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File 2006 Taxes Online Free

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File 2006 taxes online free 9. File 2006 taxes online free   Rental Income and Expenses Table of Contents Introduction Useful Items - You may want to see: Rental Income Rental ExpensesVacant while listed for sale. File 2006 taxes online free Repairs and Improvements Other Expenses Property Changed to Rental Use Renting Part of Property Not Rented for Profit Personal Use of Dwelling Unit (Including Vacation Home)Example. File 2006 taxes online free Dividing Expenses Dwelling Unit Used as a Home Reporting Income and Deductions DepreciationChanging your accounting method to deduct unclaimed depreciation. File 2006 taxes online free Limits on Rental LossesAt-Risk Rules Passive Activity Limits How To Report Rental Income and ExpensesSchedule E (Form 1040) Introduction This chapter discusses rental income and expenses. File 2006 taxes online free It also covers the following topics. File 2006 taxes online free Personal use of dwelling unit (including vacation home). File 2006 taxes online free Depreciation. File 2006 taxes online free Limits on rental losses. File 2006 taxes online free How to report your rental income and expenses. File 2006 taxes online free If you sell or otherwise dispose of your rental property, see Publication 544, Sales and Other Dispositions of Assets. File 2006 taxes online free If you have a loss from damage to, or theft of, rental property, see Publication 547, Casualties, Disasters, and Thefts. File 2006 taxes online free If you rent a condominium or a cooperative apartment, some special rules apply to you even though you receive the same tax treatment as other owners of rental property. File 2006 taxes online free See Publication 527, Residential Rental Property, for more information. File 2006 taxes online free Useful Items - You may want to see: Publication 527 Residential Rental Property 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 6251 Alternative Minimum Tax—Individuals 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss Rental Income In most cases, you must include in your gross income all amounts you receive as rent. File 2006 taxes online free Rental income is any payment you receive for the use or occupation of property. File 2006 taxes online free In addition to amounts you receive as normal rent payments, there are other amounts that may be rental income. File 2006 taxes online free When to report. File 2006 taxes online free   If you are a cash-basis taxpayer, you report rental income on your return for the year you actually or constructively receive it. File 2006 taxes online free You are a cash-basis taxpayer if you report income in the year you receive it, regardless of when it was earned. File 2006 taxes online free You constructively receive income when it is made available to you, for example, by being credited to your bank account. File 2006 taxes online free   For more information about when you constructively receive income, see Accounting Methods in chapter 1. File 2006 taxes online free Advance rent. File 2006 taxes online free   Advance rent is any amount you receive before the period that it covers. File 2006 taxes online free Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. File 2006 taxes online free Example. File 2006 taxes online free You sign a 10-year lease to rent your property. File 2006 taxes online free In the first year, you receive $5,000 for the first year's rent and $5,000 as rent for the last year of the lease. File 2006 taxes online free You must include $10,000 in your income in the first year. File 2006 taxes online free Canceling a lease. File 2006 taxes online free   If your tenant pays you to cancel a lease, the amount you receive is rent. File 2006 taxes online free Include the payment in your income in the year you receive it regardless of your method of accounting. File 2006 taxes online free Expenses paid by tenant. File 2006 taxes online free   If your tenant pays any of your expenses, the payments are rental income. File 2006 taxes online free Because you must include this amount in income, you can deduct the expenses if they are deductible rental expenses. File 2006 taxes online free See Rental Expenses , later, for more information. File 2006 taxes online free Property or services. File 2006 taxes online free   If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. File 2006 taxes online free   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. File 2006 taxes online free Security deposits. File 2006 taxes online free   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. File 2006 taxes online free But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. File 2006 taxes online free   If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. File 2006 taxes online free Include it in your income when you receive it. File 2006 taxes online free Part interest. File 2006 taxes online free   If you own a part interest in rental property, you must report your part of the rental income from the property. File 2006 taxes online free Rental of property also used as your home. File 2006 taxes online free   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. File 2006 taxes online free However, you can deduct on Schedule A (Form 1040) the interest, taxes, and casualty and theft losses that are allowed for nonrental property. File 2006 taxes online free See Personal Use of Dwelling Unit (Including Vacation Home) , later. File 2006 taxes online free Rental Expenses This part discusses expenses of renting property that you ordinarily can deduct from your rental income. File 2006 taxes online free It includes information on the expenses you can deduct if you rent part of your property, or if you change your property to rental use. File 2006 taxes online free Depreciation , which you can also deduct from your rental income, is discussed later. File 2006 taxes online free Personal use of rental property. File 2006 taxes online free   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. File 2006 taxes online free Also, your rental expense deductions may be limited. File 2006 taxes online free See Personal Use of Dwelling Unit (Including Vacation Home) , later. File 2006 taxes online free Part interest. File 2006 taxes online free   If you own a part interest in rental property, you can deduct expenses that you paid according to your percentage of ownership. File 2006 taxes online free When to deduct. File 2006 taxes online free   If you are a cash-basis taxpayer, you generally deduct your rental expenses in the year you pay them. File 2006 taxes online free Depreciation. File 2006 taxes online free   You can begin to depreciate rental property when it is ready and available for rent. File 2006 taxes online free See Placed-in-Service under When Does Depreciation Begin and End in chapter 2 of Publication 527. File 2006 taxes online free Pre-rental expenses. File 2006 taxes online free   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. File 2006 taxes online free Uncollected rent. File 2006 taxes online free   If you are a cash-basis taxpayer, do not deduct uncollected rent. File 2006 taxes online free Because you have not included it in your income, it is not deductible. File 2006 taxes online free Vacant rental property. File 2006 taxes online free   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. File 2006 taxes online free However, you cannot deduct any loss of rental income for the period the property is vacant. File 2006 taxes online free Vacant while listed for sale. File 2006 taxes online free   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. File 2006 taxes online free If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. File 2006 taxes online free Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. File 2006 taxes online free Improvements. File 2006 taxes online free   You must capitalize any expense you pay to improve your rental property. File 2006 taxes online free An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. File 2006 taxes online free Betterments. File 2006 taxes online free   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. File 2006 taxes online free Restoration. File 2006 taxes online free   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. File 2006 taxes online free Adaptation. File 2006 taxes online free   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. File 2006 taxes online free Separate the costs of repairs and improvements, and keep accurate records. File 2006 taxes online free You will need to know the cost of improvements when you sell or depreciate your property. File 2006 taxes online free The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. File 2006 taxes online free Other Expenses Other expenses you can deduct from your rental income include advertising, cleaning and maintenance, utilities, fire and liability insurance, taxes, interest, commissions for the collection of rent, ordinary and necessary travel and transportation, and other expenses, discussed next. File 2006 taxes online free Insurance premiums paid in advance. File 2006 taxes online free   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. File 2006 taxes online free You cannot deduct the total premium in the year you pay it. File 2006 taxes online free Legal and other professional fees. File 2006 taxes online free   You can deduct, as a rental expense, legal and other professional expenses, such as tax return preparation fees you paid to prepare Schedule E (Form 1040), Part I. File 2006 taxes online free For example, on your 2013 Schedule E, you can deduct fees paid in 2013 to prepare your 2012 Schedule E, Part I. File 2006 taxes online free You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. File 2006 taxes online free Local benefit taxes. File 2006 taxes online free   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. File 2006 taxes online free These charges are nondepreciable capital expenditures, and must be added to the basis of your property. File 2006 taxes online free However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. File 2006 taxes online free Local transportation expenses. File 2006 taxes online free    You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. File 2006 taxes online free However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. File 2006 taxes online free See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. File 2006 taxes online free   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. File 2006 taxes online free For 2013, the standard mileage rate for business use is 56. File 2006 taxes online free 5 cents per mile. File 2006 taxes online free For more information, see chapter 26. File 2006 taxes online free    To deduct car expenses under either method, you must keep records that follow the rules in chapter 26. File 2006 taxes online free In addition, you must complete Form 4562, Part V, and attach it to your tax return. File 2006 taxes online free Rental of equipment. File 2006 taxes online free   You can deduct the rent you pay for equipment that you use for rental purposes. File 2006 taxes online free However, in some cases, lease contracts are actually purchase contracts. File 2006 taxes online free If so, you cannot deduct these payments. File 2006 taxes online free You can recover the cost of purchased equipment through depreciation. File 2006 taxes online free Rental of property. File 2006 taxes online free   You can deduct the rent you pay for property that you use for rental purposes. File 2006 taxes online free If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. File 2006 taxes online free Travel expenses. File 2006 taxes online free   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. File 2006 taxes online free You must properly allocate your expenses between rental and nonrental activities. File 2006 taxes online free You cannot deduct the cost of traveling away from home if the primary purpose of the trip was to improve your property. File 2006 taxes online free You recover the cost of improvements by taking depreciation. File 2006 taxes online free For information on travel expenses, see chapter 26. File 2006 taxes online free    To deduct travel expenses, you must keep records that follow the rules in chapter 26. File 2006 taxes online free   See Rental Expenses in Publication 527 for more information. File 2006 taxes online free Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. File 2006 taxes online free You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. File 2006 taxes online free You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. File 2006 taxes online free However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). File 2006 taxes online free Example. File 2006 taxes online free Your tax year is the calendar year. File 2006 taxes online free You moved from your home in May and started renting it out on June 1. File 2006 taxes online free You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. File 2006 taxes online free Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. File 2006 taxes online free Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. File 2006 taxes online free You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). File 2006 taxes online free You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity or painting the outside of your house. File 2006 taxes online free There is no change in the types of expenses deductible for the personal-use part of your property. File 2006 taxes online free Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). File 2006 taxes online free You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. File 2006 taxes online free You do not have to divide the expenses that belong only to the rental part of your property. File 2006 taxes online free For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. File 2006 taxes online free If you install a second phone line strictly for your tenants' use, all of the cost of the second line is deductible as a rental expense. File 2006 taxes online free You can deduct depreciation, discussed later, on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. File 2006 taxes online free How to divide expenses. File 2006 taxes online free   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between the rental use and the personal use. File 2006 taxes online free You can use any reasonable method for dividing the expense. File 2006 taxes online free It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. File 2006 taxes online free The two most common methods for dividing an expense are based on (1) the number of rooms in your home, and (2) the square footage of your home. File 2006 taxes online free Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. File 2006 taxes online free You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. File 2006 taxes online free For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. File 2006 taxes online free Where to report. File 2006 taxes online free   Report your not-for-profit rental income on Form 1040, line 21. File 2006 taxes online free For example, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. File 2006 taxes online free   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Form 1040, Schedule A, line 23. File 2006 taxes online free You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. File 2006 taxes online free Personal Use of Dwelling Unit (Including Vacation Home) If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. File 2006 taxes online free In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. File 2006 taxes online free Only your rental expenses may be deducted on Schedule E (Form 1040). File 2006 taxes online free Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). File 2006 taxes online free You must also determine if the dwelling unit is considered a home. File 2006 taxes online free The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. File 2006 taxes online free Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. File 2006 taxes online free There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. File 2006 taxes online free Dwelling unit. File 2006 taxes online free   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. File 2006 taxes online free It also includes all structures or other property belonging to the dwelling unit. File 2006 taxes online free A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. File 2006 taxes online free   A dwelling unit does not include property used solely as a hotel, motel, inn, or similar establishment. File 2006 taxes online free Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. File 2006 taxes online free Example. File 2006 taxes online free   You rent a room in your home that is always available for short-term occupancy by paying customers. File 2006 taxes online free You do not use the room yourself, and you allow only paying customers to use the room. File 2006 taxes online free The room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. File 2006 taxes online free Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. File 2006 taxes online free When dividing your expenses, follow these rules. File 2006 taxes online free Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. File 2006 taxes online free This rule does not apply when determining whether you used the unit as a home. File 2006 taxes online free Any day that the unit is available for rent but not actually rented is not a day of rental use. File 2006 taxes online free Example. File 2006 taxes online free Your beach cottage was available for rent from June 1 through August 31 (92 days). File 2006 taxes online free During that time, except for the first week in August (7 days) when you were unable to find a renter, you rented the cottage at a fair rental price. File 2006 taxes online free The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. File 2006 taxes online free Your family also used the cottage during the last 2 weeks of May (14 days). File 2006 taxes online free The cottage was not used at all before May 17 or after August 31. File 2006 taxes online free You figure the part of the cottage expenses to treat as rental expenses as follows. File 2006 taxes online free The cottage was used for rental a total of 85 days (92 − 7). File 2006 taxes online free The days it was available for rent but not rented (7 days) are not days of rental use. File 2006 taxes online free The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. File 2006 taxes online free You used the cottage for personal purposes for 14 days (the last 2 weeks in May). File 2006 taxes online free The total use of the cottage was 99 days (14 days personal use + 85 days rental use). File 2006 taxes online free Your rental expenses are 85/99 (86%) of the cottage expenses. File 2006 taxes online free Note. File 2006 taxes online free When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. File 2006 taxes online free Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. File 2006 taxes online free Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. File 2006 taxes online free If you have a net loss, you may not be able to deduct all of the rental expenses. File 2006 taxes online free See Dwelling Unit Used as a Home, next. File 2006 taxes online free Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. File 2006 taxes online free You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. File 2006 taxes online free See What is a day of personal use , later. File 2006 taxes online free Fair rental price. File 2006 taxes online free   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. File 2006 taxes online free The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. File 2006 taxes online free   If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price, do not count that day as a day of rental use in applying (2) above. File 2006 taxes online free Instead, count it as a day of personal use in applying both (1) and (2) above. File 2006 taxes online free What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. File 2006 taxes online free You or any other person who has an interest in the unit, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). File 2006 taxes online free However, see Days used as a main home before or after renting , later. File 2006 taxes online free A member of your family or a member of the family of any other person who owns an interest in the unit, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. File 2006 taxes online free Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. File 2006 taxes online free ), and lineal descendants (children, grandchildren, etc. File 2006 taxes online free ). File 2006 taxes online free Anyone under an arrangement that lets you use some other dwelling unit. File 2006 taxes online free Anyone at less than a fair rental price. File 2006 taxes online free Main home. File 2006 taxes online free   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. File 2006 taxes online free Shared equity financing agreement. File 2006 taxes online free   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. File 2006 taxes online free Donation of use of property. File 2006 taxes online free   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. File 2006 taxes online free Examples. File 2006 taxes online free   The following examples show how to determine days of personal use. File 2006 taxes online free Example 1. File 2006 taxes online free You and your neighbor are co-owners of a condominium at the beach. File 2006 taxes online free Last year, you rented the unit to vacationers whenever possible. File 2006 taxes online free The unit was not used as a main home by anyone. File 2006 taxes online free Your neighbor used the unit for 2 weeks last year; you did not use it at all. File 2006 taxes online free Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. File 2006 taxes online free Example 2. File 2006 taxes online free You and your neighbors are co-owners of a house under a shared equity financing agreement. File 2006 taxes online free Your neighbors live in the house and pay you a fair rental price. File 2006 taxes online free Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. File 2006 taxes online free This is because your neighbors rent the house as their main home under a shared equity financing agreement. File 2006 taxes online free Example 3. File 2006 taxes online free You own a rental property that you rent to your son. File 2006 taxes online free Your son does not own any interest in this property. File 2006 taxes online free He uses it as his main home and pays you a fair rental price. File 2006 taxes online free Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. File 2006 taxes online free Example 4. File 2006 taxes online free You rent your beach house to Joshua. File 2006 taxes online free Joshua rents his cabin in the mountains to you. File 2006 taxes online free You each pay a fair rental price. File 2006 taxes online free You are using your house for personal purposes on the days that Joshua uses it because your house is used by Joshua under an arrangement that allows you to use his house. File 2006 taxes online free Days used for repairs and maintenance. File 2006 taxes online free   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. File 2006 taxes online free Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. File 2006 taxes online free Days used as a main home before or after renting. File 2006 taxes online free   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. File 2006 taxes online free Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. File 2006 taxes online free You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. File 2006 taxes online free However, this special rule does not apply when dividing expenses between rental and personal use. File 2006 taxes online free Examples. File 2006 taxes online free   The following examples show how to determine whether you used your rental property as a home. File 2006 taxes online free Example 1. File 2006 taxes online free You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. File 2006 taxes online free You rented the basement apartment at a fair rental price to college students during the regular school year. File 2006 taxes online free You rented to them on a 9-month lease (273 days). File 2006 taxes online free You figured 10% of the total days rented to others at a fair rental price is 27 days. File 2006 taxes online free During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. File 2006 taxes online free Your basement apartment was used as a home because you used it for personal purposes for 30 days. File 2006 taxes online free Rent-free use by your brothers is considered personal use. File 2006 taxes online free Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). File 2006 taxes online free Example 2. File 2006 taxes online free You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). File 2006 taxes online free Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. File 2006 taxes online free You figured 10% of the total days rented to others at a fair rental price is 3 days. File 2006 taxes online free The room was used as a home because you used it for personal purposes for 21 days. File 2006 taxes online free That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). File 2006 taxes online free Example 3. File 2006 taxes online free You own a condominium apartment in a resort area. File 2006 taxes online free You rented it at a fair rental price for a total of 170 days during the year. File 2006 taxes online free For 12 of those days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. File 2006 taxes online free Your family actually used the apartment for 10 of those days. File 2006 taxes online free Therefore, the apartment is treated as having been rented for 160 (170 − 10) days. File 2006 taxes online free You figured 10% of the total days rented to others at a fair rental price is 16 days. File 2006 taxes online free Your family also used the apartment for 7 other days during the year. File 2006 taxes online free You used the apartment as a home because you used it for personal purposes for 17 days. File 2006 taxes online free That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). File 2006 taxes online free Minimal rental use. File 2006 taxes online free   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. File 2006 taxes online free See Used as a home but rented less than 15 days , later, for more information. File 2006 taxes online free Limit on deductions. File 2006 taxes online free   Renting a dwelling unit that is considered a home is not a passive activity. File 2006 taxes online free Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. File 2006 taxes online free The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. File 2006 taxes online free Any expenses carried forward to the next year will be subject to any limits that apply for that year. File 2006 taxes online free This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. File 2006 taxes online free   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 9-1. File 2006 taxes online free Reporting Income and Deductions Property not used for personal purposes. File 2006 taxes online free   If you do not use a dwelling unit for personal purposes, see How To Report Rental Income and Expenses , later, for how to report your rental income and expenses. File 2006 taxes online free Property used for personal purposes. File 2006 taxes online free   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. File 2006 taxes online free Not used as a home. File 2006 taxes online free   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. File 2006 taxes online free Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . File 2006 taxes online free The expenses for personal use are not deductible as rental expenses. File 2006 taxes online free   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses , later. File 2006 taxes online free Used as a home but rented less than 15 days. File 2006 taxes online free   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). File 2006 taxes online free You are not required to report the rental income and rental expenses from this activity. File 2006 taxes online free The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). File 2006 taxes online free See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. File 2006 taxes online free Used as a home and rented 15 days or more. File 2006 taxes online free   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. File 2006 taxes online free Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in Dividing Expenses . File 2006 taxes online free The expenses for personal use are not deductible as rental expenses. File 2006 taxes online free   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. File 2006 taxes online free You do not need to use Worksheet 9-1. File 2006 taxes online free   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. File 2006 taxes online free To figure your deductible rental expenses and any carryover to next year, use Worksheet 9-1. File 2006 taxes online free Depreciation You recover the cost of income-producing property through yearly tax deductions. File 2006 taxes online free You do this by depreciating the property; that is, by deducting some of the cost each year on your tax return. File 2006 taxes online free Three factors determine how much depreciation you can deduct each year: (1) your basis in the property, (2) the recovery period for the property, and (3) the depreciation method used. File 2006 taxes online free You cannot simply deduct your mortgage or principal payments, or the cost of furniture, fixtures, and equipment, as an expense. File 2006 taxes online free You can deduct depreciation only on the part of your property used for rental purposes. File 2006 taxes online free Depreciation reduces your basis for figuring gain or loss on a later sale or exchange. File 2006 taxes online free You may have to use Form 4562 to figure and report your depreciation. File 2006 taxes online free See How To Report Rental Income and Expenses , later. File 2006 taxes online free Alternative minimum tax (AMT). File 2006 taxes online free    If you use accelerated depreciation, you may be subject to the AMT. File 2006 taxes online free Accelerated depreciation allows you to deduct more depreciation earlier in the recovery period than you could deduct using a straight line method (same deduction each year). File 2006 taxes online free Claiming the correct amount of depreciation. File 2006 taxes online free   You should claim the correct amount of depreciation each tax year. File 2006 taxes online free If you did not claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. File 2006 taxes online free   If you deducted an incorrect amount of depreciation for property in any year, you may be able to make a correction by filing Form 1040X, Amended U. File 2006 taxes online free S Individual Income Tax Return. File 2006 taxes online free If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amount of depreciation. File 2006 taxes online free See Claiming the correct amount of depreciation in chapter 2 of Publication 527 for more information. File 2006 taxes online free Changing your accounting method to deduct unclaimed depreciation. File 2006 taxes online free   To change your accounting method, you generally must file Form 3115, Application for Change in Accounting Method, to get the consent of the IRS. File 2006 taxes online free In some instances, that consent is automatic. File 2006 taxes online free For more information, see chapter 1 of Publication 946. File 2006 taxes online free Land. File 2006 taxes online free   You cannot depreciate the cost of land because land generally does not wear out, become obsolete, or get used up. File 2006 taxes online free The costs of clearing, grading, planting, and landscaping are usually all part of the cost of land and cannot be depreciated. File 2006 taxes online free More information. File 2006 taxes online free   See Publication 527 for more information about depreciating rental property and see Publication 946 for more information about depreciation. File 2006 taxes online free Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. File 2006 taxes online free You must consider these rules in the order shown below. File 2006 taxes online free At-risk rules. File 2006 taxes online free These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. File 2006 taxes online free This applies only if the real property was placed in service after 1986. File 2006 taxes online free Passive activity limits. File 2006 taxes online free Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. File 2006 taxes online free However, there are exceptions. File 2006 taxes online free At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. File 2006 taxes online free Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. File 2006 taxes online free In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. File 2006 taxes online free You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. File 2006 taxes online free See Publication 925 for more information. File 2006 taxes online free Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. File 2006 taxes online free For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. File 2006 taxes online free Limits on passive activity deductions and credits. File 2006 taxes online free    Deductions or losses from passive activities are limited. File 2006 taxes online free You generally cannot offset income, other than passive income, with losses from passive activities. File 2006 taxes online free Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. File 2006 taxes online free Any excess loss or credit is carried forward to the next tax year. File 2006 taxes online free   For a detailed discussion of these rules, see Publication 925. File 2006 taxes online free    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. File 2006 taxes online free Real estate professionals. File 2006 taxes online free   Rental activities in which you materially participated during the year are not passive activities if, for that year, you were a real estate professional. File 2006 taxes online free For a detailed discussion of the requirements, see Publication 527. File 2006 taxes online free For a detailed discussion of material participation, see Publication 925. File 2006 taxes online free Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. File 2006 taxes online free Instead, follow the rules explained in Personal Use of Dwelling Unit (Including Vacation Home), earlier. File 2006 taxes online free Exception for Rental Real Estate Activities With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. File 2006 taxes online free This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. File 2006 taxes online free Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. File 2006 taxes online free Active participation. File 2006 taxes online free   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. File 2006 taxes online free Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions. File 2006 taxes online free Maximum special allowance. File 2006 taxes online free   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. File 2006 taxes online free   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. File 2006 taxes online free If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. File 2006 taxes online free   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. File 2006 taxes online free More information. File 2006 taxes online free   See Publication 925 for more information on the passive loss limits, including information on the treatment of unused disallowed passive losses and credits and the treatment of gains and losses realized on the disposition of a passive activity. File 2006 taxes online free How To Report Rental Income and Expenses The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). File 2006 taxes online free However, do not use that schedule to report a not-for-profit activity. File 2006 taxes online free See Not Rented for Profit, earlier. File 2006 taxes online free Providing substantial services. File 2006 taxes online free   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business (Sole Proprietorship). File 2006 taxes online free Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. File 2006 taxes online free For information, see Publication 334, Tax Guide for Small Business. File 2006 taxes online free You also may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. File 2006 taxes online free   Use Form 1065, U. File 2006 taxes online free S. File 2006 taxes online free Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). File 2006 taxes online free Qualified joint venture. File 2006 taxes online free   If you and your spouse each materially participate as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. File 2006 taxes online free This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. File 2006 taxes online free For more information, see Publication 527. File 2006 taxes online free Form 1098, Mortgage Interest Statement. File 2006 taxes online free    If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098, or similar statement showing the interest you paid for the year. File 2006 taxes online free If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. File 2006 taxes online free Attach a statement to your return showing the name and address of the other person. File 2006 taxes online free In the left margin of Schedule E, next to line 13, enter “See attached. File 2006 taxes online free ” Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. File 2006 taxes online free , you normally report your rental income and expenses on Schedule E, Part I. File 2006 taxes online free List your total income, expenses, and depreciation for each rental property. File 2006 taxes online free Be sure to enter the number of fair rental and personal use days on line 2. File 2006 taxes online free If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. File 2006 taxes online free Complete lines 1 and 2 for each property. File 2006 taxes online free However, fill in lines 23a through 26 on only one Schedule E. File 2006 taxes online free On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. File 2006 taxes online free To find out if you need to attach Form 4562, see Form 4562, in chapter 3 of Publication 527. File 2006 taxes online free If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. File 2006 taxes online free Form 6198, At-Risk Limitations. File 2006 taxes online free See At-Risk Rules , earlier. File 2006 taxes online free Also see Publication 925. File 2006 taxes online free Form 8582, Passive Activity Loss Limitations. File 2006 taxes online free See Passive Activity Limits , earlier. File 2006 taxes online free Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. File 2006 taxes online free If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. File 2006 taxes online free Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). File 2006 taxes online free Worksheet 9-1. File 2006 taxes online free Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. File 2006 taxes online free Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . File 2006 taxes online free ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. File 2006 taxes online free Rental Use Percentage A. File 2006 taxes online free Total days available for rent at fair rental price A. File 2006 taxes online free       B. File 2006 taxes online free Total days available for rent (line A) but not rented B. File 2006 taxes online free       C. File 2006 taxes online free Total days of rental use. File 2006 taxes online free Subtract line B from line A C. File 2006 taxes online free       D. File 2006 taxes online free Total days of personal use (including days rented at less than fair rental price) D. File 2006 taxes online free       E. File 2006 taxes online free Total days of rental and personal use. File 2006 taxes online free Add lines C and D E. File 2006 taxes online free       F. File 2006 taxes online free Percentage of expenses allowed for rental. File 2006 taxes online free Divide line C by line E     F. File 2006 taxes online free   PART II. File 2006 taxes online free Allowable Rental Expenses 1. File 2006 taxes online free Enter rents received 1. File 2006 taxes online free   2a. File 2006 taxes online free Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. File 2006 taxes online free       b. File 2006 taxes online free Enter the rental portion of real estate taxes b. File 2006 taxes online free       c. File 2006 taxes online free Enter the rental portion of deductible casualty and theft losses (see instructions) c. File 2006 taxes online free       d. File 2006 taxes online free Enter direct rental expenses (see instructions) d. File 2006 taxes online free       e. File 2006 taxes online free Fully deductible rental expenses. File 2006 taxes online free Add lines 2a–2d. File 2006 taxes online free Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. File 2006 taxes online free   3. File 2006 taxes online free Subtract line 2e from line 1. File 2006 taxes online free If zero or less, enter -0- 3. File 2006 taxes online free   4a. File 2006 taxes online free Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. File 2006 taxes online free       b. File 2006 taxes online free Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. File 2006 taxes online free       c. File 2006 taxes online free Carryover of operating expenses from 2012 worksheet c. File 2006 taxes online free       d. File 2006 taxes online free Add lines 4a–4c d. File 2006 taxes online free       e. File 2006 taxes online free Allowable expenses. File 2006 taxes online free Enter the smaller of line 3 or line 4d (see instructions) 4e. File 2006 taxes online free   5. File 2006 taxes online free Subtract line 4e from line 3. File 2006 taxes online free If zero or less, enter -0- 5. File 2006 taxes online free   6a. File 2006 taxes online free Enter the rental portion of excess casualty and theft losses (see instructions) 6a. File 2006 taxes online free       b. File 2006 taxes online free Enter the rental portion of depreciation of the dwelling unit b. File 2006 taxes online free       c. File 2006 taxes online free Carryover of excess casualty losses and depreciation from 2012 worksheet c. File 2006 taxes online free       d. File 2006 taxes online free Add lines 6a–6c d. File 2006 taxes online free       e. File 2006 taxes online free Allowable excess casualty and theft losses and depreciation. File 2006 taxes online free Enter the smaller of  line 5 or line 6d (see instructions) 6e. File 2006 taxes online free   PART III. File 2006 taxes online free Carryover of Unallowed Expenses to Next Year 7a. File 2006 taxes online free Operating expenses to be carried over to next year. File 2006 taxes online free Subtract line 4e from line 4d 7a. File 2006 taxes online free   b. File 2006 taxes online free Excess casualty and theft losses and depreciation to be carried over to next year. File 2006 taxes online free  Subtract line 6e from line 6d b. File 2006 taxes online free   Worksheet 9-1 Instructions. File 2006 taxes online free Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. File 2006 taxes online free Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. File 2006 taxes online free Line 2a. File 2006 taxes online free Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. File 2006 taxes online free Do not include interest on a loan that did not benefit the dwelling unit. File 2006 taxes online free For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. File 2006 taxes online free Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. File 2006 taxes online free Include the rental portion of this interest in the total you enter on line 2a of the worksheet. File 2006 taxes online free   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. File 2006 taxes online free See the Schedule A instructions. File 2006 taxes online free However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. File 2006 taxes online free See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. File 2006 taxes online free Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. File 2006 taxes online free   Note. File 2006 taxes online free Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. File 2006 taxes online free Instead, figure the personal portion on a separate Schedule A. File 2006 taxes online free If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. File 2006 taxes online free           Line 2c. File 2006 taxes online free Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. File 2006 taxes online free To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. File 2006 taxes online free If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. File 2006 taxes online free On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. File 2006 taxes online free Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. File 2006 taxes online free   Note. File 2006 taxes online free Do not file this Form 4684 or use it to figure your personal losses on Schedule A. File 2006 taxes online free Instead, figure the personal portion on a separate Form 4684. File 2006 taxes online free           Line 2d. File 2006 taxes online free Enter the total of your rental expenses that are directly related only to the rental activity. File 2006 taxes online free These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. File 2006 taxes online free Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. File 2006 taxes online free           Line 2e. File 2006 taxes online free You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. File 2006 taxes online free Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. File 2006 taxes online free           Line 4b. File 2006 taxes online free On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. File 2006 taxes online free If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. File 2006 taxes online free Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions). File 2006 taxes online free           Line 4e. File 2006 taxes online free You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. File 2006 taxes online free *           Line 6a. File 2006 taxes online free To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. File 2006 taxes online free   A. File 2006 taxes online free Enter the amount from Form 4684, line 10       B. File 2006 taxes online free Enter the rental portion of line A       C. File 2006 taxes online free Enter the amount from line 2c of this worksheet       D. File 2006 taxes online free Subtract line C from line B. File 2006 taxes online free Enter the result here and on line 6a of this worksheet               Line 6e. File 2006 taxes online free You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. File 2006 taxes online free * *Allocating the limited deduction. File 2006 taxes online free If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. File 2006 taxes online free Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. File 2006 taxes online free Prev  Up  Next   Home   More Online Publications
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Today, it’s quick and easy to get a credit card approved, transfer money from one account to another, renew your driver’s license, fill a prescription from your doctor at your local pharmacy, use store loyalty cards, and purchase products online. But you pay for this convenience by providing more opportunities for your personal information to be changed, stolen, or reported inaccurately. Companies can also use the information you have shared to direct their future marketing efforts or can sell the information to other companies. To help protect your privacy, follow these tips:

  • Look for privacy statements on websites, sales materials, and forms you fill out. If a website claims to follow a set of established voluntary standards, read the standards. Don't assume they provide the level of privacy you want.
  • Ask what information will be collected and how it may be used.
  • Only provide the purchase date, model/serial numbers, and your contact information of warranty registration forms.
  • Discuss privacy with others in your home. Everyone, even children, should understand what information is not appropriate to share on the phone, while using a computer, and in other situations.

Check with your state or local consumer agency to find out whether any state laws that help protect your privacy. Some companies and industry groups have also adopted voluntary policies that address privacy concerns.

Creating Secure Passwords

The number of passwords that you need on a daily basis can be overwhelming. It is tempting to use the same password across several sites; however to get the most protection available, you should use different passwords on each site and change your passwords periodically. The goal for creating passwords is to strike a balance between being something that is easy to remember and unique. Some general tips for creating a secure password include:

  • Use a mix of uppercase and lowercase letters, numbers, and special characters.
  • The longer password, the better it is.
  • Don’t use your name, birthday, license plate, favorite sports teams or other facts that are easily guessed.
  • Create a password based on a phrase. For example “A stitch in time saves nine” can be translated into the password “Ast!Ts9”. where each character represents a word in the phrase.
  • If you must use the same password on several websites, add a prefix or suffix. For example, use “Ast!Ts9:4bnk”for your bank account and “Eml: Ast!Ts9” for your email account.

The File 2006 Taxes Online Free

File 2006 taxes online free Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. File 2006 taxes online free S. File 2006 taxes online free Taxpayer Identification NumbersUnexpected payment. File 2006 taxes online free Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. File 2006 taxes online free Electronic reporting. File 2006 taxes online free Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. File 2006 taxes online free S. File 2006 taxes online free Real Property InterestForeign corporations. File 2006 taxes online free Domestic corporations. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free real property holding corporations. File 2006 taxes online free Partnerships. File 2006 taxes online free Trusts and estates. File 2006 taxes online free Domestically controlled QIE. File 2006 taxes online free Late filing of certifications or notices. File 2006 taxes online free Certifications. File 2006 taxes online free Liability of agent or qualified substitute. File 2006 taxes online free Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File 2006 taxes online free Withholding of Tax In most cases, a foreign person is subject to U. File 2006 taxes online free S. File 2006 taxes online free tax on its U. File 2006 taxes online free S. File 2006 taxes online free source income. File 2006 taxes online free Most types of U. File 2006 taxes online free S. File 2006 taxes online free source income received by a foreign person are subject to U. File 2006 taxes online free S. File 2006 taxes online free tax of 30%. File 2006 taxes online free A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. File 2006 taxes online free The tax is generally withheld (NRA withholding) from the payment made to the foreign person. File 2006 taxes online free The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. File 2006 taxes online free In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. File 2006 taxes online free S. File 2006 taxes online free source income. File 2006 taxes online free Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. File 2006 taxes online free NRA withholding does not include withholding under section 1445 of the Code (see U. File 2006 taxes online free S. File 2006 taxes online free Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). File 2006 taxes online free A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. File 2006 taxes online free However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. File 2006 taxes online free S. File 2006 taxes online free person is not required to withhold. File 2006 taxes online free In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. File 2006 taxes online free Withholding Agent You are a withholding agent if you are a U. File 2006 taxes online free S. File 2006 taxes online free or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. File 2006 taxes online free A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. File 2006 taxes online free S. File 2006 taxes online free branch of certain foreign banks and insurance companies. File 2006 taxes online free You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. File 2006 taxes online free Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. File 2006 taxes online free In most cases, the U. File 2006 taxes online free S. File 2006 taxes online free person who pays an amount subject to NRA withholding is the person responsible for withholding. File 2006 taxes online free However, other persons may be required to withhold. File 2006 taxes online free For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. File 2006 taxes online free In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. File 2006 taxes online free Liability for tax. File 2006 taxes online free   As a withholding agent, you are personally liable for any tax required to be withheld. File 2006 taxes online free This liability is independent of the tax liability of the foreign person to whom the payment is made. File 2006 taxes online free If you fail to withhold and the foreign payee fails to satisfy its U. File 2006 taxes online free S. File 2006 taxes online free tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. File 2006 taxes online free   The applicable tax will be collected only once. File 2006 taxes online free If the foreign person satisfies its U. File 2006 taxes online free S. File 2006 taxes online free tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. File 2006 taxes online free Determination of amount to withhold. File 2006 taxes online free   You must withhold on the gross amount subject to NRA withholding. File 2006 taxes online free You cannot reduce the gross amount by any deductions. File 2006 taxes online free However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. File 2006 taxes online free   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. File 2006 taxes online free In no case, however, should you withhold more than 30% of the total amount paid. File 2006 taxes online free Or, you may make a reasonable estimate of the amount from U. File 2006 taxes online free S. File 2006 taxes online free sources and put a corresponding part of the amount due in escrow until the amount from U. File 2006 taxes online free S. File 2006 taxes online free sources can be determined, at which time withholding becomes due. File 2006 taxes online free When to withhold. File 2006 taxes online free   Withholding is required at the time you make a payment of an amount subject to withholding. File 2006 taxes online free A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. File 2006 taxes online free A payment is considered made to a person if it is paid for that person's benefit. File 2006 taxes online free For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. File 2006 taxes online free A payment also is considered made to a person if it is made to that person's agent. File 2006 taxes online free   A U. File 2006 taxes online free S. File 2006 taxes online free partnership should withhold when any distributions that include amounts subject to withholding are made. File 2006 taxes online free However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. File 2006 taxes online free S. File 2006 taxes online free partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. File 2006 taxes online free If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. File 2006 taxes online free A U. File 2006 taxes online free S. File 2006 taxes online free trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. File 2006 taxes online free To the extent a U. File 2006 taxes online free S. File 2006 taxes online free trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. File 2006 taxes online free Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. File 2006 taxes online free (See Returns Required , later. File 2006 taxes online free ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. File 2006 taxes online free Form 1099 reporting and backup withholding. File 2006 taxes online free    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. File 2006 taxes online free S. File 2006 taxes online free person. File 2006 taxes online free You must withhold 28% (backup withholding rate) from a reportable payment made to a U. File 2006 taxes online free S. File 2006 taxes online free person that is subject to Form 1099 reporting if any of the following apply. File 2006 taxes online free The U. File 2006 taxes online free S. File 2006 taxes online free person has not provided its taxpayer identification number (TIN) in the manner required. File 2006 taxes online free The IRS notifies you that the TIN furnished by the payee is incorrect. File 2006 taxes online free There has been a notified payee underreporting. File 2006 taxes online free There has been a payee certification failure. File 2006 taxes online free In most cases, a TIN must be provided by a U. File 2006 taxes online free S. File 2006 taxes online free non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. File 2006 taxes online free A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. File 2006 taxes online free You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. File 2006 taxes online free S. File 2006 taxes online free person. File 2006 taxes online free For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. File 2006 taxes online free S. File 2006 taxes online free person subject to Form 1099 reporting. File 2006 taxes online free See Identifying the Payee , later, for more information. File 2006 taxes online free Also see Section S. File 2006 taxes online free Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. File 2006 taxes online free Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. File 2006 taxes online free Wages paid to employees. File 2006 taxes online free   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. File 2006 taxes online free See Pay for Personal Services Performed , later. File 2006 taxes online free Effectively connected income by partnerships. File 2006 taxes online free   A withholding agent that is a partnership (whether U. File 2006 taxes online free S. File 2006 taxes online free or foreign) is also responsible for withholding on its income effectively connected with a U. File 2006 taxes online free S. File 2006 taxes online free trade or business that is allocable to foreign partners. File 2006 taxes online free See Partnership Withholding on Effectively Connected Income , later, for more information. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free real property interest. File 2006 taxes online free   A withholding agent also may be responsible for withholding if a foreign person transfers a U. File 2006 taxes online free S. File 2006 taxes online free real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. File 2006 taxes online free S. File 2006 taxes online free real property interest to a shareholder, partner, or beneficiary that is a foreign person. File 2006 taxes online free See U. File 2006 taxes online free S. File 2006 taxes online free Real Property Interest , later. File 2006 taxes online free Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. File 2006 taxes online free It does not apply to payments made to U. File 2006 taxes online free S. File 2006 taxes online free persons. File 2006 taxes online free Usually, you determine the payee's status as a U. File 2006 taxes online free S. File 2006 taxes online free or foreign person based on the documentation that person provides. File 2006 taxes online free See Documentation , later. File 2006 taxes online free However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. File 2006 taxes online free Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. File 2006 taxes online free However, there are situations in which the payee is a person other than the one to whom you actually make a payment. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free agent of foreign person. File 2006 taxes online free   If you make a payment to a U. File 2006 taxes online free S. File 2006 taxes online free person and you have actual knowledge that the U. File 2006 taxes online free S. File 2006 taxes online free person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. File 2006 taxes online free However, if the U. File 2006 taxes online free S. File 2006 taxes online free person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. File 2006 taxes online free   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. File 2006 taxes online free S. File 2006 taxes online free person and not as a payment to a foreign person. File 2006 taxes online free You may be required to report the payment on Form 1099 and, if applicable, backup withhold. File 2006 taxes online free Disregarded entities. File 2006 taxes online free   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. File 2006 taxes online free The payee of a payment made to a disregarded entity is the owner of the entity. File 2006 taxes online free   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. File 2006 taxes online free   If the owner is a U. File 2006 taxes online free S. File 2006 taxes online free person, you do not apply NRA withholding. File 2006 taxes online free However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. File 2006 taxes online free You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. File 2006 taxes online free Flow-Through Entities The payees of payments (other than income effectively connected with a U. File 2006 taxes online free S. File 2006 taxes online free trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. File 2006 taxes online free This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. File 2006 taxes online free Income that is, or is deemed to be, effectively connected with the conduct of a U. File 2006 taxes online free S. File 2006 taxes online free trade or business of a flow-through entity is treated as paid to the entity. File 2006 taxes online free All of the following are flow-through entities. File 2006 taxes online free A foreign partnership (other than a withholding foreign partnership). File 2006 taxes online free A foreign simple or foreign grantor trust (other than a withholding foreign trust). File 2006 taxes online free A fiscally transparent entity receiving income for which treaty benefits are claimed. File 2006 taxes online free See Fiscally transparent entity , later. File 2006 taxes online free In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. File 2006 taxes online free You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. File 2006 taxes online free You must determine whether the owners or beneficiaries of a flow-through entity are U. File 2006 taxes online free S. File 2006 taxes online free or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. File 2006 taxes online free You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. File 2006 taxes online free If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. File 2006 taxes online free See Documentation and Presumption Rules , later. File 2006 taxes online free Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. File 2006 taxes online free Foreign partnerships. File 2006 taxes online free    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. File 2006 taxes online free If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. File 2006 taxes online free However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. File 2006 taxes online free If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. File 2006 taxes online free Example 1. File 2006 taxes online free A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. File 2006 taxes online free S. File 2006 taxes online free citizen. File 2006 taxes online free You make a payment of U. File 2006 taxes online free S. File 2006 taxes online free source interest to the partnership. File 2006 taxes online free It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. File 2006 taxes online free S. File 2006 taxes online free citizen. File 2006 taxes online free The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. File 2006 taxes online free You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. File 2006 taxes online free Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. File 2006 taxes online free Report the payment to the U. File 2006 taxes online free S. File 2006 taxes online free citizen on Form 1099-INT. File 2006 taxes online free Example 2. File 2006 taxes online free A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. File 2006 taxes online free The second partnership has two partners, both nonresident alien individuals. File 2006 taxes online free You make a payment of U. File 2006 taxes online free S. File 2006 taxes online free source interest to the first partnership. File 2006 taxes online free It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. File 2006 taxes online free In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. File 2006 taxes online free The Forms W-8IMY from the partnerships have complete withholding statements associated with them. File 2006 taxes online free Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. File 2006 taxes online free Example 3. File 2006 taxes online free You make a payment of U. File 2006 taxes online free S. File 2006 taxes online free source dividends to a withholding foreign partnership. File 2006 taxes online free The partnership has two partners, both foreign corporations. File 2006 taxes online free You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. File 2006 taxes online free You must treat the partnership as the payee of the dividends. File 2006 taxes online free Foreign simple and grantor trust. File 2006 taxes online free   A trust is foreign unless it meets both of the following tests. File 2006 taxes online free A court within the United States is able to exercise primary supervision over the administration of the trust. File 2006 taxes online free One or more U. File 2006 taxes online free S. File 2006 taxes online free persons have the authority to control all substantial decisions of the trust. File 2006 taxes online free   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. File 2006 taxes online free A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. File 2006 taxes online free   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. File 2006 taxes online free The payees of a payment made to a foreign grantor trust are the owners of the trust. File 2006 taxes online free However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. File 2006 taxes online free If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. File 2006 taxes online free Example. File 2006 taxes online free A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. File 2006 taxes online free S. File 2006 taxes online free citizen. File 2006 taxes online free You make a payment of interest to the foreign trust. File 2006 taxes online free It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. File 2006 taxes online free S. File 2006 taxes online free citizen. File 2006 taxes online free The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. File 2006 taxes online free You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. File 2006 taxes online free Report the payment to the nonresident aliens on Forms 1042-S. File 2006 taxes online free Report the payment to the U. File 2006 taxes online free S. File 2006 taxes online free citizen on Form 1099-INT. File 2006 taxes online free Fiscally transparent entity. File 2006 taxes online free   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. File 2006 taxes online free The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. File 2006 taxes online free ). File 2006 taxes online free The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. File 2006 taxes online free An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. File 2006 taxes online free Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. File 2006 taxes online free   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. File 2006 taxes online free Example. File 2006 taxes online free Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. File 2006 taxes online free A has two interest holders, B and C. File 2006 taxes online free B is a corporation organized under the laws of country Y. File 2006 taxes online free C is a corporation organized under the laws of country Z. File 2006 taxes online free Both countries Y and Z have an income tax treaty in force with the United States. File 2006 taxes online free A receives royalty income from U. File 2006 taxes online free S. File 2006 taxes online free sources that is not effectively connected with the conduct of a trade or business in the United States. File 2006 taxes online free For U. File 2006 taxes online free S. File 2006 taxes online free income tax purposes, A is treated as a partnership. File 2006 taxes online free Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. File 2006 taxes online free The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. File 2006 taxes online free Accordingly, A is fiscally transparent in its jurisdiction, country X. File 2006 taxes online free B and C are not fiscally transparent under the laws of their respective countries of incorporation. File 2006 taxes online free Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. File 2006 taxes online free Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. File 2006 taxes online free S. File 2006 taxes online free source royalty income for purposes of the U. File 2006 taxes online free S. File 2006 taxes online free -Y income tax treaty. File 2006 taxes online free Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. File 2006 taxes online free Therefore, A is not treated as fiscally transparent under the laws of country Z. File 2006 taxes online free Accordingly, C is not treated as deriving its share of the U. File 2006 taxes online free S. File 2006 taxes online free source royalty income for purposes of the U. File 2006 taxes online free S. File 2006 taxes online free -Z income tax treaty. File 2006 taxes online free Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. File 2006 taxes online free This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. File 2006 taxes online free You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. File 2006 taxes online free An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. File 2006 taxes online free A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. File 2006 taxes online free In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. File 2006 taxes online free You must determine whether the customers or account holders of a foreign intermediary are U. File 2006 taxes online free S. File 2006 taxes online free or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. File 2006 taxes online free You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. File 2006 taxes online free If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. File 2006 taxes online free See Documentation and Presumption Rules , later. File 2006 taxes online free Nonqualified intermediary. File 2006 taxes online free   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. File 2006 taxes online free The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. File 2006 taxes online free Example. File 2006 taxes online free You make a payment of interest to a foreign bank that is a nonqualified intermediary. File 2006 taxes online free The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. File 2006 taxes online free S. File 2006 taxes online free person for whom the bank is collecting the payments. File 2006 taxes online free The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. File 2006 taxes online free The account holders are the payees of the interest payment. File 2006 taxes online free You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. File 2006 taxes online free S. File 2006 taxes online free person on Form 1099-INT. File 2006 taxes online free Qualified intermediary. File 2006 taxes online free   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. File 2006 taxes online free S. File 2006 taxes online free intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. File 2006 taxes online free You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. File 2006 taxes online free In this situation, the QI is required to withhold the tax. File 2006 taxes online free You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. File 2006 taxes online free   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. File 2006 taxes online free If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. File 2006 taxes online free S. File 2006 taxes online free person. File 2006 taxes online free Branches of financial institutions. File 2006 taxes online free   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. File 2006 taxes online free The countries with approved KYC rules are listed on IRS. File 2006 taxes online free gov. File 2006 taxes online free QI withholding agreement. File 2006 taxes online free   Foreign financial institutions and foreign branches of U. File 2006 taxes online free S. File 2006 taxes online free financial institutions can enter into an agreement with the IRS to be a qualified intermediary. File 2006 taxes online free   A QI is entitled to certain simplified withholding and reporting rules. File 2006 taxes online free In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. File 2006 taxes online free   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. File 2006 taxes online free These forms, and the procedures required to obtain a QI withholding agreement are available at www. File 2006 taxes online free irs. File 2006 taxes online free gov/Businesses/Corporations/Qualified-Intermediaries-(QI). File 2006 taxes online free Documentation. File 2006 taxes online free   A QI is not required to forward documentation obtained from foreign account holders to the U. File 2006 taxes online free S. File 2006 taxes online free withholding agent from whom the QI receives a payment of U. File 2006 taxes online free S. File 2006 taxes online free source income. File 2006 taxes online free The QI maintains such documentation at its location and provides the U. File 2006 taxes online free S. File 2006 taxes online free withholding agent with withholding rate pools. File 2006 taxes online free A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. File 2006 taxes online free   A QI is required to provide the U. File 2006 taxes online free S. File 2006 taxes online free withholding agent with information regarding U. File 2006 taxes online free S. File 2006 taxes online free persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. File 2006 taxes online free   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. File 2006 taxes online free This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. File 2006 taxes online free Form 1042-S reporting. File 2006 taxes online free   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. File 2006 taxes online free Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). File 2006 taxes online free Collective refund procedures. File 2006 taxes online free   A QI may seek a refund on behalf of its direct account holders. File 2006 taxes online free The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free branches of foreign banks and foreign insurance companies. File 2006 taxes online free   Special rules apply to a U. File 2006 taxes online free S. File 2006 taxes online free branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. File 2006 taxes online free If you agree to treat the branch as a U. File 2006 taxes online free S. File 2006 taxes online free person, you may treat the branch as a U. File 2006 taxes online free S. File 2006 taxes online free payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. File 2006 taxes online free S. File 2006 taxes online free branch on which the agreement is evidenced. File 2006 taxes online free If you treat the branch as a U. File 2006 taxes online free S. File 2006 taxes online free payee, you are not required to withhold. File 2006 taxes online free Even though you agree to treat the branch as a U. File 2006 taxes online free S. File 2006 taxes online free person, you must report the payment on Form 1042-S. File 2006 taxes online free   A financial institution organized in a U. File 2006 taxes online free S. File 2006 taxes online free possession is treated as a U. File 2006 taxes online free S. File 2006 taxes online free branch. File 2006 taxes online free The special rules discussed in this section apply to a possessions financial institution. File 2006 taxes online free   If you are paying a U. File 2006 taxes online free S. File 2006 taxes online free branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. File 2006 taxes online free S. File 2006 taxes online free person for amounts subject to NRA withholding. File 2006 taxes online free Consequently, amounts not subject to NRA withholding that are paid to a U. File 2006 taxes online free S. File 2006 taxes online free branch are not subject to Form 1099 reporting or backup withholding. File 2006 taxes online free   Alternatively, a U. File 2006 taxes online free S. File 2006 taxes online free branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. File 2006 taxes online free In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. File 2006 taxes online free See Nonqualified Intermediaries under  Documentation, later. File 2006 taxes online free   If the U. File 2006 taxes online free S. File 2006 taxes online free branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. File 2006 taxes online free Withholding foreign partnership and foreign trust. File 2006 taxes online free   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. File 2006 taxes online free A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. File 2006 taxes online free   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. File 2006 taxes online free A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. File 2006 taxes online free You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. File 2006 taxes online free WP and WT withholding agreements. File 2006 taxes online free   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. File 2006 taxes online free Also see the following items. File 2006 taxes online free Revenue Procedure 2004-21. File 2006 taxes online free Revenue Procedure 2005-77. File 2006 taxes online free Employer identification number (EIN). File 2006 taxes online free   A completed Form SS-4 must be submitted with the application for being a WP or WT. File 2006 taxes online free The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. File 2006 taxes online free Documentation. File 2006 taxes online free   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. File 2006 taxes online free The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. File 2006 taxes online free The Form W-8IMY must contain the WP-EIN or WT-EIN. File 2006 taxes online free Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. File 2006 taxes online free A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. File 2006 taxes online free S. File 2006 taxes online free person. File 2006 taxes online free It also includes a foreign branch of a U. File 2006 taxes online free S. File 2006 taxes online free financial institution if the foreign branch is a qualified intermediary. File 2006 taxes online free In most cases, the U. File 2006 taxes online free S. File 2006 taxes online free branch of a foreign corporation or partnership is treated as a foreign person. File 2006 taxes online free Nonresident alien. File 2006 taxes online free   A nonresident alien is an individual who is not a U. File 2006 taxes online free S. File 2006 taxes online free citizen or a resident alien. File 2006 taxes online free A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. File 2006 taxes online free Married to U. File 2006 taxes online free S. File 2006 taxes online free citizen or resident alien. File 2006 taxes online free   Nonresident alien individuals married to U. File 2006 taxes online free S. File 2006 taxes online free citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. File 2006 taxes online free However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. File 2006 taxes online free Wages paid to these individuals are subject to graduated withholding. File 2006 taxes online free See Wages Paid to Employees—Graduated Withholding . File 2006 taxes online free Resident alien. File 2006 taxes online free   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. File 2006 taxes online free Green card test. File 2006 taxes online free An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. File 2006 taxes online free This is known as the green card test because these aliens hold immigrant visas (also known as green cards). File 2006 taxes online free Substantial presence test. File 2006 taxes online free An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. File 2006 taxes online free Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. File 2006 taxes online free   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. File 2006 taxes online free This exception is for a limited period of time. File 2006 taxes online free   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. File 2006 taxes online free Note. File 2006 taxes online free   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. File 2006 taxes online free For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). File 2006 taxes online free Resident of a U. File 2006 taxes online free S. File 2006 taxes online free possession. File 2006 taxes online free   A bona fide resident of Puerto Rico, the U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. File 2006 taxes online free S. File 2006 taxes online free citizen or a U. File 2006 taxes online free S. File 2006 taxes online free national is treated as a nonresident alien for the withholding rules explained here. File 2006 taxes online free A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. File 2006 taxes online free   For more information, see Publication 570, Tax Guide for Individuals With Income From U. File 2006 taxes online free S. File 2006 taxes online free Possessions. File 2006 taxes online free Foreign corporations. File 2006 taxes online free   A foreign corporation is one that does not fit the definition of a domestic corporation. File 2006 taxes online free A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. File 2006 taxes online free Guam or Northern Mariana Islands corporations. File 2006 taxes online free   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). File 2006 taxes online free Note. File 2006 taxes online free   The provisions discussed below under U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands and American Samoa corporations. File 2006 taxes online free   A corporation created or organized in, or under the laws of, the U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. File 2006 taxes online free S. File 2006 taxes online free Virgin Islands, American Samoa, Guam, the CNMI, or the United States. File 2006 taxes online free Foreign private foundations. File 2006 taxes online free   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. File 2006 taxes online free Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. File 2006 taxes online free Other foreign organizations, associations, and charitable institutions. File 2006 taxes online free   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. File 2006 taxes online free In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. File 2006 taxes online free   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. File 2006 taxes online free   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free branches of foreign persons. File 2006 taxes online free   In most cases, a payment to a U. File 2006 taxes online free S. File 2006 taxes online free branch of a foreign person is a payment made to the foreign person. File 2006 taxes online free However, you may treat payments to U. File 2006 taxes online free S. File 2006 taxes online free branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. File 2006 taxes online free S. File 2006 taxes online free regulatory supervision as payments made to a U. File 2006 taxes online free S. File 2006 taxes online free person, if you and the U. File 2006 taxes online free S. File 2006 taxes online free branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. File 2006 taxes online free For this purpose, a financial institution organized under the laws of a U. File 2006 taxes online free S. File 2006 taxes online free possession is treated as a U. File 2006 taxes online free S. File 2006 taxes online free branch. File 2006 taxes online free Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. File 2006 taxes online free The payee is a U. File 2006 taxes online free S. File 2006 taxes online free person. File 2006 taxes online free The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. File 2006 taxes online free In most cases, you must get the documentation before you make the payment. File 2006 taxes online free The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. File 2006 taxes online free See Standards of Knowledge , later. File 2006 taxes online free If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. File 2006 taxes online free For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. File 2006 taxes online free The specific types of documentation are discussed in this section. File 2006 taxes online free However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. File 2006 taxes online free As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. File 2006 taxes online free Section 1446 withholding. File 2006 taxes online free   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. File 2006 taxes online free In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. File 2006 taxes online free This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. File 2006 taxes online free Joint owners. File 2006 taxes online free    If you make a payment to joint owners, you need to get documentation from each owner. File 2006 taxes online free Form W-9. File 2006 taxes online free   In most cases, you can treat the payee as a U. File 2006 taxes online free S. File 2006 taxes online free person if the payee gives you a Form W-9. File 2006 taxes online free The Form W-9 can be used only by a U. File 2006 taxes online free S. File 2006 taxes online free person and must contain the payee's taxpayer identification number (TIN). File 2006 taxes online free If there is more than one owner, you may treat the total amount as paid to a U. File 2006 taxes online free S. File 2006 taxes online free person if any one of the owners gives you a Form W-9. File 2006 taxes online free See U. File 2006 taxes online free S. File 2006 taxes online free Taxpayer Identification Numbers , later. File 2006 taxes online free U. File 2006 taxes online free S. File 2006 taxes online free persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. File 2006 taxes online free Form W-8. File 2006 taxes online free   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. File 2006 taxes online free Until further notice, you can rely upon Forms W-8 that contain a P. File 2006 taxes online free O. File 2006 taxes online free box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. File 2006 taxes online free S. File 2006 taxes online free person and that a street address is available. File 2006 taxes online free You may rely on Forms W-8 for which there is a U. File 2006 taxes online free S. File 2006 taxes online free mailing address provided you received the form prior to December 31, 2001. File 2006 taxes online free   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. File 2006 taxes online free You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. File 2006 taxes online free S. File 2006 taxes online free possession. File 2006 taxes online free Other documentation. File 2006 taxes online free   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. File 2006 taxes online free The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. File 2006 taxes online free These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. File 2006 taxes online free Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. File 2006 taxes online free Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. File 2006 taxes online free   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. File 2006 taxes online free   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. File 2006 taxes online free For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. File 2006 taxes online free Claiming treaty benefits. File 2006 taxes online free   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. File 2006 taxes online free S. File 2006 taxes online free TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. File 2006 taxes online free   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. File 2006 taxes online free   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. File 2006 taxes online free See Fiscally transparent entity discussed earlier under Flow-Through Entities. File 2006 taxes online free   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. File 2006 taxes online free For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. File 2006 taxes online free   The exemptions from, or reduced rates of, U. File 2006 taxes online free S. File 2006 taxes online free tax vary under each treaty. File 2006 taxes online free You must check the provisions of the tax treaty that apply. File 2006 taxes online free Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. File 2006 taxes online free   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. File 2006 taxes online free You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. File 2006 taxes online free Exceptions to TIN requirement. File 2006 taxes online free   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. File 2006 taxes online free Income from marketable securities (discussed next). File 2006 taxes online free Unexpected payments to an individual (discussed under U. File 2006 taxes online free S. File 2006 taxes online free Taxpayer Identification Numbers ). File 2006 taxes online free Marketable securities. File 2006 taxes online free   A Form W-8BEN provided to claim treaty benefits does not need a U. File 2006 taxes online free S. File 2006 taxes online free TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. File 2006 taxes online free For this purpose, income from a marketable security consists of the following items. File 2006 taxes online free Dividends and interest from stocks and debt obligations that are actively traded. File 2006 taxes online free Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). File 2006 taxes online free Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. File 2006 taxes online free Income related to loans of any of the above securities. File 2006 taxes online free Offshore accounts. File 2006 taxes online free   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. File 2006 taxes online free   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. File 2006 taxes online free However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. File 2006 taxes online free An offshore account is an account maintained at an office or branch of a U. File 2006 taxes online free S. File 2006 taxes online free or foreign bank or other financial institution at any location outside the United States. File 2006 taxes online free   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. File 2006 taxes online free This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. File 2006 taxes online free In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. File 2006 taxes online free Documentary evidence. File 2006 taxes online free   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. File 2006 taxes online free To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. File 2006 taxes online free Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. File 2006 taxes online free Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. File 2006 taxes online free In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. File 2006 taxes online free Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. File 2006 taxes online free   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. File 2006 taxes online free (See Effectively Connected Income , later. File 2006 taxes online free )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. File 2006 taxes online free   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. File 2006 taxes online free S. File 2006 taxes online free trade or business is subject to withholding under section 1446. File 2006 taxes online free If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. File 2006 taxes online free    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. File 2006 taxes online free Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. File 2006 taxes online free   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. File 2006 taxes online free S. File 2006 taxes online free possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. File 2006 taxes online free   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. File 2006 taxes online free   See Foreign Governments and Certain Other Foreign Organizations , later. File 2006 taxes online free Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. File 2006 taxes online free The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. File 2006 taxes online free The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. File 2006 taxes online free Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. File 2006 taxes online free S. File 2006 taxes online free Branches for United States Tax Withholding. File 2006 taxes online free   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. File 2006 taxes online free S. File 2006 taxes online free branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. File 2006 taxes online free S. File 2006 taxes online free branch of a foreign bank or insurance company and either is agreeing to be treated as a U. File 2006 taxes online free S. File 2006 taxes online free person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. File 2006 taxes online free For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. File 2006 taxes online free 1446-5. File 2006 taxes online free Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. File 2006 taxes online free A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. File 2006 taxes online free The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. File 2006 taxes online free The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. File 2006 taxes online free Responsibilities. File 2006 taxes online free   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. File 2006 taxes online free However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. File 2006 taxes online free Instead, it provides you with a withholding statement that contains withholding rate pool information. File 2006 taxes online free A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. File 2006 taxes online free A qualified intermediary is required to provide you with information regarding U. File 2006 taxes online free S. File 2006 taxes online free persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. File 2006 taxes online free S. File 2006 taxes online free person unless it has assumed Form 1099 reporting and backup withholding responsibility. File 2006 taxes online free For the alternative procedure for providing rate pool information for U. File 2006 taxes online free S. File 2006 taxes online free non-exempt persons, see the Form W-8IMY instructions. File 2006 taxes online free   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. File 2006 taxes online free   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. File 2006 taxes online free Primary responsibility not assumed. File 2006 taxes online free   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. File 2006 taxes online free Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. File 2006 taxes online free S. File 2006 taxes online free person subject to Form 1099 reporting and/or backup withholding. File 2006 taxes online free The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. File 2006 taxes online free Primary NRA withholding responsibility assumed. File 2006 taxes online free   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. File 2006 taxes online free S. File 2006 taxes online free person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. File 2006 taxes online free The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. File 2006 taxes online free Primary NRA and Form 1099 responsibility assumed. File 2006 taxes online free   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. File 2006 taxes online free It is not necessary to associate the payment with withholding rate pools. File 2006 taxes online free Example. File 2006 taxes online free You make a payment of dividends to a QI. File 2006 taxes online free It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. File 2006 taxes online free S. File 2006 taxes online free individual who provides it with a Form W-9. File 2006 taxes online free Each customer is entitled to 20% of the dividend payment. File 2006 taxes online free The QI does not assume any primary withholding responsibility. File 2006 taxes online free The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. File 2006 taxes online free S. File 2006 taxes online free individual. File 2006 taxes online free You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. File 2006 taxes online free The part of the payment allocable to the U. File 2006 taxes online free S. File 2006 taxes online free individual (20%) is reportable on Form 1099-DIV. File 2006 taxes online free Smaller partnerships and trusts. File 2006 taxes online free   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. File 2006 taxes online free It is a foreign partnership or foreign simple or grantor trust. File 2006 taxes online free It is a direct account holder of the QI. File 2006 taxes online free It does not have any partner, beneficiary, or owner that is a U. File 2006 taxes online free S. File 2006 taxes online free person or a pass- through partner, beneficiary, or owner. File 2006 taxes online free   For information on these rules, see section 4A. File 2006 taxes online free 01 of the QI agreement. File 2006 taxes online free This is found in Appendix 3 of Revenue Procedure 2003-64. File 2006 taxes online free Also see Revenue Procedure 2004-21. File 2006 taxes online free Related partnerships and trusts. File 2006 taxes online free    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. File 2006 taxes online free It is a foreign partnership or foreign simple or grantor trust. File 2006 taxes online free It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. File 2006 taxes online free For information on these rules, see section 4A. File 2006 taxes online free 02 of the QI agreement. File 2006 taxes online free This is found in Appendix 3 of Revenue Procedure 2003-64. File 2006 taxes online free Also see Revenue Procedure 2005-77. File 2006 taxes online free Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. File 2006 taxes online free S. File 2006 taxes online free branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. File 2006 taxes online free S. File 2006 taxes online free branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. File 2006 taxes online free The NQI, flow-through entity, or U. File 2006 taxes online free S. File 2006 taxes online free branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. File 2006 taxes online free A withholding statement must be updated to keep the information accurate prior to each payment. File 2006 taxes online free Withholding statement. File 2006 taxes online free   In most cases, a withholding statement must contain the following information. File 2006 taxes online free The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. File 2006 taxes online free The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. File 2006 taxes online free The status of the person for whom the documentation has been provided, such as whether the person is a U. File 2006 taxes online free S. File 2006 taxes online free exempt recipient (U. File 2006 taxes online free S. File 2006 taxes online free person exempt from Form 1099 reporting), U. File 2006 taxes online free S. File 2006 taxes online free non-exempt recipient (U. File 2006 taxes online free S. File 2006 taxes online free person subject to Form 1099 reporting), or a foreign person. File 2006 taxes online free For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. File 2006 taxes online free S. File 2006 taxes online free branch. File 2006 taxes online free The type of recipient the person is, based on the recipient codes used on Form 1042-S. File 2006 taxes online free Information allocating each payment, by income type, to each payee (including U. File 2006 taxes online free S. File 2006 taxes online free exempt and U. File 2006 taxes online free S. File 2006 taxes online free non-exempt recipients) for whom documentation has been provided. File 2006 taxes online free The rate of withholding that applies to each foreign person to whom a payment is allocated. File 2006 taxes online free A foreign payee's country of residence. File 2006 taxes online free If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. File 2006 taxes online free ). File 2006 taxes online free In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. File 2006 taxes online free The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. File 2006 taxes online free S. File 2006 taxes online free branch from which the payee will directly receive a payment. File 2006 taxes online free Any other information a withholding agent requests to fulfill its reporting and withholding obligations. File 2006 taxes online free Alternative procedure. File 2006 taxes online free   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. File 2006 taxes online free S. File 2006 taxes online free exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. File 2006 taxes online free To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. File 2006 taxes online free You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. File 2006 taxes online free    This alternative procedure cannot be used for payments to U. File 2006 taxes online free S. File 2006 taxes online free non-exempt recipients. File 2006 taxes online free Therefore, an NQI must always provide you with allocation information for all U. File 2006 taxes online free S. File 2006 taxes online free non-exempt recipients prior to a payment being made. File 2006 taxes online free Pooled withholding information. File 2006 taxes online free   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. File 2006 taxes online free A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. File 2006 taxes online free For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). File 2006 taxes online free The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. File 2006 taxes online free Failure to provide allocation information. File 2006 taxes online free   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. File 2006 taxes online free You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . File 2006 taxes online free An NQI is deemed to have f