure 1. Self employed taxes Certain January 1 birthdays. Self employed taxes   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Self employed taxes You cannot make this election for such a child unless the child was a full-time student. Self employed taxes   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Self employed taxes You cannot make this election for such a child. Self employed taxes How to make the election. Self employed taxes    Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. Self employed taxes (If you make this election, you cannot file Form 1040A or Form 1040EZ. Self employed taxes ) Attach a separate Form 8814 for each child for whom you make the election. Self employed taxes You can make the election for one or more children and not for others. Self employed taxes Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Self employed taxes Rate may be higher. Self employed taxes   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Self employed taxes This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Self employed taxes However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Self employed taxes Deductions you cannot take. Self employed taxes   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Self employed taxes The additional standard deduction if the child is blind. Self employed taxes The deduction for a penalty on an early withdrawal of your child's savings. Self employed taxes Itemized deductions (such as your child's investment expenses or charitable contributions). Self employed taxes Figure 1. Self employed taxes Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Self employed taxes Figure 1. Self employed taxes Can You Include Your Child's Income On Your Tax Return? Deductible investment interest. Self employed taxes   If you use Form 8814, your child's unearned income is considered your unearned income. Self employed taxes To figure the limit on your deductible investment interest, add the child's unearned income to yours. Self employed taxes However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund dividends, see chapter 3 of Publication 550 for information about how to figure the limit. Self employed taxes Alternative minimum tax. Self employed taxes    If your child received tax-exempt interest (or exempt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. Self employed taxes If it is, you must include it with your own tax preference items when figuring your AMT. Self employed taxes See Form 6251, Alternative Minimum Tax—Individuals, and its instructions for details. Self employed taxes Reduced deductions or credits. Self employed taxes   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following. Self employed taxes Deduction for contributions to a traditional individual retirement arrangement (IRA). Self employed taxes Deduction for student loan interest. Self employed taxes Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Self employed taxes Credit for child and dependent care expenses. Self employed taxes Child tax credit. Self employed taxes Education tax credits. Self employed taxes Earned income credit. Self employed taxes Penalty for underpayment of estimated tax. Self employed taxes   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Self employed taxes If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Self employed taxes Get Publication 505 for more information. Self employed taxes Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Self employed taxes Only the amount over $2,000 is added to your income. Self employed taxes The amount over $2,000 is shown on Form 8814, line 6. Self employed taxes Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Self employed taxes Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. Self employed taxes If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. Self employed taxes On the dotted line next to line 21, enter “Form 8814” and the total of the Form 8814, line 12 amounts. Self employed taxes Note. Self employed taxes The tax on the first $2,000 is figured on Form 8814, Part II. Self employed taxes See Figuring Additional Tax , later. Self employed taxes Qualified dividends. Self employed taxes   Enter on Form 8814, line 2a, any ordinary dividends your child received. Self employed taxes This amount may include qualified dividends. Self employed taxes Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. Self employed taxes For detailed information about qualified dividends, see Publication 550. Self employed taxes   If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Self employed taxes You do not include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Self employed taxes   Enter the child's qualified dividends on Form 8814, line 2b. Self employed taxes But do not include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Self employed taxes Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Self employed taxes (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. Self employed taxes ) Capital gain distributions. Self employed taxes   Enter on Form 8814, line 3, any capital gain distributions your child received. Self employed taxes The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you are not required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. Self employed taxes You do not include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Self employed taxes   Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. Self employed taxes (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts. Self employed taxes ) Collectibles (28% rate) gain. Self employed taxes    If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet, in the instructions for Schedule D, line 18. Self employed taxes Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Self employed taxes The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. Self employed taxes The denominator is the child's total capital gain distribution. Self employed taxes Enter the result on line 4 of the 28% Rate Gain Worksheet. Self employed taxes Unrecaptured section 1250 gain. Self employed taxes   If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. Self employed taxes Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Self employed taxes The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. Self employed taxes The denominator is the child's total capital gain distribution. Self employed taxes Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11. Self employed taxes Section 1202 gain. Self employed taxes   If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclusion. Self employed taxes (For information about the exclusion, see chapter 4 of Publication 550. Self employed taxes ) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Self employed taxes The numerator is the part of the child's total capital gain distribution that is section 1202 gain. Self employed taxes The denominator is the child's total capital gain distribution. Self employed taxes Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. Self employed taxes In some cases, the exclusion is more than 50%. Self employed taxes See the instructions for Schedule D for details and information on how to report the exclusion amount. Self employed taxes Example. Self employed taxes Fred is 6 years old. Self employed taxes In 2013, he received dividend income of $2,100, which included $1,575 of ordinary dividends and a $525 capital gain distribution from a mutual fund. Self employed taxes (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain. Self employed taxes ) All of the ordinary dividends are qualified dividends. Self employed taxes He has no other income and is not subject to backup withholding. Self employed taxes No estimated tax payments were made under his name and social security number. Self employed taxes Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. Self employed taxes They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows. Self employed taxes They leave lines 1a and 1b of Form 8814 blank because Fred does not have any interest income. Self employed taxes They enter his ordinary dividends of $1,575 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. Self employed taxes They enter the amount of Fred's capital gain distributions, $525, on line 3. Self employed taxes Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,100, on line 4. Self employed taxes They subtract the base amount on line 5, $2,000, from the amount on line 4, $2,100, and enter the result, $100, on line 6. Self employed taxes This is the total amount from Form 8814 to be reported on their return. Self employed taxes Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions. Self employed taxes They divide the amount on line 2b, $1,575, by the amount on line 4, $2,100. Self employed taxes They enter the result, . Self employed taxes 75, on line 7. Self employed taxes They divide the amount on line 3, $525, by the amount on line 4, $2,100. Self employed taxes They enter the result, . Self employed taxes 25, on line 8. Self employed taxes They multiply the amount on line 6, $100, by the decimal on line 7, . Self employed taxes 75, and enter the result, $75, on line 9. Self employed taxes They multiply the amount on line 6, $100, by the decimal on line 8, . Self employed taxes 25, and enter the result, $25, on line 10. Self employed taxes They include the amount from line 9, $75, on lines 9a and 9b of their Form 1040 and enter “Form 8814 – $75” on the dotted lines next to lines 9a and 9b. Self employed taxes They include the amount from line 10, $25, on line 13 of their Schedule D (Form 1040) and enter “Form 8814 – $25” on the dotted line next to Schedule D, line 13. Self employed taxes They enter $100 ($75 + $25) on line 11 and -0- ($100 – $100) on line 12. Self employed taxes Because the amount on line 12 is -0-, they do not include any amount from Form 8814 on their Form 1040, line 21. Self employed taxes Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Self employed taxes This tax is added to the tax figured on your income. Self employed taxes This additional tax is the smaller of: 10% x (your child's gross income − $1,000), or $100. Self employed taxes Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44, or Form 1040NR, line 42. Self employed taxes Check box a on Form 1040, line 44, or Form 1040NR, line 42. Self employed taxes Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Self employed taxes If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Self employed taxes Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR. Self employed taxes When Form 8615 must be filed. Self employed taxes   Form 8615 must be filed for a child if all of the following statements are true. Self employed taxes The child's unearned income was more than $2,000. Self employed taxes The child is required to file a return for 2013. Self employed taxes The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Self employed taxes At least one of the child's parents was alive at the end of 2013. Self employed taxes The child does not file a joint return for 2013. Self employed taxes These conditions are also shown in Figure 2. Self employed taxes Certain January 1 birthdays. Self employed taxes   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Self employed taxes IF a child was born on. Self employed taxes . Self employed taxes . Self employed taxes THEN, at the end of 2013, the child is considered to be. Self employed taxes . Self employed taxes . Self employed taxes January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Self employed taxes The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Self employed taxes  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Self employed taxes  ***Do not use Form 8615 for this child. Self employed taxes Figure 2. Self employed taxes Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Self employed taxes Figure 2. Self employed taxes Do You Have To Use Form 8615 To Figure Your Child's Tax? Providing Parental Information (Form 8615, Lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Self employed taxes (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Self employed taxes ) On line C, check the box for the parent's filing status. Self employed taxes See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615. Self employed taxes Parent with different tax year. Self employed taxes   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Self employed taxes Example. Self employed taxes Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2013 (January 1 – December 31). Self employed taxes Kimberly's mother files her tax return on a fiscal year basis (July 1 – June 30). Self employed taxes Kimberly must use the information on her mother's return for the tax year ending June 30, 2013, to complete her 2013 Form 8615. Self employed taxes Parent's return information not known timely. Self employed taxes   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Self employed taxes   You can use any reasonable estimate. Self employed taxes This includes using information from last year's return. Self employed taxes If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Self employed taxes   When you get the correct information, file an amended return on Form 1040X, Amended U. Self employed taxes S. Self employed taxes Individual Income Tax Return. Self employed taxes Extension of time to file. Self employed taxes   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Self employed taxes S. Self employed taxes Individual Income Tax Return. Self employed taxes See the instructions for Form 4868 for details. Self employed taxes    An extension of time to file is not an extension of time to pay. Self employed taxes You must make an accurate estimate of the tax for 2013. Self employed taxes If you do not pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. Self employed taxes See Form 4868 and its instructions. Self employed taxes Parent's return information not available. Self employed taxes   If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). Self employed taxes How to request. Self employed taxes   After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. Self employed taxes (The IRS cannot process a request received before the end of the tax year. Self employed taxes )    You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information. Self employed taxes   The request must contain all of the following. Self employed taxes A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent. Self employed taxes Proof of the child's age (for example, a copy of the child's birth certificate). Self employed taxes Evidence the child has more than $2,000 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year). Self employed taxes The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615. Self employed taxes    A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship. Self employed taxes Step 1. Self employed taxes Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Self employed taxes To do that, use Form 8615, Part I. Self employed taxes Line 1 (Unearned Income) If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Self employed taxes Adjusted gross income is shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Self employed taxes Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed. Self employed taxes If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Self employed taxes However, use the following worksheet if: the child has excluded any foreign earned income, deducted a loss from self-employment, or has a net operating loss from another year. Self employed taxes Alternate Worksheet for Form 8615, Line 1 A. Self employed taxes Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23   B. Self employed taxes Enter the total of any net loss  from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. Self employed taxes Enter this total as a positive number (greater than zero)   C. Self employed taxes Add line A and line B and  enter the total   D. Self employed taxes Enter the child's earned income plus any amount from the child's Form 1040, line 30, or the child's Form 1040NR, line 30     Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)   E. Self employed taxes Subtract line D from line C. Self employed taxes Enter the result here and on Form 8615, line 1   Unearned income defined. Self employed taxes   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed. Self employed taxes It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, certain distributions from trusts, and unemployment compensation. Self employed taxes Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Self employed taxes Nontaxable income. Self employed taxes   For this purpose, unearned income includes only amounts the child must include in gross income. Self employed taxes Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Self employed taxes Capital loss. Self employed taxes   A child's capital losses are taken into account in figuring the child's unearned income. Self employed taxes Capital losses are first applied against capital gains. Self employed taxes If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other unearned income. Self employed taxes Any difference over $3,000 is carried to the next year. Self employed taxes Income from property received as a gift. Self employed taxes   A child's unearned income includes all income produced by property belonging to the child. Self employed taxes This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Self employed taxes   A child's unearned income includes income produced by property given as a gift to the child. Self employed taxes This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Self employed taxes Example. Self employed taxes Amanda Black, age 13, received the following income. Self employed taxes Dividends—$800 Wages—$2,100 Taxable interest—$1,200 Tax-exempt interest—$100 Capital gains—$300 Capital losses—($200) The dividends were qualified dividends on stock given to her by her grandparents. Self employed taxes Amanda's unearned income is $2,100. Self employed taxes This is the total of the dividends ($800), taxable interest ($1,200), and capital gains reduced by capital losses ($300 − $200 = $100). Self employed taxes Her wages are earned (not unearned) income because they are received for work actually performed. Self employed taxes Her tax-exempt interest is not included because it is nontaxable. Self employed taxes Trust income. Self employed taxes   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Self employed taxes   However, taxable distributions from a qualified disability trust are considered earned income for the purposes of completing Form 8615. Self employed taxes See the Form 8615 instructions for details. Self employed taxes Adjustment to income. Self employed taxes   In figuring the amount to enter on line 1, the child's unearned income is reduced by any penalty on the early withdrawal of savings. Self employed taxes Line 2 (Deductions) If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $2,000 on line 2. Self employed taxes If the child itemizes deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR), line 15), that are directly connected with the production of the unearned income entered on line 1, or $2,000. Self employed taxes Directly connected. Self employed taxes   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Self employed taxes These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Self employed taxes    These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Self employed taxes Only the amount greater than 2% of the child's adjusted gross income can be deducted. Self employed taxes See Publication 529, Miscellaneous Deductions, for more information. Self employed taxes Example 1. Self employed taxes Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with his unearned income. Self employed taxes His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Self employed taxes Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly-connected itemized deductions of $300. Self employed taxes Example 2. Self employed taxes Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Self employed taxes She has no other income. Self employed taxes She has itemized deductions of $1,050 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her unearned income. Self employed taxes Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Self employed taxes The amount on line 2 is $2,050. Self employed taxes This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Self employed taxes Line 3 Subtract line 2 from line 1 and enter the result on this line. Self employed taxes If zero or less, do not complete the rest of the form. Self employed taxes However, you must still attach Form 8615 to the child's tax return. Self employed taxes Figure the tax on the child's taxable income in the normal manner. Self employed taxes Line 4 (Child's Taxable Income) Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Self employed taxes Child files Form 2555 or 2555-EZ. Self employed taxes   If the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) is used to figure the child's tax. Self employed taxes Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the child's taxable income on Form 8615, line 4. Self employed taxes Line 5 (Net Unearned Income) A child's net unearned income cannot be more than his or her taxable income. Self employed taxes Enter on Form 8615, line 5, the smaller of line 3 or line 4. Self employed taxes This is the child's net unearned income. Self employed taxes If zero or less, do not complete the rest of the form. Self employed taxes However, you must still attach Form 8615 to the child's tax return. Self employed taxes Figure the tax on the child's taxable income in the normal manner. Self employed taxes Step 2. Self employed taxes Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. Self employed taxes The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Self employed taxes When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Self employed taxes For example, do not refigure the medical expense deduction. Self employed taxes Figure the tentative tax on Form 8615, lines 6 through 13. Self employed taxes Line 6 (Parent's Taxable Income) Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NR-EZ, line 14. Self employed taxes If the parent's taxable income is zero or less, enter zero on line 6. Self employed taxes Parent files Form 2555 or 2555-EZ. Self employed taxes   If the parent files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet in the Form 1040 instructions is used to figure the parent's tax. Self employed taxes Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the parent's taxable income, on line 6 of Form 8615. Self employed taxes Line 7 (Net Unearned Income of Other Children) If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Self employed taxes Do not include the amount from line 5 of the Form 8615 being completed. Self employed taxes (The term “other child” means any other child whose Form 8615 uses the tax information of the parent identified on Lines A and B of Form 8615. Self employed taxes ) Example. Self employed taxes Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Self employed taxes The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon—$800 Jerry—$600 Mike—$1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Self employed taxes Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Self employed taxes Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Self employed taxes Other children's information not available. Self employed taxes   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Self employed taxes Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A–C) . Self employed taxes Line 8 (Parent's Taxable Income Plus Children's Net Unearned Income) Enter on this line the total of lines 5, 6, and 7. Self employed taxes You must determine the amount of net capital gain and qualified dividends included on this line before completing Form 8615, line 9. Self employed taxes Net capital gain. Self employed taxes   Net capital gain is the smaller of the gain, if any, on Schedule D (Form 1040), line 15, or the gain, if any, on Schedule D, line 16. Self employed taxes If Schedule D is not required, it is the amount on Form 1040, line 13; Form 1040A, line 10; or Form 1040NR, line 14. Self employed taxes Qualified dividends. Self employed taxes   Qualified dividends are those dividends reported on line 9b of Form 1040 or Form 1040A, or line 10b of Form 1040NR. Self employed taxes Net capital gain and qualified dividends on line 8. Self employed taxes   If neither the child, nor the parent, nor any other child has net capital gain, the net capital gain on line 8 is zero. Self employed taxes   If neither the child, nor the parent, nor any other child has qualified dividends, the amount of qualified dividends on line 8 is zero. Self employed taxes   If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. Self employed taxes   If the child, parent, or any other child has qualified dividends, figure the amount of qualified dividends included on line 8 by adding together the qualified dividend amounts included on lines 5, 6, and 7. Self employed taxes   Use the instructions for Form 8615, line 8, including the appropriate Line 5 Worksheet, to find these amounts. Self employed taxes See the instructions for Form 8615 for more details. Self employed taxes Note. Self employed taxes The amount of any net capital gain or qualified dividends is not separately reported on line 8. Self employed taxes It is  needed, however, when figuring the tax on line 9. Self employed taxes Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows. Self employed taxes If line 8 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet to figure this tax. Self employed taxes But if Schedule J, Income Averaging for Farmers and Fishermen, is used to figure the tax on the parent's return, use it to figure this tax. Self employed taxes If line 8 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. Self employed taxes For details, see the instructions for Form 8615, line 9. Self employed taxes However, if the child, parent, or any other child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. Self employed taxes But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax. Self employed taxes Child files Form 2555 or 2555-EZ. Self employed taxes   If line 8 includes any net capital gain or qualified dividends and the child, or any other child filing Form 8615, also files Form 2555 or 2555-EZ, use Using the Schedule D Tax Worksheet for line 9 tax, next, to figure the line 9 tax. Self employed taxes Using the Schedule D Tax Worksheet for line 9 tax. Self employed taxes    Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. Self employed taxes If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Self employed taxes Then figure the line 9 tax using another Schedule D Tax Worksheet. Self employed taxes (Do not attach this Schedule D Tax Worksheet to the child's return. Self employed taxes )   Complete this Schedule D Tax Worksheet as follows. Self employed taxes On line 1, enter the amount from Form 8615, line 8. Self employed taxes On line 2, enter the qualified dividends included on Form 8615, line 8. Self employed taxes (See the earlier discussion for line 8. Self employed taxes ) On line 3, enter the total of the amounts, if any, on line 4g of all Forms 4952 filed by the child, parent, or any other child. Self employed taxes On line 4, enter the total of the amounts, if any, on line 4e of all Forms 4952 filed by the child, parent, or any other child. Self employed taxes If applicable, include instead the smaller amount entered on the dotted line next to line 4e. Self employed taxes On lines 5 and 6, follow the worksheet instructions. Self employed taxes On line 7, enter the net capital gain included on Form 8615, line 8. Self employed taxes (See the earlier discussion for line 8. Self employed taxes ) On lines 8 through 10, follow the worksheet instructions. Self employed taxes On line 11, enter zero if neither the child, nor the parent, nor any other child has unrecaptured section 1250 gain (Schedule D, line 19) or 28% rate gain (Schedule D, line 18). Self employed taxes Otherwise, enter the amount of unrecaptured section 1250 gain and 28% rate gain included in the net capital gain on line 8 of Form 8615. Self employed taxes Figure these amounts as explained later under Figuring unrecaptured section 1250 gain (line 11) and Figuring 28% rate gain (line 11). Self employed taxes If the Foreign Earned Income Tax Worksheet was used to figure the parent's tax or the tax of any child, go to step 10 below. Self employed taxes Otherwise, skip steps 10, 11, and 12 below, and go to step 13. Self employed taxes Determine whether there is a line 8 capital gain excess as follows. Self employed taxes Add the amounts on line 2 of all Foreign Earned Income Tax Worksheets completed by the parent or any child for whom Form 8615 is filed. Self employed taxes (But for each child do not add more than the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Self employed taxes ) Subtract (a) from the amount on line 1 of this Schedule D Tax Worksheet. Self employed taxes Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. Self employed taxes If the result is more than zero, that amount is the line 8 capital gain excess. Self employed taxes If the result is zero or less, there is no line 8 capital gain excess. Self employed taxes If there is no line 8 capital gain excess, skip step 12 below and go to step 13. Self employed taxes If there is a line 8 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 13, but in its entirety and with the following additional modifications. Self employed taxes (These modifications are to be made only for purposes of filling out this additional Schedule D Tax Worksheet. Self employed taxes ) Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 8 capital gain excess. Self employed taxes Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 8 capital gain excess not used in (a) above. Self employed taxes If the child, parent, or any other child has 28% rate gain, reduce the amount you would otherwise enter on line 8 of Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax), shown later, (but not below zero) by the line 8 capital gain excess, and refigure the amount on line 11 of this Schedule D Tax Worksheet. Self employed taxes If the child, parent, or any other child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 8 of Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) (but not below zero) by the line 8 capital gain excess not used in 12(c), and refigure the amount on line 11 of this Schedule D Tax Worksheet. Self employed taxes Complete lines 12 through 45 following the worksheet instructions. Self employed taxes Use the parent's filing status to complete lines 15, 42, and 44. Self employed taxes Enter the amount from line 45 of this Schedule D Tax Worksheet on Form 8615, line 9, and check the box on that line