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

Amending 2011 Taxes

Amending 2010 Taxes2011 Form 1040File Taxes Electronically 2011Irs Tax ReturnFree E-file 1040ezFree Income Tax PreparationNeed To File State Taxes OnlyHow To File State Taxes FreeAmended Federal Tax Return FormIncome Tax Return 20132010 Amended Tax Return InstructionsFile Prior Year Taxes OnlineFederal Tax Form 1040a1040ez2012Filing 1040ezStudent IncomeWhere Can I File State Taxes Free OnlineIrs 1040 Form2012 1040ez FormFree Tax ReturnFree State Tax Filing SoftwareI Need To File My 2011 Federal TaxesWhere To Mail 1040xH&r Block Online Taxes2011 1040ez InstructionsHow Do You Amend Your Taxes Online1040ez Forms PrintableHow Do I File A Tax ExtensionH&r Block Amended Tax ReturnFree File State Federal TaxesTaxact 2011 LoginIncome Tax ExtentionAmended TaxCan 1040x Be Filed Electronically2011 Form 1040Free State Turbo Tax 2012File Tax Return For 2012How To Amend Your Tax ReturnFiling Taxes MilitaryIrs Gov

Amending 2011 Taxes

Amending 2011 taxes 10. Amending 2011 taxes   Installment Sales Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Installment Sale of a Farm Installment MethodWhen to elect out. Amending 2011 taxes Revoking the election. Amending 2011 taxes More information. Amending 2011 taxes Figuring Installment Sale Income Payments Received or Considered Received ExampleSection 1231 gains. Amending 2011 taxes Summary. Amending 2011 taxes Introduction An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Amending 2011 taxes If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. Amending 2011 taxes This method of reporting gain is called the installment method. Amending 2011 taxes You cannot use the installment method to report a loss. Amending 2011 taxes You can choose to report all of your gain in the year of sale. Amending 2011 taxes Installment obligation. Amending 2011 taxes   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. Amending 2011 taxes Topics - This chapter discusses: The general rules that apply to using the installment method Installment sale of a farm Useful Items - You may want to see: Publication 523 Selling Your Home 535 Business Expenses 537 Installment Sales 538 Accounting Periods and Methods 544 Sales and Other Dispositions of Assets Form (and Instructions) 4797 Sales of Business Property 6252 Installment Sale Income See chapter 16 for information about getting publications and forms. Amending 2011 taxes Installment Sale of a Farm The installment sale of a farm for one overall price under a single contract is not the sale of a single asset. Amending 2011 taxes It generally includes the sale of real property and personal property reportable on the installment method. Amending 2011 taxes It may also include the sale of property for which you must maintain an inventory, which cannot be reported on the installment method. Amending 2011 taxes See Inventory , later. Amending 2011 taxes The selling price must be allocated to determine the amount received for each class of asset. Amending 2011 taxes The tax treatment of the gain or loss on the sale of each class of assets is determined by its classification as a capital asset, as property used in the business, or as property held for sale and by the length of time the asset was held. Amending 2011 taxes (See chapter 8 for a discussion of capital assets and chapter 9 for a discussion of property used in the business. Amending 2011 taxes ) Separate computations must be made to figure the gain or loss for each class of asset sold. Amending 2011 taxes See Sale of a Farm in chapter 8. Amending 2011 taxes If you report the sale of property on the installment method, any depreciation recapture under section 1245 or 1250 of the Internal Revenue Code is generally taxable as ordinary income in the year of sale. Amending 2011 taxes See Depreciation recapture , later. Amending 2011 taxes This applies even if no payments are received in that year. Amending 2011 taxes Installment Method An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. Amending 2011 taxes A farmer who is not required to maintain an inventory can use the installment method to report gain from the sale of property used or produced in farming. Amending 2011 taxes See Inventory , later, for information on the sale of farm property where inventory items are included in the assets sold. Amending 2011 taxes If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. Amending 2011 taxes Electing out of the installment method. Amending 2011 taxes   If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. Amending 2011 taxes   To make this election, do not report your sale on Form 6252. Amending 2011 taxes Instead, report it on Schedule D (Form 1040), Form 4797, or both. Amending 2011 taxes When to elect out. Amending 2011 taxes   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. Amending 2011 taxes   However, if you timely file your tax return for the year the sale takes place without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Amending 2011 taxes Write “Filed pursuant to section 301. Amending 2011 taxes 9100-2” at the top of the amended return and file it where the original return was filed. Amending 2011 taxes Revoking the election. Amending 2011 taxes   Once made, the election can be revoked only with IRS approval. Amending 2011 taxes A revocation is retroactive. Amending 2011 taxes More information. Amending 2011 taxes   See Electing Out of the Installment Method in Publication 537 for more information. Amending 2011 taxes Inventory. Amending 2011 taxes   The sale of farm inventory items cannot be reported on the installment method. Amending 2011 taxes All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. Amending 2011 taxes   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. Amending 2011 taxes If you do not, each payment must be allocated between the inventory and the other assets sold. Amending 2011 taxes Sale at a loss. Amending 2011 taxes   If your sale results in a loss, you cannot use the installment method. Amending 2011 taxes If the loss is on an installment sale of business assets, you can deduct it only in the tax year of sale. Amending 2011 taxes Figuring Installment Sale Income Each payment on an installment sale usually consists of the following three parts. Amending 2011 taxes Interest income. Amending 2011 taxes Return of your adjusted basis in the property. Amending 2011 taxes Gain on the sale. Amending 2011 taxes In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. Amending 2011 taxes You do not include in income the part that is the return of your basis in the property. Amending 2011 taxes Basis is the amount of your investment in the property for installment sale purposes. Amending 2011 taxes Interest income. Amending 2011 taxes   You must report interest as ordinary income. Amending 2011 taxes Interest is generally not included in a down payment. Amending 2011 taxes However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Amending 2011 taxes Interest provided in the agreement is called stated interest. Amending 2011 taxes If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. Amending 2011 taxes See Unstated interest , later. Amending 2011 taxes    You must continue to report the interest income on payments you receive in subsequent years as interest income. Amending 2011 taxes Adjusted basis and installment sale income (gain on sale). Amending 2011 taxes   After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. Amending 2011 taxes A tax-free return of your adjusted basis in the property, and Your gain (referred to as “installment sale income” on Form 6252). Amending 2011 taxes Figuring adjusted basis for installment sale purposes. Amending 2011 taxes   You can use Worksheet 10-1 to figure your adjusted basis in the property for installment sale purposes. Amending 2011 taxes When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. Amending 2011 taxes    Worksheet 10-1. Amending 2011 taxes Figuring Adjusted Basis and Gross Profit Percentage 1. Amending 2011 taxes Enter the selling price for the property   2. Amending 2011 taxes Enter your adjusted basis for the property     3. Amending 2011 taxes Enter your selling expenses     4. Amending 2011 taxes Enter any depreciation recapture     5. Amending 2011 taxes Add lines 2, 3, and 4. Amending 2011 taxes  This is your adjusted basis  for installment sale purposes   6. Amending 2011 taxes Subtract line 5 from line 1. Amending 2011 taxes If zero or less, enter -0-. Amending 2011 taxes  This is your gross profit     If the amount entered on line 6 is zero, Stop here. Amending 2011 taxes You cannot use the installment method. Amending 2011 taxes   7. Amending 2011 taxes Enter the contract price for the property   8. Amending 2011 taxes Divide line 6 by line 7. Amending 2011 taxes This is your gross profit percentage   Selling price. Amending 2011 taxes   The selling price is the total cost of the property to the buyer and includes the following. Amending 2011 taxes Any money you are to receive. Amending 2011 taxes The fair market value (FMV) of any property you are to receive (FMV is discussed at Property used as a payment under Payments Received or Considered Received ). Amending 2011 taxes Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). Amending 2011 taxes Any of your selling expenses the buyer pays. Amending 2011 taxes Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. Amending 2011 taxes Adjusted basis for installment sale purposes. Amending 2011 taxes   Your adjusted basis is the total of the following three items. Amending 2011 taxes Adjusted basis. Amending 2011 taxes Selling expenses. Amending 2011 taxes Depreciation recapture. Amending 2011 taxes Adjusted basis. Amending 2011 taxes   Basis is your investment in the property for installment sale purposes. Amending 2011 taxes The way you figure basis depends on how you acquire the property. Amending 2011 taxes The basis of property you buy is generally its cost. Amending 2011 taxes The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. Amending 2011 taxes   While you own property, various events may change your original basis. Amending 2011 taxes Some events, such as adding rooms or making permanent improvements, increase basis. Amending 2011 taxes Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. Amending 2011 taxes The result is adjusted basis. Amending 2011 taxes See chapter 6 and Publication 551, Basis of Assets, for more information. Amending 2011 taxes Selling expenses. Amending 2011 taxes   Selling expenses relate to the sale of the property. Amending 2011 taxes They include commissions, attorney fees, and any other expenses paid on the sale. Amending 2011 taxes Selling expenses are added to the basis of the sold property. Amending 2011 taxes Depreciation recapture. Amending 2011 taxes   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. Amending 2011 taxes See Depreciation Recapture in chapter 9 and Depreciation Recapture Income in Publication 537. Amending 2011 taxes Gross profit. Amending 2011 taxes   Gross profit is the total gain you report on the installment method. Amending 2011 taxes   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. Amending 2011 taxes If the property you sold was your home, subtract from the gross profit any gain you can exclude. Amending 2011 taxes Contract price. Amending 2011 taxes   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. Amending 2011 taxes Gross profit percentage. Amending 2011 taxes   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. Amending 2011 taxes This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. Amending 2011 taxes   The gross profit percentage generally remains the same for each payment you receive. Amending 2011 taxes However, see the example under Selling price reduced , later, for a situation where the gross profit percentage changes. Amending 2011 taxes Amount to report as installment sale income. Amending 2011 taxes   Multiply the payments you receive each year (less interest) by the gross profit percentage. Amending 2011 taxes The result is your installment sales income for the tax year. Amending 2011 taxes In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. Amending 2011 taxes A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. Amending 2011 taxes For a detailed discussion, see Payments Received or Considered Received , later. Amending 2011 taxes Selling price reduced. Amending 2011 taxes   If the selling price is reduced at a later date, the gross profit on the sale also will change. Amending 2011 taxes You then must refigure the gross profit percentage for the remaining payments. Amending 2011 taxes Refigure your gross profit using Worksheet 10-2. Amending 2011 taxes New Gross Profit Percentage — Selling Price Reduced. Amending 2011 taxes You will spread any remaining gain over future installments. Amending 2011 taxes    Worksheet 10-2. Amending 2011 taxes New Gross Profit Percentage — Selling Price Reduced 1. Amending 2011 taxes Enter the reduced selling  price for the property   2. Amending 2011 taxes Enter your adjusted  basis for the  property     3. Amending 2011 taxes Enter your selling  expenses     4. Amending 2011 taxes Enter any depreciation  recapture     5. Amending 2011 taxes Add lines 2, 3, and 4. Amending 2011 taxes   6. Amending 2011 taxes Subtract line 5 from line 1. Amending 2011 taxes  This is your adjusted  gross profit   7. Amending 2011 taxes Enter any installment sale  income reported in  prior year(s)   8. Amending 2011 taxes Subtract line 7 from line 6   9. Amending 2011 taxes Future installments     10. Amending 2011 taxes Divide line 8 by line 9. Amending 2011 taxes  This is your new  gross profit percentage*. Amending 2011 taxes   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Amending 2011 taxes Example. Amending 2011 taxes In 2011, you sold land with a basis of $40,000 for $100,000. Amending 2011 taxes Your gross profit was $60,000. Amending 2011 taxes You received a $20,000 down payment and the buyer's note for $80,000. Amending 2011 taxes The note provides for monthly payments of $1,953 each, figured at 8% interest, amortized over four years, beginning in January 2012. Amending 2011 taxes Your gross profit percentage was 60%. Amending 2011 taxes You received the down payment of $20,000 in 2011 and total payments of $23,436 in 2012, of which $17,675 was principal and $5,761 was interest according to the amortization schedule. Amending 2011 taxes You reported a gain of $12,000 on the down payment received in 2011 and $10,605 ($17,675 X 60% (. Amending 2011 taxes 60)) in 2012. Amending 2011 taxes In January 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $1,483 a month amortized over the remaining three years. Amending 2011 taxes The new gross profit percentage, 47. Amending 2011 taxes 32%, is figured in Example — Worksheet 10-2. Amending 2011 taxes Example — Worksheet 10-2. Amending 2011 taxes New Gross Profit Percentage — Selling Price Reduced 1. Amending 2011 taxes Enter the reduced selling  price for the property 85,000 2. Amending 2011 taxes Enter your adjusted  basis for the  property 40,000   3. Amending 2011 taxes Enter your selling  expenses -0-   4. Amending 2011 taxes Enter any depreciation  recapture -0-   5. Amending 2011 taxes Add lines 2, 3, and 4. Amending 2011 taxes 40,000 6. Amending 2011 taxes Subtract line 5 from line 1. Amending 2011 taxes  This is your adjusted  gross profit 45,000 7. Amending 2011 taxes Enter any installment sale  income reported in  prior year(s) 22,605 8. Amending 2011 taxes Subtract line 7 from line 6 22,395 9. Amending 2011 taxes Future installments   47,325 10. Amending 2011 taxes Divide line 8 by line 9. Amending 2011 taxes  This is your new  gross profit percentage*. Amending 2011 taxes 47. Amending 2011 taxes 32% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. Amending 2011 taxes You will report installment sale income of $6,878 (47. Amending 2011 taxes 32% of $14,535) in 2013, $7,449 (47. Amending 2011 taxes 32% of $15,742) in 2014, and $8,067 (47. Amending 2011 taxes 32% of $17,048) in 2015. Amending 2011 taxes Form 6252. Amending 2011 taxes   Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. Amending 2011 taxes Attach it to your tax return for each year. Amending 2011 taxes Disposition of Installment Obligation If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report. Amending 2011 taxes It is considered gain or loss on the sale of the property for which you received the installment obligation. Amending 2011 taxes Cancellation. Amending 2011 taxes   If an installment obligation is canceled or otherwise becomes unenforceable, it is treated as a disposition other than a sale or exchange. Amending 2011 taxes Your gain or loss is the difference between your basis in the obligation and its fair market value (FMV) at the time you cancel it. Amending 2011 taxes If the parties are related, the FMV of the obligation is considered to be no less than its full face value. Amending 2011 taxes Transfer due to death. Amending 2011 taxes   The transfer of an installment obligation (other than to a buyer) as a result of the death of the seller is not a disposition. Amending 2011 taxes Any unreported gain from the installment obligation is not treated as gross income to the decedent. Amending 2011 taxes No income is reported on the decedent's return due to the transfer. Amending 2011 taxes Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments. Amending 2011 taxes   However, if the installment obligation is canceled, becomes unenforceable, or is transferred to the buyer because of the death of the holder of the obligation, it is a disposition. Amending 2011 taxes The estate must figure its gain or loss on the disposition. Amending 2011 taxes If the holder and the buyer were related, the FMV of the installment obligation is considered to be no less than its full face value. Amending 2011 taxes More information. Amending 2011 taxes   For more information on the disposition of an installment obligation, see Publication 537. Amending 2011 taxes Sale of depreciable property. Amending 2011 taxes   You generally cannot report gain from the sale of depreciable property to a related person on the installment method. Amending 2011 taxes See Sale to a Related Person in Publication 537. Amending 2011 taxes   You cannot use the installment method to report any depreciation recapture income up to the gain on the sale. Amending 2011 taxes However, report any gain greater than the recapture income on the installment method. Amending 2011 taxes   The recapture income reported in the year of sale is included in your installment sale basis to determine your gross profit on the installment sale. Amending 2011 taxes   Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Amending 2011 taxes Report the depreciation recapture income in Part II of Form 4797 as ordinary income in the year of sale. Amending 2011 taxes    If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Amending 2011 taxes See the Form 6252 instructions for details. Amending 2011 taxes   For more information on the section 179 deduction, see Section 179 Expense Deduction in chapter 7. Amending 2011 taxes For more information on depreciation recapture, see Depreciation Recapture in  chapter 9. Amending 2011 taxes Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. Amending 2011 taxes In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. Amending 2011 taxes These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. Amending 2011 taxes However, as discussed later, the buyer's assumption of your debt is treated as a recovery of basis, rather than as a payment, in many cases. Amending 2011 taxes Buyer pays seller's expenses. Amending 2011 taxes   If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. Amending 2011 taxes Include these expenses in the selling and contract prices when figuring the gross profit percentage. Amending 2011 taxes Buyer assumes mortgage. Amending 2011 taxes   If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. Amending 2011 taxes Mortgage less than basis. Amending 2011 taxes   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. Amending 2011 taxes It is considered a recovery of your basis. Amending 2011 taxes The contract price is the selling price minus the mortgage. Amending 2011 taxes Example. Amending 2011 taxes You sell property with an adjusted basis of $19,000. Amending 2011 taxes You have selling expenses of $1,000. Amending 2011 taxes The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 8% interest) in each of the next 4 years). Amending 2011 taxes The selling price is $25,000 ($15,000 + $10,000). Amending 2011 taxes Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). Amending 2011 taxes The contract price is $10,000 ($25,000 − $15,000 mortgage). Amending 2011 taxes Your gross profit percentage is 50% ($5,000 ÷ $10,000). Amending 2011 taxes You report half of each $2,000 payment received as gain from the sale. Amending 2011 taxes You also report all interest you receive as ordinary income. Amending 2011 taxes Mortgage more than basis. Amending 2011 taxes   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. Amending 2011 taxes The part of the mortgage greater than your basis is treated as a payment received in the year of sale. Amending 2011 taxes   To figure the contract price, subtract the mortgage from the selling price. Amending 2011 taxes This is the total amount (other than interest) you will receive directly from the buyer. Amending 2011 taxes Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). Amending 2011 taxes The contract price is then the same as your gross profit from the sale. Amending 2011 taxes    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. Amending 2011 taxes Example. Amending 2011 taxes The selling price for your property is $9,000. Amending 2011 taxes The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. Amending 2011 taxes Your adjusted basis in the property is $4,400. Amending 2011 taxes You have selling expenses of $600, for a total installment sale basis of $5,000. Amending 2011 taxes The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). Amending 2011 taxes This amount is included in the contract price and treated as a payment received in the year of sale. Amending 2011 taxes The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000   Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000   Your gross profit percentage is 100%. Amending 2011 taxes Report 100% of each payment (less interest) as gain from the sale. Amending 2011 taxes Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. Amending 2011 taxes Buyer assumes other debts. Amending 2011 taxes   If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. Amending 2011 taxes   If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. Amending 2011 taxes Compare the debt to your installment sale basis in the property being sold. Amending 2011 taxes If the debt is less than your installment sale basis, none of it is treated as a payment. Amending 2011 taxes If it is more, only the difference is treated as a payment. Amending 2011 taxes If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. Amending 2011 taxes These rules are the same as the rules discussed earlier under Buyer assumes mortgage . Amending 2011 taxes However, they apply only to the following types of debt the buyer assumes. Amending 2011 taxes Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. Amending 2011 taxes Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. Amending 2011 taxes   If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. Amending 2011 taxes The value of the assumed debt is then considered a payment to you in the year of sale. Amending 2011 taxes Property used as a payment. Amending 2011 taxes   If you receive property rather than money from the buyer, it is still considered a payment in the year received. Amending 2011 taxes However, see Trading property for like-kind property , later. Amending 2011 taxes Generally, the amount of the payment is the property's FMV on the date you receive it. Amending 2011 taxes Exception. Amending 2011 taxes   If the property the buyer gives you is payable on demand or readily tradable (see examples later), the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use an accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. Amending 2011 taxes See Unstated interest , later. Amending 2011 taxes Examples. Amending 2011 taxes If you receive a note from the buyer as payment, and the note stipulates that you can demand payment from the buyer at any time, the note is payable on demand. Amending 2011 taxes If you receive marketable securities from the buyer as payment, and you can sell the securities on an established securities market (such as the New York Stock Exchange) at any time, the securities are readily tradable. Amending 2011 taxes In these examples, use the above rules to determine the amount you should consider as payment in the year received. Amending 2011 taxes Debt not payable on demand. Amending 2011 taxes   Any evidence of debt you receive from the buyer that is not payable on demand is not considered a payment. Amending 2011 taxes This is true even if the debt is guaranteed by a third party, including a government agency. Amending 2011 taxes Fair market value (FMV). Amending 2011 taxes   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. Amending 2011 taxes Third-party note. Amending 2011 taxes   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. Amending 2011 taxes Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. Amending 2011 taxes The excess of the note's face value over its FMV is interest. Amending 2011 taxes Exclude this interest in determining the selling price of the property. Amending 2011 taxes However, see Exception under Property used as a payment , earlier. Amending 2011 taxes Example. Amending 2011 taxes You sold real estate in an installment sale. Amending 2011 taxes As part of the down payment, the buyer assigned to you a $50,000, 8% third-party note. Amending 2011 taxes The FMV of the third-party note at the time of the sale was $30,000. Amending 2011 taxes This amount, not $50,000, is a payment to you in the year of sale. Amending 2011 taxes The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. Amending 2011 taxes The remaining 40% is interest taxed as ordinary income. Amending 2011 taxes Bond. Amending 2011 taxes   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. Amending 2011 taxes For more information on the amount you should treat as a payment, see Exception under Property used as a payment , earlier. Amending 2011 taxes   If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. Amending 2011 taxes However, see Exception under Property used as a payment , earlier. Amending 2011 taxes Buyer's note. Amending 2011 taxes   The buyer's note (unless payable on demand) is not considered payment on the sale. Amending 2011 taxes However, its full face value is included when figuring the selling price and the contract price. Amending 2011 taxes Payments you receive on the note are used to figure your gain in the year received. Amending 2011 taxes Sale to a related person. Amending 2011 taxes   If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. Amending 2011 taxes For information on these rules, see the Instructions for Form 6252 and Sale to a Related Person in Publication 537. Amending 2011 taxes Trading property for like-kind property. Amending 2011 taxes   If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. Amending 2011 taxes See Like-Kind Exchanges in chapter 8 for a discussion of like-kind property. Amending 2011 taxes   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine installment sale income each year. Amending 2011 taxes The contract price is reduced by the FMV of the like-kind property received in the trade. Amending 2011 taxes The gross profit is reduced by any gain on the trade that can be postponed. Amending 2011 taxes Like-kind property received in the trade is not considered payment on the installment obligation. Amending 2011 taxes Unstated interest. Amending 2011 taxes   An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. Amending 2011 taxes Interest provided in the contract is called stated interest. Amending 2011 taxes   If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. Amending 2011 taxes If Internal Revenue Code section 483 applies to the contract, this interest is called unstated interest. Amending 2011 taxes   If Internal Revenue Code section 1274 applies to the contract, this interest is called original issue discount (OID). Amending 2011 taxes   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. Amending 2011 taxes Therefore, the buyer cannot deduct the unstated interest. Amending 2011 taxes The seller must report the unstated interest as income. Amending 2011 taxes Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. Amending 2011 taxes   If the debt is subject to the Internal Revenue Code section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. Amending 2011 taxes   Unstated interest reduces the stated selling price of the property and the buyer's basis in the property. Amending 2011 taxes It increases the seller's interest income and the buyer's interest expense. Amending 2011 taxes   In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the applicable federal rate (AFR). Amending 2011 taxes    The AFRs are published monthly in the Internal Revenue Bulletin (IRB). Amending 2011 taxes You can get this information by contacting an IRS office. Amending 2011 taxes IRBs are also available at IRS. Amending 2011 taxes gov. Amending 2011 taxes More information. Amending 2011 taxes   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Amending 2011 taxes Example. Amending 2011 taxes You sell property at a contract price of $6,000 and your gross profit is $1,500. Amending 2011 taxes Your gross profit percentage is 25% ($1,500 ÷ $6,000). Amending 2011 taxes After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. Amending 2011 taxes The remainder (balance) of each payment is the tax-free return of your adjusted basis. Amending 2011 taxes Example On January 3, 2013, you sold your farm, including the home, farm land and buildings. Amending 2011 taxes You received $50,000 down and the buyer's note for $200,000. Amending 2011 taxes In addition, the buyer assumed an outstanding $50,000 mortgage on the farm land. Amending 2011 taxes The total selling price was $300,000. Amending 2011 taxes The note payments of $25,000 each, plus adequate interest, are due every July 1 and January 1, beginning in July 2013. Amending 2011 taxes Your selling expenses were $15,000. Amending 2011 taxes Adjusted basis and depreciation. Amending 2011 taxes   The adjusted basis and depreciation claimed on each asset sold are as follows:   Depreciation Adjusted Asset Claimed Basis Home* -0- $33,743 Farm land -0- 73,610 Buildings $31,500 35,130 * Owned and used as main home for at least 2 of the 5 years prior to the sale Gain on each asset. Amending 2011 taxes   The following schedule shows the assets included in the sale, each asset's selling price based on its respective value, the selling expense allocated to each asset, the adjusted basis of each asset, and the gain on each asset. Amending 2011 taxes The selling expense for each asset is 5% of the selling price ($15,000 selling expense ÷ $300,000 selling price). Amending 2011 taxes   Selling Selling Adjusted     Price Expense Basis Gain Home* $60,000 $3,000 $33,743 $23,257 Farm land  165,000  8,250  73,610  83,140 Buildings 75,000 3,750 35,130 36,120   $300,000 $15,000 $142,483 $142,517 * Owned and used as main home for at least 2 of the 5 years prior to the sale Depreciation recapture. Amending 2011 taxes   The buildings are section 1250 property. Amending 2011 taxes There is no depreciation recapture income for them because they were depreciated using the straight line method. Amending 2011 taxes See chapter 9 for more information on depreciation recapture. Amending 2011 taxes   Special rules may apply when you sell section 1250 assets depreciated under the straight line method. Amending 2011 taxes See the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Amending 2011 taxes See chapter 3 of Publication 544, Sales and Other Dispositions of Assets, for more information on section 1250 assets. Amending 2011 taxes Installment sale basis and gross profit. Amending 2011 taxes   The following table shows each asset reported on the installment method, its selling price, installment sale basis, and gross profit. Amending 2011 taxes     Installment     Selling Sale Gross   Price Basis Profit Farm land $165,000 $73,610 $83,140 Buildings 75,000 35,130 36,120   $240,000 $108,740 $119,260 Section 1231 gains. Amending 2011 taxes   The gain on the farm land and buildings is reported as section 1231 gains. Amending 2011 taxes See Section 1231 Gains and Losses in chapter 9. Amending 2011 taxes Contract price and gross profit percentage. Amending 2011 taxes   The contract price is $250,000 for the part of the sale reported on the installment method. Amending 2011 taxes This is the selling price ($300,000) minus the mortgage assumed ($50,000). Amending 2011 taxes   Gross profit percentage for the sale is 47. Amending 2011 taxes 70% ($119,260 gross profit ÷ $250,000 contract price). Amending 2011 taxes The gross profit percentage for each asset is figured as follows:   Percent Farm land ($83,140 ÷ $250,000) 33. Amending 2011 taxes 256 Buildings ($36,120 ÷ $250,000) 14. Amending 2011 taxes 448 Total 47. Amending 2011 taxes 70 Figuring the gain to report on the installment method. Amending 2011 taxes   One hundred percent (100%) of each payment is reported on the installment method. Amending 2011 taxes The total amount received on the sale in 2013 is $75,000 ($50,000 down payment + $25,000 payment on July 1). Amending 2011 taxes The installment sale part of the total payments received in 2013 is also $75,000. Amending 2011 taxes Figure the gain to report for each asset by multiplying its gross profit percentage times $75,000. Amending 2011 taxes   Income Farm land—33. Amending 2011 taxes 256% × $75,000 $24,942 Buildings—14. Amending 2011 taxes 448% × $75,000 10,836 Total installment income for 2013 $35,778 Reporting the sale. Amending 2011 taxes   Report the installment sale on Form 6252. Amending 2011 taxes Then report the amounts from Form 6252 on Form 4797 and Schedule D (Form 1040). Amending 2011 taxes Attach a separate page to Form 6252 that shows the computations in the example. Amending 2011 taxes If you sell depreciable business property, prepare Form 4797 first in order to figure the amount to enter on line 12 of Part I, Form 6252. Amending 2011 taxes Section 1231 gains. Amending 2011 taxes   The gains on the farm land and buildings are section 1231 gains. Amending 2011 taxes They may be reported as either capital or ordinary gain depending on the net balance when combined with other section 1231 losses. Amending 2011 taxes A net 1231 gain is capital gain and a net 1231 loss is an ordinary loss. Amending 2011 taxes Installment income for years after 2013. Amending 2011 taxes   You figure installment income for the years after 2013 by applying the same gross profit percentages to the payments you receive each year. Amending 2011 taxes If you receive $50,000 during the year, the entire $50,000 is considered received on the installment sale (100% × $50,000). Amending 2011 taxes You realize income as follows:   Income Farm land—33. Amending 2011 taxes 256% × $50,000 $16,628 Buildings—14. Amending 2011 taxes 448% × $50,000 7,224 Total installment income $23,852   In this example, no gain ever is recognized from the sale of your home. Amending 2011 taxes You will combine your section 1231 gains from this sale with section 1231 gains and losses from other sales in each of the later years to determine whether to report them as ordinary or capital gains. Amending 2011 taxes The interest received with each payment will be included in full as ordinary income. Amending 2011 taxes Summary. Amending 2011 taxes   The installment income (rounded to the nearest dollar) from the sale of the farm is reported as follows: Selling price $190,000 Minus: Installment basis (108,740) Gross profit $81,260     Gain reported in 2012 (year of sale) $35,778 Gain reported in 2013:   $50,000 × 47. Amending 2011 taxes 70% 23,850 Gain reported in 2014:   $50,000 × 47. Amending 2011 taxes 70% 23,850 Gain reported in 2015:   $50,000 × 47. Amending 2011 taxes 70% 23,850 Gain reported in 2016:   $25,000 × 47. Amending 2011 taxes 70% 11,925 Total gain reported $119,253 Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

More - What's New at Procurement

 

Solicitation activity for the last three (3) months.

November 2013
11/01/2013 Justification for an Exception to Fair Opportunity - Renewal of Maintenance for Net App Mass Storage equipment in support of the SOI Program
 
September 2013
09/06/2013 Justification for an Exception to Fair Opportunity - Redacted
 

 


 

Questions about the Procurement information on this site, please contact the webmaster.

Contact the Office of Procurement for other Procurement related questions.

Page Last Reviewed or Updated: 04-Nov-2013

The Amending 2011 Taxes

Amending 2011 taxes 12. Amending 2011 taxes   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. Amending 2011 taxes Name change. Amending 2011 taxes Penalty for underpayment of estimated tax. Amending 2011 taxes Who Must Pay Self-Employment Tax?Limited partner. Amending 2011 taxes Community property. Amending 2011 taxes Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. Amending 2011 taxes  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Amending 2011 taxes 4% to 12. Amending 2011 taxes 4%. Amending 2011 taxes The Medicare part of the tax remains at 2. Amending 2011 taxes 9%. Amending 2011 taxes As a result, the self-employment tax is increased from 13. Amending 2011 taxes 3% to 15. Amending 2011 taxes 3%. Amending 2011 taxes Additional Medicare Tax. Amending 2011 taxes . Amending 2011 taxes  For tax years beginning in 2013, a 0. Amending 2011 taxes 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Amending 2011 taxes Use Form 8959, Additional Medicare Tax, to figure this tax. Amending 2011 taxes For more information, see the Instructions for Form 8959. Amending 2011 taxes Maximum net earnings. Amending 2011 taxes  The maximum net self-employment earnings subject to the social security part (12. Amending 2011 taxes 4%) of the self-employment tax increased to $113,700 for 2013. Amending 2011 taxes There is no maximum limit on earnings subject to the Medicare part (2. Amending 2011 taxes 9%). Amending 2011 taxes What's New for 2014 Maximum net earnings. Amending 2011 taxes  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Amending 2011 taxes Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Amending 2011 taxes It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Amending 2011 taxes You usually have to pay SE tax if you are self-employed. Amending 2011 taxes You are usually self-employed if you operate your own farm on land you either own or rent. Amending 2011 taxes You have to figure SE tax on Schedule SE (Form 1040). Amending 2011 taxes Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Amending 2011 taxes See chapter 13 for information on employment taxes. Amending 2011 taxes Self-employment tax rate. Amending 2011 taxes   For tax years beginning in 2013, the self-employment tax rate is 15. Amending 2011 taxes 3%. Amending 2011 taxes The rate consists of two parts: 12. Amending 2011 taxes 4% for social security (old-age, survivors, and disability insurance) and 2. Amending 2011 taxes 9% for Medicare (hospital insurance). Amending 2011 taxes Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. Amending 2011 taxes S. Amending 2011 taxes Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Amending 2011 taxes S. Amending 2011 taxes Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Amending 2011 taxes See chapter 16 for information about getting publications and forms. Amending 2011 taxes Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Amending 2011 taxes Your payments of SE tax contribute to your coverage under the social security system. Amending 2011 taxes Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Amending 2011 taxes How to become insured under social security. Amending 2011 taxes   You must be insured under the social security system before you begin receiving social security benefits. Amending 2011 taxes You are insured if you have the required number of credits (also called quarters of coverage). Amending 2011 taxes Earning credits in 2013. Amending 2011 taxes   You can earn a maximum of four credits per year. Amending 2011 taxes For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Amending 2011 taxes You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. Amending 2011 taxes It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Amending 2011 taxes For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. Amending 2011 taxes socialsecurity. Amending 2011 taxes gov. Amending 2011 taxes Making false statements to get or to increase social security benefits may subject you to penalties. Amending 2011 taxes The Social Security Administration (SSA) time limit for posting self-employment earnings. Amending 2011 taxes   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Amending 2011 taxes    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. Amending 2011 taxes The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Amending 2011 taxes How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). Amending 2011 taxes This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Amending 2011 taxes An ITIN does not entitle you to social security benefits. Amending 2011 taxes Obtaining an ITIN does not change your immigration or employment status under U. Amending 2011 taxes S. Amending 2011 taxes law. Amending 2011 taxes Obtaining a social security number. Amending 2011 taxes   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Amending 2011 taxes The application is also available in Spanish. Amending 2011 taxes You can get this form at any Social Security office or by calling 1-800-772-1213. Amending 2011 taxes    You can also download Form SS-5 from the Social Security Administration website at  www. Amending 2011 taxes socialsecurity. Amending 2011 taxes gov. Amending 2011 taxes   If you have a social security number from the time you were an employee, you must use that number. Amending 2011 taxes Do not apply for a new one. Amending 2011 taxes Replacing a lost social security card. Amending 2011 taxes   If you have a number but lost your card, file Form SS-5. Amending 2011 taxes You will get a new card showing your original number, not a new number. Amending 2011 taxes Name change. Amending 2011 taxes   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Amending 2011 taxes Obtaining an individual taxpayer identification number. Amending 2011 taxes   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. Amending 2011 taxes To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Amending 2011 taxes You can get this form by calling 1-800-829-3676. Amending 2011 taxes For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Amending 2011 taxes Form W-7 and Publication 1915 are also available in Spanish. Amending 2011 taxes    You can also download Form W-7 from the IRS website at IRS. Amending 2011 taxes gov. Amending 2011 taxes Paying estimated tax. Amending 2011 taxes   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Amending 2011 taxes You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. Amending 2011 taxes Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Amending 2011 taxes   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. Amending 2011 taxes For more information about estimated tax for farmers, see chapter 15. Amending 2011 taxes Penalty for underpayment of estimated tax. Amending 2011 taxes   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Amending 2011 taxes Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Amending 2011 taxes The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Amending 2011 taxes Aliens. Amending 2011 taxes   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Amending 2011 taxes S. Amending 2011 taxes citizens. Amending 2011 taxes Nonresident aliens are not subject to self-employment tax. Amending 2011 taxes However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Amending 2011 taxes S. Amending 2011 taxes residents for self-employment tax purposes. Amending 2011 taxes For more information on aliens, see Publication 519, U. Amending 2011 taxes S. Amending 2011 taxes Tax Guide for Aliens. Amending 2011 taxes Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. Amending 2011 taxes A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Amending 2011 taxes Share farmer. Amending 2011 taxes   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Amending 2011 taxes You produce a crop or raise livestock on land belonging to another person. Amending 2011 taxes Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Amending 2011 taxes Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. Amending 2011 taxes   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. Amending 2011 taxes This will depend on whether the landowner has the right to direct or control your performance of services. Amending 2011 taxes Example. Amending 2011 taxes A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Amending 2011 taxes Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Amending 2011 taxes The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Amending 2011 taxes The share farmer is provided a house in which to live. Amending 2011 taxes The landowner and the share farmer decide on a cropping plan. Amending 2011 taxes The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. Amending 2011 taxes The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Amending 2011 taxes Contract farming. Amending 2011 taxes   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. Amending 2011 taxes Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. Amending 2011 taxes 4-H Club or FFA project. Amending 2011 taxes   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. Amending 2011 taxes Report the net income as “Other income” on line 21 of Form 1040. Amending 2011 taxes If necessary, attach a statement showing the gross income and expenses. Amending 2011 taxes The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Amending 2011 taxes Such a project is generally not considered a trade or business. Amending 2011 taxes Partners in a partnership. Amending 2011 taxes   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Amending 2011 taxes Limited partner. Amending 2011 taxes   If you are a limited partner, your partnership income is generally not subject to SE tax. Amending 2011 taxes However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). Amending 2011 taxes Business Owned and Operated by Spouses. Amending 2011 taxes   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. Amending 2011 taxes You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Amending 2011 taxes Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Amending 2011 taxes Qualified joint venture. Amending 2011 taxes   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Amending 2011 taxes For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Amending 2011 taxes   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Amending 2011 taxes Each of you must file a separate Schedule F and a separate Schedule SE. Amending 2011 taxes For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Amending 2011 taxes Spouse employee. Amending 2011 taxes   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Amending 2011 taxes For more information about employment taxes, see chapter 13. Amending 2011 taxes Community property. Amending 2011 taxes   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. Amending 2011 taxes Do not treat any of your share as self-employment earnings of your spouse. Amending 2011 taxes Figuring Self-Employment Earnings Farmer. Amending 2011 taxes   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Amending 2011 taxes Partnership income or loss. Amending 2011 taxes   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). Amending 2011 taxes Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Amending 2011 taxes Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). Amending 2011 taxes   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. Amending 2011 taxes   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Amending 2011 taxes   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Amending 2011 taxes   For general information on partnerships, see Publication 541. Amending 2011 taxes More than one business. Amending 2011 taxes   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. Amending 2011 taxes A loss from one business reduces your profit from another business. Amending 2011 taxes However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. Amending 2011 taxes Community property. Amending 2011 taxes   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. Amending 2011 taxes Lost income payments. Amending 2011 taxes   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Amending 2011 taxes These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Amending 2011 taxes Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). Amending 2011 taxes A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Amending 2011 taxes Gain or loss. Amending 2011 taxes   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. Amending 2011 taxes It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Amending 2011 taxes For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Amending 2011 taxes Investment property. Amending 2011 taxes Depreciable property or other fixed assets used in your trade or business. Amending 2011 taxes Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. Amending 2011 taxes Unharvested standing crops sold with land held more than 1 year. Amending 2011 taxes Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. Amending 2011 taxes   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. Amending 2011 taxes For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Amending 2011 taxes Wages and salaries. Amending 2011 taxes   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. Amending 2011 taxes   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Amending 2011 taxes Retired partner. Amending 2011 taxes   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. Amending 2011 taxes The retired partner performs no services for the partnership during the year. Amending 2011 taxes The retired partner is owed only the retirement payments. Amending 2011 taxes The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Amending 2011 taxes The payments to the retired partner are lifelong periodic payments. Amending 2011 taxes Conservation Reserve Program (CRP) payments. Amending 2011 taxes   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. Amending 2011 taxes You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Amending 2011 taxes Cost share payments you receive may qualify for the costsharing exclusion. Amending 2011 taxes See Cost-Sharing Exclusion (Improvements), above. Amending 2011 taxes CRP payments are reported to you on Form 1099G. Amending 2011 taxes Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Amending 2011 taxes See the instructions for Schedule SE (Form 1040). Amending 2011 taxes Self-employed health insurance deduction. Amending 2011 taxes   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). Amending 2011 taxes Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. Amending 2011 taxes However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. Amending 2011 taxes Crop shares. Amending 2011 taxes   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. Amending 2011 taxes Feeding such crop shares to livestock is considered using them. Amending 2011 taxes Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Amending 2011 taxes Material participation for landlords. Amending 2011 taxes   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Amending 2011 taxes You do at least three of the following. Amending 2011 taxes Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Amending 2011 taxes Furnish at least half the tools, equipment, and livestock used in the production activities. Amending 2011 taxes Advise or consult with your tenant. Amending 2011 taxes Inspect the production activities periodically. Amending 2011 taxes You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Amending 2011 taxes You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Amending 2011 taxes You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Amending 2011 taxes These tests may be used as general guides for determining whether you are a material participant. Amending 2011 taxes Example. Amending 2011 taxes Drew Houston agrees to produce a crop on J. Amending 2011 taxes Clarke's cotton farm, with each receiving half the proceeds. Amending 2011 taxes Clarke advises Houston when to plant, spray, and pick the cotton. Amending 2011 taxes During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Amending 2011 taxes Houston furnishes all labor needed to grow and harvest the crop. Amending 2011 taxes The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. Amending 2011 taxes The income Clarke receives from his cotton farm is included in his self-employment earnings. Amending 2011 taxes Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Amending 2011 taxes The regular method. Amending 2011 taxes The farm optional method. Amending 2011 taxes The nonfarm optional method. Amending 2011 taxes You must use the regular method unless you are eligible to use one or both of the optional methods. Amending 2011 taxes See Figure 12-1 , shown later. Amending 2011 taxes Figure 12-1. Amending 2011 taxes Can I Use the Optional Methods? Please click here for the text description of the image. Amending 2011 taxes Figure 12–1. Amending 2011 taxes Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Amending 2011 taxes You want to receive credit for social security benefit coverage. Amending 2011 taxes You incurred child or dependent care expenses for which you could claim a credit. Amending 2011 taxes (An optional method may increase your earned income, which could increase your credit. Amending 2011 taxes ) You are entitled to the earned income credit. Amending 2011 taxes (An optional method may increase your earned income, which could increase your credit. Amending 2011 taxes ) You are entitled to the additional child tax credit. Amending 2011 taxes (An optional method may increase your earned income, which could increase your credit. Amending 2011 taxes ) Effects of using an optional method. Amending 2011 taxes   Using an optional method could increase your SE tax. Amending 2011 taxes Paying more SE tax may result in you getting higher social security disability or retirement benefits. Amending 2011 taxes   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. Amending 2011 taxes   The optional methods may be used only to figure your SE tax. Amending 2011 taxes To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Amending 2011 taxes Regular Method Multiply your total self-employment earnings by 92. Amending 2011 taxes 35% (. Amending 2011 taxes 9235) to get your net earnings under the regular method. Amending 2011 taxes See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Amending 2011 taxes Net earnings figured using the regular method are also called “actual net earnings. Amending 2011 taxes ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Amending 2011 taxes You can use this method if you meet either of the following tests. Amending 2011 taxes Your gross farm income is $6,960 or less. Amending 2011 taxes Your net farm profits are less than $5,024. Amending 2011 taxes Gross farm income. Amending 2011 taxes   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). Amending 2011 taxes Net farm profits. Amending 2011 taxes   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). Amending 2011 taxes However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Amending 2011 taxes For more information, see Partnership income or loss , earlier. Amending 2011 taxes Figuring farm net earnings. Amending 2011 taxes   If you meet either of the two tests explained above, use Table 12-1. Amending 2011 taxes Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Amending 2011 taxes Table 12-1. Amending 2011 taxes Figuring Farm Net Earnings IF your gross farm income  is. Amending 2011 taxes . Amending 2011 taxes . Amending 2011 taxes THEN your net earnings are equal to. Amending 2011 taxes . Amending 2011 taxes . Amending 2011 taxes $6,960 or less Two-thirds of your gross farm income. Amending 2011 taxes More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Amending 2011 taxes   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. Amending 2011 taxes Your actual net earnings are your net earnings figured using the regular method, explained earlier. Amending 2011 taxes Example. Amending 2011 taxes Your gross farm income is $540 and your net farm profit is $460. Amending 2011 taxes Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Amending 2011 taxes 35% of $460). Amending 2011 taxes You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Amending 2011 taxes Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Amending 2011 taxes If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Amending 2011 taxes You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. Amending 2011 taxes For more information about the nonfarm optional method, see Publication 334. Amending 2011 taxes You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Amending 2011 taxes Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. Amending 2011 taxes You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Amending 2011 taxes If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Amending 2011 taxes Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Amending 2011 taxes Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Amending 2011 taxes Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Amending 2011 taxes However, certain taxpayers must use Section B–Long Schedule SE. Amending 2011 taxes Use the chart on page 1 of Schedule SE to find out which one to use. Amending 2011 taxes If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Amending 2011 taxes Deduction for employer-equivalent portion of self-employment tax. Amending 2011 taxes   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Amending 2011 taxes This deduction only affects your income tax. Amending 2011 taxes It does not affect either your net earnings from self-employment or your SE tax. Amending 2011 taxes   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. Amending 2011 taxes Joint return. Amending 2011 taxes   Even if you file a joint return, you cannot file a joint Schedule SE. Amending 2011 taxes This is true whether one spouse or both spouses have self-employment earnings. Amending 2011 taxes Your spouse is not considered self-employed just because you are. Amending 2011 taxes If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Amending 2011 taxes However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Amending 2011 taxes Attach both schedules to the joint return. Amending 2011 taxes If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . Amending 2011 taxes Prev  Up  Next   Home   More Online Publications