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Www myfreetaxes com upstreetfreetax 12. Www myfreetaxes com upstreetfreetax   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. Www myfreetaxes com upstreetfreetax Name change. Www myfreetaxes com upstreetfreetax Penalty for underpayment of estimated tax. Www myfreetaxes com upstreetfreetax Who Must Pay Self-Employment Tax?Limited partner. Www myfreetaxes com upstreetfreetax Community property. Www myfreetaxes com upstreetfreetax Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. Www myfreetaxes com upstreetfreetax  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Www myfreetaxes com upstreetfreetax 4% to 12. Www myfreetaxes com upstreetfreetax 4%. Www myfreetaxes com upstreetfreetax The Medicare part of the tax remains at 2. Www myfreetaxes com upstreetfreetax 9%. Www myfreetaxes com upstreetfreetax As a result, the self-employment tax is increased from 13. Www myfreetaxes com upstreetfreetax 3% to 15. Www myfreetaxes com upstreetfreetax 3%. Www myfreetaxes com upstreetfreetax Additional Medicare Tax. Www myfreetaxes com upstreetfreetax . Www myfreetaxes com upstreetfreetax  For tax years beginning in 2013, a 0. Www myfreetaxes com upstreetfreetax 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Www myfreetaxes com upstreetfreetax Use Form 8959, Additional Medicare Tax, to figure this tax. Www myfreetaxes com upstreetfreetax For more information, see the Instructions for Form 8959. Www myfreetaxes com upstreetfreetax Maximum net earnings. Www myfreetaxes com upstreetfreetax  The maximum net self-employment earnings subject to the social security part (12. Www myfreetaxes com upstreetfreetax 4%) of the self-employment tax increased to $113,700 for 2013. Www myfreetaxes com upstreetfreetax There is no maximum limit on earnings subject to the Medicare part (2. Www myfreetaxes com upstreetfreetax 9%). Www myfreetaxes com upstreetfreetax What's New for 2014 Maximum net earnings. Www myfreetaxes com upstreetfreetax  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Www myfreetaxes com upstreetfreetax Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Www myfreetaxes com upstreetfreetax It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Www myfreetaxes com upstreetfreetax You usually have to pay SE tax if you are self-employed. Www myfreetaxes com upstreetfreetax You are usually self-employed if you operate your own farm on land you either own or rent. Www myfreetaxes com upstreetfreetax You have to figure SE tax on Schedule SE (Form 1040). Www myfreetaxes com upstreetfreetax Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Www myfreetaxes com upstreetfreetax See chapter 13 for information on employment taxes. Www myfreetaxes com upstreetfreetax Self-employment tax rate. Www myfreetaxes com upstreetfreetax   For tax years beginning in 2013, the self-employment tax rate is 15. Www myfreetaxes com upstreetfreetax 3%. Www myfreetaxes com upstreetfreetax The rate consists of two parts: 12. Www myfreetaxes com upstreetfreetax 4% for social security (old-age, survivors, and disability insurance) and 2. Www myfreetaxes com upstreetfreetax 9% for Medicare (hospital insurance). Www myfreetaxes com upstreetfreetax Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Www myfreetaxes com upstreetfreetax See chapter 16 for information about getting publications and forms. Www myfreetaxes com upstreetfreetax Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Www myfreetaxes com upstreetfreetax Your payments of SE tax contribute to your coverage under the social security system. Www myfreetaxes com upstreetfreetax Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Www myfreetaxes com upstreetfreetax How to become insured under social security. Www myfreetaxes com upstreetfreetax   You must be insured under the social security system before you begin receiving social security benefits. Www myfreetaxes com upstreetfreetax You are insured if you have the required number of credits (also called quarters of coverage). Www myfreetaxes com upstreetfreetax Earning credits in 2013. Www myfreetaxes com upstreetfreetax   You can earn a maximum of four credits per year. Www myfreetaxes com upstreetfreetax For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Www myfreetaxes com upstreetfreetax You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. Www myfreetaxes com upstreetfreetax It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Www myfreetaxes com upstreetfreetax For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. Www myfreetaxes com upstreetfreetax socialsecurity. Www myfreetaxes com upstreetfreetax gov. Www myfreetaxes com upstreetfreetax Making false statements to get or to increase social security benefits may subject you to penalties. Www myfreetaxes com upstreetfreetax The Social Security Administration (SSA) time limit for posting self-employment earnings. Www myfreetaxes com upstreetfreetax   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Www myfreetaxes com upstreetfreetax    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. Www myfreetaxes com upstreetfreetax The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Www myfreetaxes com upstreetfreetax How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). Www myfreetaxes com upstreetfreetax This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Www myfreetaxes com upstreetfreetax An ITIN does not entitle you to social security benefits. Www myfreetaxes com upstreetfreetax Obtaining an ITIN does not change your immigration or employment status under U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax law. Www myfreetaxes com upstreetfreetax Obtaining a social security number. Www myfreetaxes com upstreetfreetax   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Www myfreetaxes com upstreetfreetax The application is also available in Spanish. Www myfreetaxes com upstreetfreetax You can get this form at any Social Security office or by calling 1-800-772-1213. Www myfreetaxes com upstreetfreetax    You can also download Form SS-5 from the Social Security Administration website at  www. Www myfreetaxes com upstreetfreetax socialsecurity. Www myfreetaxes com upstreetfreetax gov. Www myfreetaxes com upstreetfreetax   If you have a social security number from the time you were an employee, you must use that number. Www myfreetaxes com upstreetfreetax Do not apply for a new one. Www myfreetaxes com upstreetfreetax Replacing a lost social security card. Www myfreetaxes com upstreetfreetax   If you have a number but lost your card, file Form SS-5. Www myfreetaxes com upstreetfreetax You will get a new card showing your original number, not a new number. Www myfreetaxes com upstreetfreetax Name change. Www myfreetaxes com upstreetfreetax   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Www myfreetaxes com upstreetfreetax Obtaining an individual taxpayer identification number. Www myfreetaxes com upstreetfreetax   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. Www myfreetaxes com upstreetfreetax To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Www myfreetaxes com upstreetfreetax You can get this form by calling 1-800-829-3676. Www myfreetaxes com upstreetfreetax For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Www myfreetaxes com upstreetfreetax Form W-7 and Publication 1915 are also available in Spanish. Www myfreetaxes com upstreetfreetax    You can also download Form W-7 from the IRS website at IRS. Www myfreetaxes com upstreetfreetax gov. Www myfreetaxes com upstreetfreetax Paying estimated tax. Www myfreetaxes com upstreetfreetax   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Www myfreetaxes com upstreetfreetax You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. Www myfreetaxes com upstreetfreetax Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Www myfreetaxes com upstreetfreetax   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. Www myfreetaxes com upstreetfreetax For more information about estimated tax for farmers, see chapter 15. Www myfreetaxes com upstreetfreetax Penalty for underpayment of estimated tax. Www myfreetaxes com upstreetfreetax   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Www myfreetaxes com upstreetfreetax Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Www myfreetaxes com upstreetfreetax The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Www myfreetaxes com upstreetfreetax Aliens. Www myfreetaxes com upstreetfreetax   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax citizens. Www myfreetaxes com upstreetfreetax Nonresident aliens are not subject to self-employment tax. Www myfreetaxes com upstreetfreetax However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax residents for self-employment tax purposes. Www myfreetaxes com upstreetfreetax For more information on aliens, see Publication 519, U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Tax Guide for Aliens. Www myfreetaxes com upstreetfreetax Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. Www myfreetaxes com upstreetfreetax A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Www myfreetaxes com upstreetfreetax Share farmer. Www myfreetaxes com upstreetfreetax   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Www myfreetaxes com upstreetfreetax You produce a crop or raise livestock on land belonging to another person. Www myfreetaxes com upstreetfreetax Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Www myfreetaxes com upstreetfreetax Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. Www myfreetaxes com upstreetfreetax   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. Www myfreetaxes com upstreetfreetax This will depend on whether the landowner has the right to direct or control your performance of services. Www myfreetaxes com upstreetfreetax Example. Www myfreetaxes com upstreetfreetax A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Www myfreetaxes com upstreetfreetax Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Www myfreetaxes com upstreetfreetax The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Www myfreetaxes com upstreetfreetax The share farmer is provided a house in which to live. Www myfreetaxes com upstreetfreetax The landowner and the share farmer decide on a cropping plan. Www myfreetaxes com upstreetfreetax The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. Www myfreetaxes com upstreetfreetax The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Www myfreetaxes com upstreetfreetax Contract farming. Www myfreetaxes com upstreetfreetax   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. Www myfreetaxes com upstreetfreetax Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. Www myfreetaxes com upstreetfreetax 4-H Club or FFA project. Www myfreetaxes com upstreetfreetax   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. Www myfreetaxes com upstreetfreetax Report the net income as “Other income” on line 21 of Form 1040. Www myfreetaxes com upstreetfreetax If necessary, attach a statement showing the gross income and expenses. Www myfreetaxes com upstreetfreetax The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Www myfreetaxes com upstreetfreetax Such a project is generally not considered a trade or business. Www myfreetaxes com upstreetfreetax Partners in a partnership. Www myfreetaxes com upstreetfreetax   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Www myfreetaxes com upstreetfreetax Limited partner. Www myfreetaxes com upstreetfreetax   If you are a limited partner, your partnership income is generally not subject to SE tax. Www myfreetaxes com upstreetfreetax However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). Www myfreetaxes com upstreetfreetax Business Owned and Operated by Spouses. Www myfreetaxes com upstreetfreetax   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. Www myfreetaxes com upstreetfreetax You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Www myfreetaxes com upstreetfreetax Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Www myfreetaxes com upstreetfreetax Qualified joint venture. Www myfreetaxes com upstreetfreetax   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Www myfreetaxes com upstreetfreetax For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Www myfreetaxes com upstreetfreetax   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Www myfreetaxes com upstreetfreetax Each of you must file a separate Schedule F and a separate Schedule SE. Www myfreetaxes com upstreetfreetax For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Www myfreetaxes com upstreetfreetax Spouse employee. Www myfreetaxes com upstreetfreetax   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Www myfreetaxes com upstreetfreetax For more information about employment taxes, see chapter 13. Www myfreetaxes com upstreetfreetax Community property. Www myfreetaxes com upstreetfreetax   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. Www myfreetaxes com upstreetfreetax Do not treat any of your share as self-employment earnings of your spouse. Www myfreetaxes com upstreetfreetax Figuring Self-Employment Earnings Farmer. Www myfreetaxes com upstreetfreetax   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Www myfreetaxes com upstreetfreetax Partnership income or loss. Www myfreetaxes com upstreetfreetax   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). Www myfreetaxes com upstreetfreetax Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Www myfreetaxes com upstreetfreetax Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). Www myfreetaxes com upstreetfreetax   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. Www myfreetaxes com upstreetfreetax   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Www myfreetaxes com upstreetfreetax   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Www myfreetaxes com upstreetfreetax   For general information on partnerships, see Publication 541. Www myfreetaxes com upstreetfreetax More than one business. Www myfreetaxes com upstreetfreetax   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. Www myfreetaxes com upstreetfreetax A loss from one business reduces your profit from another business. Www myfreetaxes com upstreetfreetax However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. Www myfreetaxes com upstreetfreetax Community property. Www myfreetaxes com upstreetfreetax   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. Www myfreetaxes com upstreetfreetax Lost income payments. Www myfreetaxes com upstreetfreetax   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Www myfreetaxes com upstreetfreetax These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Www myfreetaxes com upstreetfreetax Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). Www myfreetaxes com upstreetfreetax A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Www myfreetaxes com upstreetfreetax Gain or loss. Www myfreetaxes com upstreetfreetax   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. Www myfreetaxes com upstreetfreetax It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Www myfreetaxes com upstreetfreetax For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Www myfreetaxes com upstreetfreetax Investment property. Www myfreetaxes com upstreetfreetax Depreciable property or other fixed assets used in your trade or business. Www myfreetaxes com upstreetfreetax Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. Www myfreetaxes com upstreetfreetax Unharvested standing crops sold with land held more than 1 year. Www myfreetaxes com upstreetfreetax Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. Www myfreetaxes com upstreetfreetax   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. Www myfreetaxes com upstreetfreetax For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Www myfreetaxes com upstreetfreetax Wages and salaries. Www myfreetaxes com upstreetfreetax   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. Www myfreetaxes com upstreetfreetax   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Www myfreetaxes com upstreetfreetax Retired partner. Www myfreetaxes com upstreetfreetax   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. Www myfreetaxes com upstreetfreetax The retired partner performs no services for the partnership during the year. Www myfreetaxes com upstreetfreetax The retired partner is owed only the retirement payments. Www myfreetaxes com upstreetfreetax The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Www myfreetaxes com upstreetfreetax The payments to the retired partner are lifelong periodic payments. Www myfreetaxes com upstreetfreetax Conservation Reserve Program (CRP) payments. Www myfreetaxes com upstreetfreetax   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. Www myfreetaxes com upstreetfreetax You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Www myfreetaxes com upstreetfreetax Cost share payments you receive may qualify for the costsharing exclusion. Www myfreetaxes com upstreetfreetax See Cost-Sharing Exclusion (Improvements), above. Www myfreetaxes com upstreetfreetax CRP payments are reported to you on Form 1099G. Www myfreetaxes com upstreetfreetax Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Www myfreetaxes com upstreetfreetax See the instructions for Schedule SE (Form 1040). Www myfreetaxes com upstreetfreetax Self-employed health insurance deduction. Www myfreetaxes com upstreetfreetax   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). Www myfreetaxes com upstreetfreetax Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. Www myfreetaxes com upstreetfreetax However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. Www myfreetaxes com upstreetfreetax Crop shares. Www myfreetaxes com upstreetfreetax   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. Www myfreetaxes com upstreetfreetax Feeding such crop shares to livestock is considered using them. Www myfreetaxes com upstreetfreetax Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Www myfreetaxes com upstreetfreetax Material participation for landlords. Www myfreetaxes com upstreetfreetax   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Www myfreetaxes com upstreetfreetax You do at least three of the following. Www myfreetaxes com upstreetfreetax Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Www myfreetaxes com upstreetfreetax Furnish at least half the tools, equipment, and livestock used in the production activities. Www myfreetaxes com upstreetfreetax Advise or consult with your tenant. Www myfreetaxes com upstreetfreetax Inspect the production activities periodically. Www myfreetaxes com upstreetfreetax You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Www myfreetaxes com upstreetfreetax You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Www myfreetaxes com upstreetfreetax You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Www myfreetaxes com upstreetfreetax These tests may be used as general guides for determining whether you are a material participant. Www myfreetaxes com upstreetfreetax Example. Www myfreetaxes com upstreetfreetax Drew Houston agrees to produce a crop on J. Www myfreetaxes com upstreetfreetax Clarke's cotton farm, with each receiving half the proceeds. Www myfreetaxes com upstreetfreetax Clarke advises Houston when to plant, spray, and pick the cotton. Www myfreetaxes com upstreetfreetax During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Www myfreetaxes com upstreetfreetax Houston furnishes all labor needed to grow and harvest the crop. Www myfreetaxes com upstreetfreetax The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. Www myfreetaxes com upstreetfreetax The income Clarke receives from his cotton farm is included in his self-employment earnings. Www myfreetaxes com upstreetfreetax Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Www myfreetaxes com upstreetfreetax The regular method. Www myfreetaxes com upstreetfreetax The farm optional method. Www myfreetaxes com upstreetfreetax The nonfarm optional method. Www myfreetaxes com upstreetfreetax You must use the regular method unless you are eligible to use one or both of the optional methods. Www myfreetaxes com upstreetfreetax See Figure 12-1 , shown later. Www myfreetaxes com upstreetfreetax Figure 12-1. Www myfreetaxes com upstreetfreetax Can I Use the Optional Methods? Please click here for the text description of the image. Www myfreetaxes com upstreetfreetax Figure 12–1. Www myfreetaxes com upstreetfreetax Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Www myfreetaxes com upstreetfreetax You want to receive credit for social security benefit coverage. Www myfreetaxes com upstreetfreetax You incurred child or dependent care expenses for which you could claim a credit. Www myfreetaxes com upstreetfreetax (An optional method may increase your earned income, which could increase your credit. Www myfreetaxes com upstreetfreetax ) You are entitled to the earned income credit. Www myfreetaxes com upstreetfreetax (An optional method may increase your earned income, which could increase your credit. Www myfreetaxes com upstreetfreetax ) You are entitled to the additional child tax credit. Www myfreetaxes com upstreetfreetax (An optional method may increase your earned income, which could increase your credit. Www myfreetaxes com upstreetfreetax ) Effects of using an optional method. Www myfreetaxes com upstreetfreetax   Using an optional method could increase your SE tax. Www myfreetaxes com upstreetfreetax Paying more SE tax may result in you getting higher social security disability or retirement benefits. Www myfreetaxes com upstreetfreetax   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. Www myfreetaxes com upstreetfreetax   The optional methods may be used only to figure your SE tax. Www myfreetaxes com upstreetfreetax To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Www myfreetaxes com upstreetfreetax Regular Method Multiply your total self-employment earnings by 92. Www myfreetaxes com upstreetfreetax 35% (. Www myfreetaxes com upstreetfreetax 9235) to get your net earnings under the regular method. Www myfreetaxes com upstreetfreetax See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Www myfreetaxes com upstreetfreetax Net earnings figured using the regular method are also called “actual net earnings. Www myfreetaxes com upstreetfreetax ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Www myfreetaxes com upstreetfreetax You can use this method if you meet either of the following tests. Www myfreetaxes com upstreetfreetax Your gross farm income is $6,960 or less. Www myfreetaxes com upstreetfreetax Your net farm profits are less than $5,024. Www myfreetaxes com upstreetfreetax Gross farm income. Www myfreetaxes com upstreetfreetax   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). Www myfreetaxes com upstreetfreetax Net farm profits. Www myfreetaxes com upstreetfreetax   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). Www myfreetaxes com upstreetfreetax However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Www myfreetaxes com upstreetfreetax For more information, see Partnership income or loss , earlier. Www myfreetaxes com upstreetfreetax Figuring farm net earnings. Www myfreetaxes com upstreetfreetax   If you meet either of the two tests explained above, use Table 12-1. Www myfreetaxes com upstreetfreetax Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Www myfreetaxes com upstreetfreetax Table 12-1. Www myfreetaxes com upstreetfreetax Figuring Farm Net Earnings IF your gross farm income  is. Www myfreetaxes com upstreetfreetax . Www myfreetaxes com upstreetfreetax . Www myfreetaxes com upstreetfreetax THEN your net earnings are equal to. Www myfreetaxes com upstreetfreetax . Www myfreetaxes com upstreetfreetax . Www myfreetaxes com upstreetfreetax $6,960 or less Two-thirds of your gross farm income. Www myfreetaxes com upstreetfreetax More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Www myfreetaxes com upstreetfreetax   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. Www myfreetaxes com upstreetfreetax Your actual net earnings are your net earnings figured using the regular method, explained earlier. Www myfreetaxes com upstreetfreetax Example. Www myfreetaxes com upstreetfreetax Your gross farm income is $540 and your net farm profit is $460. Www myfreetaxes com upstreetfreetax Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Www myfreetaxes com upstreetfreetax 35% of $460). Www myfreetaxes com upstreetfreetax You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Www myfreetaxes com upstreetfreetax Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Www myfreetaxes com upstreetfreetax If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Www myfreetaxes com upstreetfreetax You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. Www myfreetaxes com upstreetfreetax For more information about the nonfarm optional method, see Publication 334. Www myfreetaxes com upstreetfreetax You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Www myfreetaxes com upstreetfreetax Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. Www myfreetaxes com upstreetfreetax You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Www myfreetaxes com upstreetfreetax If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Www myfreetaxes com upstreetfreetax Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Www myfreetaxes com upstreetfreetax Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Www myfreetaxes com upstreetfreetax Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Www myfreetaxes com upstreetfreetax However, certain taxpayers must use Section B–Long Schedule SE. Www myfreetaxes com upstreetfreetax Use the chart on page 1 of Schedule SE to find out which one to use. Www myfreetaxes com upstreetfreetax If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Www myfreetaxes com upstreetfreetax Deduction for employer-equivalent portion of self-employment tax. Www myfreetaxes com upstreetfreetax   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Www myfreetaxes com upstreetfreetax This deduction only affects your income tax. Www myfreetaxes com upstreetfreetax It does not affect either your net earnings from self-employment or your SE tax. Www myfreetaxes com upstreetfreetax   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. Www myfreetaxes com upstreetfreetax Joint return. Www myfreetaxes com upstreetfreetax   Even if you file a joint return, you cannot file a joint Schedule SE. Www myfreetaxes com upstreetfreetax This is true whether one spouse or both spouses have self-employment earnings. Www myfreetaxes com upstreetfreetax Your spouse is not considered self-employed just because you are. Www myfreetaxes com upstreetfreetax If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Www myfreetaxes com upstreetfreetax However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Www myfreetaxes com upstreetfreetax Attach both schedules to the joint return. Www myfreetaxes com upstreetfreetax If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . 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Understanding Your CP05 Notice

We’re reviewing your tax return to verify the following:

  • Your income
  • The withholding you reported on your income and social security benefits
  • The tax credits you claimed
  • The household help you claimed
  • Your business income

We’re holding your refund pending the results of our review.


What you need to do

You don’t need to take any action at this time. We may contact third parties to verify the information you reported on your return. If you haven’t received your refund or been contacted by us within 45 days from the date of this notice, you can call us at the number provided on your notice.


You may want to

  • Review this notice with your tax preparer.
  • If you are experiencing economic harm, believe an IRS system or procedure isn’t working as it should, or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach them at 1-877-777-4778 or TTY/TTD 1-800-829-4059.

Answers to Common Questions

Why was my return being reviewed?
While most returns are accepted as filed, some are selected for examination. The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination does not suggest that you made an error or were dishonest.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Send us a completed and signed Form 14039, Identity Theft Affidavit. You can download this form online at www.irs.gov. You can also refer to the IRS Identity Theft resource page for more information.


Tips for next year

Review all of your income and withholding documents for completeness and review your return to make sure you are eligible to claim all income, credits and business income that you reported.

Page Last Reviewed or Updated: 19-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

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Www myfreetaxes com upstreetfreetax 11. Www myfreetaxes com upstreetfreetax   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. Www myfreetaxes com upstreetfreetax This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. Www myfreetaxes com upstreetfreetax You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. Www myfreetaxes com upstreetfreetax These forms are discussed in this chapter. Www myfreetaxes com upstreetfreetax To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . Www myfreetaxes com upstreetfreetax If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. Www myfreetaxes com upstreetfreetax Read Aliens Required To Obtain Sailing or Departure Permits . Www myfreetaxes com upstreetfreetax Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. Www myfreetaxes com upstreetfreetax Useful Items - You may want to see: Form (and Instructions) 1040-C U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Departing Alien Income Tax Return 2063 U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. Www myfreetaxes com upstreetfreetax Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. Www myfreetaxes com upstreetfreetax If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. Www myfreetaxes com upstreetfreetax Category 1. Www myfreetaxes com upstreetfreetax   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. Www myfreetaxes com upstreetfreetax Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. Www myfreetaxes com upstreetfreetax However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. Www myfreetaxes com upstreetfreetax   The statement must be presented to an IRS office. Www myfreetaxes com upstreetfreetax Category 2. Www myfreetaxes com upstreetfreetax    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax tax under U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax tax laws (described in chapter 10), and Who receive no other income from U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax sources. Www myfreetaxes com upstreetfreetax If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. Www myfreetaxes com upstreetfreetax This is true even if your income is exempt from U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax tax because of an income tax treaty, consular agreement, or international agreement. Www myfreetaxes com upstreetfreetax Category 3. Www myfreetaxes com upstreetfreetax   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax trade or business. Www myfreetaxes com upstreetfreetax (See Interest Income in chapter 3. Www myfreetaxes com upstreetfreetax ) Category 4. Www myfreetaxes com upstreetfreetax   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax sources while in the United States under those visas, other than: Income from employment authorized by the U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax trade or business. Www myfreetaxes com upstreetfreetax (See Interest Income in chapter 3. Www myfreetaxes com upstreetfreetax ) Category 5. Www myfreetaxes com upstreetfreetax   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. Www myfreetaxes com upstreetfreetax If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. Www myfreetaxes com upstreetfreetax Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. Www myfreetaxes com upstreetfreetax Category 6. Www myfreetaxes com upstreetfreetax   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax tax. Www myfreetaxes com upstreetfreetax Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. Www myfreetaxes com upstreetfreetax To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. Www myfreetaxes com upstreetfreetax See Forms To File , later. Www myfreetaxes com upstreetfreetax You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. Www myfreetaxes com upstreetfreetax See Paying Taxes and Obtaining Refunds , later. Www myfreetaxes com upstreetfreetax Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. Www myfreetaxes com upstreetfreetax Where to get a sailing or departure permit. Www myfreetaxes com upstreetfreetax   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. Www myfreetaxes com upstreetfreetax When to get a sailing or departure permit. Www myfreetaxes com upstreetfreetax   You should get your sailing or departure permit at least 2 weeks before you plan to leave. Www myfreetaxes com upstreetfreetax You cannot apply earlier than 30 days before your planned departure date. Www myfreetaxes com upstreetfreetax Do not wait until the last minute in case there are unexpected problems. Www myfreetaxes com upstreetfreetax Papers to submit. Www myfreetaxes com upstreetfreetax   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. Www myfreetaxes com upstreetfreetax Bring the following records with you if they apply. Www myfreetaxes com upstreetfreetax Your passport and alien registration card or visa. Www myfreetaxes com upstreetfreetax Copies of your U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax income tax returns filed for the past 2 years. Www myfreetaxes com upstreetfreetax If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. Www myfreetaxes com upstreetfreetax Receipts for income taxes paid on these returns. Www myfreetaxes com upstreetfreetax Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. Www myfreetaxes com upstreetfreetax A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. Www myfreetaxes com upstreetfreetax If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. Www myfreetaxes com upstreetfreetax Proof of estimated tax payments for the past year and this year. Www myfreetaxes com upstreetfreetax Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. Www myfreetaxes com upstreetfreetax Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. Www myfreetaxes com upstreetfreetax Copies of the application for, and approval of, the grant. Www myfreetaxes com upstreetfreetax A statement of the amount paid, and your duties and obligations under the grant. Www myfreetaxes com upstreetfreetax A list of any previous grants. Www myfreetaxes com upstreetfreetax Documents indicating you qualify for any special tax treaty benefits claimed. Www myfreetaxes com upstreetfreetax Document verifying your date of departure from the United States, such as an airline ticket. Www myfreetaxes com upstreetfreetax Document verifying your U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). Www myfreetaxes com upstreetfreetax Note. Www myfreetaxes com upstreetfreetax   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. Www myfreetaxes com upstreetfreetax This applies whether or not your spouse requires a permit. Www myfreetaxes com upstreetfreetax Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. Www myfreetaxes com upstreetfreetax Employees in the IRS office can assist in filing these forms. Www myfreetaxes com upstreetfreetax Both forms have a “certificate of compliance” section. Www myfreetaxes com upstreetfreetax When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax tax obligations have been satisfied according to available information. Www myfreetaxes com upstreetfreetax Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. Www myfreetaxes com upstreetfreetax Form 2063 This is a short form that asks for certain information but does not include a tax computation. Www myfreetaxes com upstreetfreetax The following departing aliens can get their sailing or departure permits by filing Form 2063. Www myfreetaxes com upstreetfreetax Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. Www myfreetaxes com upstreetfreetax Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. Www myfreetaxes com upstreetfreetax However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. Www myfreetaxes com upstreetfreetax Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. Www myfreetaxes com upstreetfreetax The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. Www myfreetaxes com upstreetfreetax However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. Www myfreetaxes com upstreetfreetax Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. Www myfreetaxes com upstreetfreetax Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. Www myfreetaxes com upstreetfreetax When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. Www myfreetaxes com upstreetfreetax However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. Www myfreetaxes com upstreetfreetax See Bond To Ensure Payment , discussed later. Www myfreetaxes com upstreetfreetax The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. Www myfreetaxes com upstreetfreetax Returning to the United States. Www myfreetaxes com upstreetfreetax   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. Www myfreetaxes com upstreetfreetax You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. Www myfreetaxes com upstreetfreetax   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. Www myfreetaxes com upstreetfreetax The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. Www myfreetaxes com upstreetfreetax However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. Www myfreetaxes com upstreetfreetax Joint return on Form 1040-C. Www myfreetaxes com upstreetfreetax   Departing husbands and wives who are nonresident aliens cannot file joint returns. Www myfreetaxes com upstreetfreetax However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. Www myfreetaxes com upstreetfreetax Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. Www myfreetaxes com upstreetfreetax You must also pay any taxes due for past years. Www myfreetaxes com upstreetfreetax If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. Www myfreetaxes com upstreetfreetax However, the IRS cannot provide a refund at the time of departure. Www myfreetaxes com upstreetfreetax If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. Www myfreetaxes com upstreetfreetax Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. Www myfreetaxes com upstreetfreetax However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. Www myfreetaxes com upstreetfreetax The bond must equal the tax due plus interest to the date of payment as figured by the IRS. Www myfreetaxes com upstreetfreetax Information about the form of bond and security on it can be obtained from your IRS office. Www myfreetaxes com upstreetfreetax Filing Annual U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax Income Tax Returns Form 1040-C is not an annual U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax income tax return. Www myfreetaxes com upstreetfreetax If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. Www myfreetaxes com upstreetfreetax Chapters 5 and 7 discuss filing an annual U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax income tax return. Www myfreetaxes com upstreetfreetax The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. Www myfreetaxes com upstreetfreetax S. Www myfreetaxes com upstreetfreetax income tax return. Www myfreetaxes com upstreetfreetax Prev  Up  Next   Home   More Online Publications