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

TurboTax Federal Free Edition - File Taxes Online

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

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


© 2012 - 2018 All rights reserved.

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

Self Employment Tax

File State And Federal Taxes Online FreeHow Do I Get 2012 Tax FormsIrs Form 1040ez InstructionsFile Free State Tax Return2011 Form 1040 EzHow Do I File Taxes From 2009Help Filling Out 1040x FormHr Block Online TaxesFilling Out 1040ez1040ez 2012 FormIrs Forms 1040nrIrs Amended ReturnsFiling Free State Tax ReturnTax 2011 FormTaxact Amended ReturnFree State Tax Filling1040ez Federal Tax FormTurbotax For Military1040ez Fill In FormFree Ez FormMilitary Reserve Tax DeductionFiling 2011 Taxes LateFile Amended Tax Return 2010 OnlineH And R BlockWhere Do I Get A 1040x Form2011 State Tax FormH&r Block Free Online E FileState Taxes Free E File1040ez H&r BlockFree Tax Filing 2010Www Hrblock Com1040 Ez 2010Www Statetaxforms2012 Tax Tables FederalHttps Taxes Hrblock Com Hrblock Login Updatepassword HrbxTaxes 2012File 2007 Tax Return Online FreeAmendment Form 1040xIncome Tax Amendment Form1040 Nr

Self Employment Tax

Self employment tax 4. Self employment tax   Retirement Savings Contributions Credit (Saver's Credit) Table of Contents What's New Introduction Full-time student. Self employment tax Adjusted gross income. Self employment tax Distributions received by spouse. Self employment tax Testing period. Self employment tax What's New Modified AGI limit for retirement savings contributions credit increased. Self employment tax  For 2013, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than: $59,000 if your filing status is married filing jointly, $44,250 if your filing status is head of household, or $29,500 if your filing status is single, married filing separately, or qualifying widow(er). Self employment tax Introduction You may be able to take a tax credit if you make eligible contributions (defined later) to a qualified retirement plan, an eligible deferred compensation plan, or an individual retirement arrangement (IRA). Self employment tax You may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). Self employment tax This credit could reduce the federal income tax you pay dollar for dollar. Self employment tax    Can you claim the credit?   If you make eligible contributions to a qualified retirement plan, an eligible deferred compensation plan, or an IRA, you can claim the credit if all of the following apply. Self employment tax You were born before January 2, 1996. Self employment tax You are not a full-time student (explained next). Self employment tax No one else, such as your parent(s), claims an exemption for you on their tax return. Self employment tax Your adjusted gross income (defined below) is not more than: $59,000 if your filing status is married filing jointly, $44,250 if your filing status is head of household, or $29,500 if your filing status is single, married filing separately, or qualifying widow(er). Self employment tax Full-time student. Self employment tax   You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either: 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 either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government. Self employment tax You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full time. Self employment tax Adjusted gross income. Self employment tax   This is generally the amount on line 38 of your 2013 Form 1040; line 22 of your 2013 Form 1040A; or line 37 of your 2013 Form 1040NR. Self employment tax However, you must add to that amount any exclusion or deduction claimed for the year for: Foreign earned income, Foreign housing costs, Income for bona fide residents of American Samoa, and Income from Puerto Rico. Self employment tax Eligible contributions. Self employment tax   These include: Contributions to a traditional or Roth IRA, Salary reduction contributions (elective deferrals, including amounts designated as after-tax Roth contributions) to: A 401(k) plan (including a SIMPLE 401(k)), A section 403(b) annuity, An eligible deferred compensation plan of a state or local government (a governmental 457 plan), A SIMPLE IRA plan, or A salary reduction SEP, and Contributions to a section 501(c)(18) plan. Self employment tax They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or section 403(b) annuity. Self employment tax For purposes of the credit, an employee contribution will be voluntary as long as it is not required as a condition of employment. Self employment tax Reducing eligible contributions. Self employment tax   Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included above under Eligible contributions. Self employment tax Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable. Self employment tax   Do not reduce your eligible contributions by any of the following. Self employment tax The portion of any distribution which is not includible in income because it is a trustee-to-trustee transfer or a rollover distribution. Self employment tax Distributions that are taxable as the result of an in-plan rollover to your designated Roth account. Self employment tax Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim the credit if: The distribution is made before the due date (including extensions) of your tax return for that year, You do not take a deduction for the contribution, and The distribution includes any income attributable to the contribution. Self employment tax Loans from a qualified employer plan treated as a distribution. Self employment tax Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals). Self employment tax Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k). Self employment tax Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA. Self employment tax Distributions from a military retirement plan. Self employment tax Distributions from an inherited IRA by a nonspousal beneficiary. Self employment tax Distributions received by spouse. Self employment tax   Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit. Self employment tax Testing period. Self employment tax   The testing period consists of the year for which you claim the credit, the period after the end of that year and before the due date (including extensions) for filing your return for that year, and the 2 tax years before that year. Self employment tax Example. Self employment tax You and your spouse filed joint returns in 2011 and 2012, and plan to do so in 2013 and 2014. Self employment tax You received a taxable distribution from a qualified plan in 2011 and a taxable distribution from an eligible deferred compensation plan in 2012. Self employment tax Your spouse received taxable distributions from a Roth IRA in 2013 and tax-free distributions from a Roth IRA in 2014 before April 15. Self employment tax You made eligible contributions to an IRA in 2013 and you otherwise qualify for this credit. Self employment tax You must reduce the amount of your qualifying contributions in 2013 by the total of the distributions you received in 2011, 2012, 2013, and 2014. Self employment tax Maximum eligible contributions. Self employment tax   After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person. Self employment tax Effect on other credits. Self employment tax   The amount of this credit will not change the amount of your refundable tax credits. Self employment tax A refundable tax credit, such as the earned income credit or the refundable amount of your child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes. Self employment tax Maximum credit. Self employment tax   This is a nonrefundable credit. Self employment tax The amount of the credit in any year cannot be more than the amount of tax that you would otherwise pay (not counting any refundable credits) in any year. Self employment tax If your tax liability is reduced to zero because of other nonrefundable credits, such as the credit for child and dependent care expenses, then you will not be entitled to this credit. Self employment tax How to figure and report the credit. Self employment tax   The amount of the credit you can get is based on the contributions you make and your credit rate. Self employment tax Your credit rate can be as low as 10% or as high as 50%. Self employment tax Your credit rate depends on your income and your filing status. Self employment tax See Form 8880 to determine your credit rate. Self employment tax   The maximum contribution taken into account is $2,000 per person. Self employment tax On a joint return, up to $2,000 is taken into account for each spouse. Self employment tax   Figure the credit on Form 8880. Self employment tax Report the credit on line 50 of your Form 1040; line 32 of your Form 1040A; or line 47 of your Form 1040NR and attach Form 8880 to your return. Self employment tax Prev  Up  Next   Home   More Online Publications
Español

Travel and Maps for Sale

Buy maps and make travel plans with the U.S. Government.

The Self Employment Tax

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