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Beware Amending Tax Returns

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Wills

It's unfortunate how many people believe that estate planning is only for wealthy people. People at all economic levels benefit from an estate plan. Upon death, an estate plan legally protects and distributes property based on your wishes and the needs of your family and/or survivors with as little tax as possible.

A will is the most practical first step in estate planning; it makes clear how you want your property to be distributed after you die.

Writing a will can be as simple as typing out how you want your assets to be transferred to loved ones or charitable organizations after your death. If you don't have a will when you die, your estate will be handled in probate, and your property could be distributed differently than what you would like.

It may help to get legal advice when writing a will, particularly when it comes to understanding all the rules of the estate disposition process in your state. Some states, for instance, have community-property laws that entitle your surviving spouse to keep half of your wealth after you die no matter what percentage you leave him or her. Fees for the execution of a will vary according to its complexity.

Rules To Remember When Writing A Will

  • In most states, you must be 18 years of age or older.
  • A will must be written in sound judgment and mental capacity to be valid.
  • The document must clearly state that it is your will.
  • An executor of your will, who ensures your estate is distributed according to your wishes, must be named.
  • It is not necessary to notarize or record your will but these can safeguard against any claims that your will is invalid. To be valid, you must sign a will in the presence of at least two witnesses.

Choose an Executor

An executor is the person who is responsible for settling the estate after death. Duties of an executor include:

  • Taking inventory of property and belongings
  • Appraising and distributing assets
  • Paying taxes
  • Settling debts owed by the deceased

Most important, the executor is legally obligated to act in the interests of the deceased, following the wishes provided by the will. Here again, it could be helpful to consult an attorney to help with the probate process or offer legal guidance. Any person over the age of 18, who hasn't been convicted of a felony, can be named executor of a will. Some people choose a lawyer, accountant or financial consultant based on their experience. Others choose a spouse, adult child, relative or friend. Since the role of executor can be demanding, it's often a good idea to ask the person being named in a will if he or she is willing to serve.

If you've been named executor in someone's will but are not able or do not want to serve, you need to file a declination, which is a legal document that declines your designation as an executor. The contingent executor named in the will then assumes responsibility. If no contingent executor is named, the court will appoint one.

Review Your Estate Plan

Once you've completed a will, it's a good idea to review it from time to time, and consider changes if:

  • The value of your assets change
  • You marry, divorce or remarry
  • You have a child
  • You move to a different state
  • The executor of your will dies or becomes incapacitated or your relationship changes
  • One of your heirs dies
  • The laws affecting your estate change

Write a Social Media Will

Social media is a part of daily life, so what happens to the online content that you created once you die? If you are active online you should consider creating a statement of how you would like your online identity to be handled, like a social media will. You should appoint someone you trust as an online executor. This person will be responsible for the closure of your email addresses, social media profiles, and blogs after you are deceased. Take these steps to help you write a social media will (download a social media will template in Excel format):

  • Review the privacy policies and the terms and conditions of each website where you have a presence.
  • State how you would like your profiles to be handled. You may want to completely cancel your profile or keep it up for friends and family to visit. Some sites allow users to create a memorial profile where other users can still see your profile but can’t post anything new.
  • Give the social media executor a document that lists all the websites where you have a profile, along with your usernames and passwords.
  • Stipulate in your will that the online executor should have a copy of your death certificate. The online executor may need this as proof in order for websites to take any actions on your behalf.
  • Check to see if the social media platforms have account management features to let you proactively manage what happens to your accounts after you die. For example, Google's Inactive Account Manager allows you to manage how you want your online content to be saved or deleted. This feature also lets you give permission for your family or close friends to access the content you saved on Google websites after you die.

The Beware Amending Tax Returns

Beware amending tax returns 2. Beware amending tax returns   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. Beware amending tax returns 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. Beware amending tax returns S. Beware amending tax returns or foreign source income. Beware amending tax returns 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. Beware amending tax returns S. Beware amending tax returns Virgin Islands (USVI). Beware amending tax returns Generally, the same rules that apply for determining U. Beware amending tax returns S. Beware amending tax returns source income also apply for determining possession source income. Beware amending tax returns However, there are some important exceptions to these rules. Beware amending tax returns Both the general rules and the exceptions are discussed in this chapter. Beware amending tax returns U. Beware amending tax returns S. Beware amending tax returns income rule. Beware amending tax returns   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. Beware amending tax returns Table 2-1 shows the general rules for determining whether income is from sources within the United States. Beware amending tax returns Table 2-1. Beware amending tax returns General Rules for Determining U. Beware amending tax returns S. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns For more information, see Regulations section 1. Beware amending tax returns 863-1(b). Beware amending tax returns 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. Beware amending tax returns Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Beware amending tax returns 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. Beware amending tax returns It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Beware amending tax returns Services performed wholly within a relevant possession. Beware amending tax returns   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Beware amending tax returns However, there is an exception for income earned as a member of the U. Beware amending tax returns S. Beware amending tax returns Armed Forces or a civilian spouse. Beware amending tax returns U. Beware amending tax returns S. Beware amending tax returns Armed Forces. Beware amending tax returns   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. Beware amending tax returns 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. Beware amending tax returns Civilian spouse of active duty member of the U. Beware amending tax returns S. Beware amending tax returns Armed Forces. Beware amending tax returns   If you are a bona fide resident of a U. Beware amending tax returns S. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns S. Beware amending tax returns possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Beware amending tax returns Services performed partly inside and partly outside a relevant possession. Beware amending tax returns   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. Beware amending tax returns Compensation (other than certain fringe benefits) is sourced on a time basis. Beware amending tax returns Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Beware amending tax returns   Or, you may be permitted to use an alternative basis to determine the source of compensation. Beware amending tax returns See Alternative basis , later. Beware amending tax returns   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. Beware amending tax returns In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Beware amending tax returns Time basis. Beware amending tax returns   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Beware amending tax returns 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. Beware amending tax returns The time period for which the income is made does not have to be a year. Beware amending tax returns 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. Beware amending tax returns Example. Beware amending tax returns 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. Beware amending tax returns Your Puerto Rico source income is $60,000, figured as follows. Beware amending tax returns       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Beware amending tax returns   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Beware amending tax returns 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. Beware amending tax returns You determine the period to which the income is attributable based on the facts and circumstances of your case. Beware amending tax returns For more information on multi-year compensation, see Treasury Decision (T. Beware amending tax returns D. Beware amending tax returns ) 9212 and Regulations section 1. Beware amending tax returns 861-4, 2005-35 I. Beware amending tax returns R. Beware amending tax returns B. Beware amending tax returns 429, available at www. Beware amending tax returns irs. Beware amending tax returns gov/irb/2005-35_IRB/ar14. Beware amending tax returns html. Beware amending tax returns Certain fringe benefits sourced on a geographical basis. Beware amending tax returns   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. Beware amending tax returns Housing. Beware amending tax returns Education. Beware amending tax returns Local transportation. Beware amending tax returns Tax reimbursement. Beware amending tax returns Hazardous or hardship duty pay. Beware amending tax returns Moving expense reimbursement. Beware amending tax returns For information on determining the source of the fringe benefits listed above, see Regulations section 1. Beware amending tax returns 861-4. Beware amending tax returns Alternative basis. Beware amending tax returns   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. Beware amending tax returns 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. Beware amending tax returns De minimis exception. Beware amending tax returns   There is an exception to the rule for determining the source of income earned in a possession. Beware amending tax returns Generally, you will not have income from a possession if during a tax year you: Are a U. Beware amending tax returns S. Beware amending tax returns 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. Beware amending tax returns This exception began with income earned during your 2008 tax year. Beware amending tax returns Pensions. Beware amending tax returns   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Beware amending tax returns The contribution portion is sourced according to where services were performed that earned the pension. Beware amending tax returns The investment earnings portion is sourced according to the location of the pension trust. Beware amending tax returns Example. Beware amending tax returns You are a U. Beware amending tax returns S. Beware amending tax returns citizen who worked in Puerto Rico for a U. Beware amending tax returns S. Beware amending tax returns company. Beware amending tax returns All services were performed in Puerto Rico. Beware amending tax returns Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Beware amending tax returns S. Beware amending tax returns pension trust of your employer. Beware amending tax returns Distributions from the U. Beware amending tax returns S. Beware amending tax returns pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Beware amending tax returns S. Beware amending tax returns source income. Beware amending tax returns Investment Income This category includes such income as interest, dividends, rents, and royalties. Beware amending tax returns Interest income. Beware amending tax returns   The source of interest income is generally determined by the residence of the payer. Beware amending tax returns 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. Beware amending tax returns   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. Beware amending tax returns See Regulations section 1. Beware amending tax returns 937-2(i) for more information. Beware amending tax returns Dividends. Beware amending tax returns   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Beware amending tax returns 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. Beware amending tax returns For more information, see Regulations section 1. Beware amending tax returns 937-2(g). Beware amending tax returns Rental income. Beware amending tax returns   Rents from property located in a relevant possession are treated as income from sources within that possession. Beware amending tax returns Royalties. Beware amending tax returns   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Beware amending tax returns   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. Beware amending tax returns Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Beware amending tax returns The most common situations are discussed below. Beware amending tax returns Real property. Beware amending tax returns   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Beware amending tax returns The location of the property generally determines the source of income from the sale. Beware amending tax returns 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. Beware amending tax returns If, however, the home you sold was located in the United States, the gain is U. Beware amending tax returns S. Beware amending tax returns source income. Beware amending tax returns Personal property. Beware amending tax returns   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Beware amending tax returns Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Beware amending tax returns 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. Beware amending tax returns   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. Beware amending tax returns The rules applying to sales of inventory are discussed below. Beware amending tax returns For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Beware amending tax returns Inventory. Beware amending tax returns   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. Beware amending tax returns The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Beware amending tax returns Purchased. Beware amending tax returns   Income from the sale of inventory that you purchased is sourced where you sell the property. Beware amending tax returns Generally, this is where title to the property passes to the buyer. Beware amending tax returns Produced. Beware amending tax returns   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. Beware amending tax returns For information on making the allocation, see Regulations section 1. Beware amending tax returns 863-3(f). Beware amending tax returns 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. Beware amending tax returns S. Beware amending tax returns citizen or resident alien prior to becoming a bona fide resident of a possession. Beware amending tax returns You are subject to these special rules if you meet both of the following conditions. Beware amending tax returns For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Beware amending tax returns 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). Beware amending tax returns 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. Beware amending tax returns Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Beware amending tax returns S. Beware amending tax returns tax return. Beware amending tax returns (See chapter 3 for additional filing information. Beware amending tax returns ) 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. Beware amending tax returns These rules apply to dispositions after April 11, 2005. Beware amending tax returns For details, see Regulations section 1. Beware amending tax returns 937-2(f)(1) and Examples 1 and 2 of section 1. Beware amending tax returns 937-2(k). Beware amending tax returns Example 1. Beware amending tax returns In 2007, Cheryl Jones, a U. Beware amending tax returns S. Beware amending tax returns citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Beware amending tax returns S. Beware amending tax returns corporation listed on the New York Stock Exchange. Beware amending tax returns On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Beware amending tax returns 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. Beware amending tax returns On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Beware amending tax returns On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Beware amending tax returns Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Beware amending tax returns The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Beware amending tax returns This existing special rule applies if you are a U. Beware amending tax returns S. Beware amending tax returns 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. Beware amending tax returns S. Beware amending tax returns assets during the 10-year period beginning when you became a bona fide resident. Beware amending tax returns The gain is U. Beware amending tax returns S. Beware amending tax returns source income that generally is subject to U. Beware amending tax returns S. Beware amending tax returns tax if the property is either (1) located in the United States; (2) stock issued by a U. Beware amending tax returns S. Beware amending tax returns corporation or a debt obligation of a U. Beware amending tax returns S. Beware amending tax returns 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). Beware amending tax returns See chapter 3 for filing information. Beware amending tax returns Special election. Beware amending tax returns   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. Beware amending tax returns Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Beware amending tax returns This election overrides both of the special rules discussed earlier. Beware amending tax returns   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. Beware amending tax returns Marketable securities. Beware amending tax returns   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Beware amending tax returns Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Beware amending tax returns S. Beware amending tax returns holding periods. Beware amending tax returns   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Beware amending tax returns 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. Beware amending tax returns This is your gain (or loss) that is treated as being from sources within the relevant possession. Beware amending tax returns 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. Beware amending tax returns Example 2. Beware amending tax returns Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Beware amending tax returns S. Beware amending tax returns and possession holding periods. Beware amending tax returns Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Beware amending tax returns 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). Beware amending tax returns 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. Beware amending tax returns Other personal property. Beware amending tax returns   For personal property other than marketable securities, use a time-based allocation. Beware amending tax returns Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Beware amending tax returns      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. Beware amending tax returns Example 3. Beware amending tax returns In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Beware amending tax returns On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Beware amending tax returns 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. Beware amending tax returns She had owned the interest for a total of 1,720 days. Beware amending tax returns Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Beware amending tax returns The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns These rules do not apply to amounts paid as salary or other compensation for services. Beware amending tax returns See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Beware amending tax returns 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. Beware amending tax returns These circumstances are listed below. Beware amending tax returns You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Beware amending tax returns That office or place of business is a material factor in producing the income. Beware amending tax returns The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Beware amending tax returns 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. Beware amending tax returns The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns Example. Beware amending tax returns Marcy Jackson is a bona fide resident of American Samoa. Beware amending tax returns Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns 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. Beware amending tax returns Prev  Up  Next   Home   More Online Publications