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Free Online Tax Software 2010

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Free Online Tax Software 2010

Free online tax software 2010 3. Free online tax software 2010   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Free online tax software 2010 There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Free online tax software 2010 There are also the limitations which may need to be applied if you have a net loss on Schedule E. Free online tax software 2010 There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Free online tax software 2010 You may also have a gain or loss related to your rental property from a casualty or theft. Free online tax software 2010 This is considered separately from the income and expense information you report on Schedule E. Free online tax software 2010 Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Free online tax software 2010 However, do not use that schedule to report a not-for-profit activity. Free online tax software 2010 See Not Rented for Profit , in chapter 4. Free online tax software 2010 There are also other rental situations in which forms other than Schedule E would be used. Free online tax software 2010 Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Free online tax software 2010 , you normally report your rental income and expenses on Schedule E, Part I. Free online tax software 2010 List your total income, expenses, and depreciation for each rental property. Free online tax software 2010 Be sure to enter the number of fair rental and personal use days on line 2. Free online tax software 2010 If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Free online tax software 2010 Complete lines 1 and 2 for each property. Free online tax software 2010 However, fill in lines 23a through 26 on only one Schedule E. Free online tax software 2010 On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Free online tax software 2010 To find out if you need to attach Form 4562, see Form 4562 , later. Free online tax software 2010 If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Free online tax software 2010 Form 6198, At-Risk Limitations. Free online tax software 2010 See At-Risk Rules , later. Free online tax software 2010 Also see Publication 925. Free online tax software 2010 Form 8582, Passive Activity Loss Limitations. Free online tax software 2010 See Passive Activity Limits , later. Free online tax software 2010 Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Free online tax software 2010 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. Free online tax software 2010 Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Free online tax software 2010 Form 4562. Free online tax software 2010   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Free online tax software 2010 Otherwise, figure your depreciation on your own worksheet. Free online tax software 2010 You do not have to attach these computations to your return, but you should keep them in your records for future reference. Free online tax software 2010   See Publication 946 for information on preparing Form 4562. Free online tax software 2010 Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Free online tax software 2010 Providing substantial services. Free online tax software 2010   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you 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. Free online tax software 2010 Use Form 1065, U. Free online tax software 2010 S. Free online tax software 2010 Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Free online tax software 2010 Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Free online tax software 2010 For information, see Publication 334, Tax Guide for Small Business. Free online tax software 2010 Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Free online tax software 2010 For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Free online tax software 2010 Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) 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. Free online tax software 2010 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. Free online tax software 2010 If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Free online tax software 2010 You will not be required to file Form 1065 for any year the election is in effect. Free online tax software 2010 Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Free online tax software 2010 If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Free online tax software 2010 For more information on qualified joint ventures, go to IRS. Free online tax software 2010 gov and enter “qualified joint venture” in the search box. Free online tax software 2010 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. Free online tax software 2010 You must consider these rules in the order shown below. Free online tax software 2010 Both are discussed in this section. Free online tax software 2010 At-risk rules. Free online tax software 2010 These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Free online tax software 2010 This applies only if the real property was placed in service after 1986. Free online tax software 2010 Passive activity limits. Free online tax software 2010 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. Free online tax software 2010 However, there are exceptions. Free online tax software 2010 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. Free online tax software 2010 Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Free online tax software 2010 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. Free online tax software 2010 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. Free online tax software 2010 Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Free online tax software 2010 See Publication 925 for a discussion of the at-risk rules. Free online tax software 2010 Form 6198. Free online tax software 2010   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Free online tax software 2010 Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Free online tax software 2010 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. Free online tax software 2010 For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Free online tax software 2010 Deductions or losses from passive activities are limited. Free online tax software 2010 You generally cannot offset income, other than passive income, with losses from passive activities. Free online tax software 2010 Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Free online tax software 2010 Any excess loss or credit is carried forward to the next tax year. Free online tax software 2010 Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Free online tax software 2010 For a detailed discussion of these rules, see Publication 925. Free online tax software 2010 Real estate professionals. Free online tax software 2010   If you are a real estate professional, complete line 43 of Schedule E. Free online tax software 2010      You qualify as a real estate professional for the tax year if you meet both of the following requirements. Free online tax software 2010 More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Free online tax software 2010 You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Free online tax software 2010 If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Free online tax software 2010 For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Free online tax software 2010   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Free online tax software 2010 You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Free online tax software 2010   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Free online tax software 2010 However, you can count your spouse's participation in an activity in determining if you materially participated. Free online tax software 2010 Real property trades or businesses. Free online tax software 2010   A real property trade or business is a trade or business that does any of the following with real property. Free online tax software 2010 Develops or redevelops it. Free online tax software 2010 Constructs or reconstructs it. Free online tax software 2010 Acquires it. Free online tax software 2010 Converts it. Free online tax software 2010 Rents or leases it. Free online tax software 2010 Operates or manages it. Free online tax software 2010 Brokers it. Free online tax software 2010 Choice to treat all interests as one activity. Free online tax software 2010   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Free online tax software 2010 You can make this choice for any year that you qualify as a real estate professional. Free online tax software 2010 If you forgo making the choice for one year, you can still make it for a later year. Free online tax software 2010   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Free online tax software 2010 This is true even if you are not a real estate professional in any intervening year. Free online tax software 2010 (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Free online tax software 2010 )   See the Instructions for Schedule E for information about making this choice. Free online tax software 2010 Material participation. Free online tax software 2010   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Free online tax software 2010 For details, see Publication 925 or the Instructions for Schedule C. Free online tax software 2010 Participating spouse. Free online tax software 2010   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Free online tax software 2010 Do this even if your spouse owns no interest in the activity or files a separate return for the year. Free online tax software 2010 Form 8582. Free online tax software 2010    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. Free online tax software 2010 See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Free online tax software 2010   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Free online tax software 2010 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. Free online tax software 2010 Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Free online tax software 2010 Exception for Rental Real Estate 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. Free online tax software 2010 This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Free online tax software 2010 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. Free online tax software 2010 Example. Free online tax software 2010 Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Free online tax software 2010 $2,000 of Jane's $3,500 loss offsets her passive income. Free online tax software 2010 The remaining $1,500 loss can be deducted from her $40,000 wages. Free online tax software 2010 The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Free online tax software 2010 Active participation. Free online tax software 2010   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. Free online tax software 2010 Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Free online tax software 2010 Example. Free online tax software 2010 Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. Free online tax software 2010 Mike had advertised and rented the house to the current tenant himself. Free online tax software 2010 He also collected the rents, which usually came by mail. Free online tax software 2010 All repairs were either made or contracted out by Mike. Free online tax software 2010 Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Free online tax software 2010 Maximum special allowance. Free online tax software 2010   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. Free online tax software 2010   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. Free online tax software 2010 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. Free online tax software 2010   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Free online tax software 2010 Modified adjusted gross income (MAGI). Free online tax software 2010   This is your adjusted gross income from Form 1040, U. Free online tax software 2010 S. Free online tax software 2010 Individual Income Tax Return, line 38, or Form 1040NR, U. Free online tax software 2010 S. Free online tax software 2010 Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Free online tax software 2010 S. Free online tax software 2010 savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Free online tax software 2010 Form 8582 not required. Free online tax software 2010   Do not complete Form 8582 if you meet all of the following conditions. Free online tax software 2010 Your only passive activities were rental real estate activities in which you actively participated. Free online tax software 2010 Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Free online tax software 2010 If married filing separately, you lived apart from your spouse all year. Free online tax software 2010 You have no prior year unallowed losses from these (or any other passive) activities. Free online tax software 2010 You have no current or prior year unallowed credits from passive activities. Free online tax software 2010 Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Free online tax software 2010 You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Free online tax software 2010   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Free online tax software 2010 On lines 23a through 23e of your Schedule E, enter the applicable amounts. Free online tax software 2010 Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Free online tax software 2010 You may be able to deduct the loss on your income tax return. Free online tax software 2010 Casualty. Free online tax software 2010   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Free online tax software 2010 Such events include a storm, fire, or earthquake. Free online tax software 2010 Theft. Free online tax software 2010   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Free online tax software 2010 Gain from casualty or theft. Free online tax software 2010   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Free online tax software 2010 Generally, you must report this gain. Free online tax software 2010 However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Free online tax software 2010 To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Free online tax software 2010 In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Free online tax software 2010 The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Free online tax software 2010 More information. Free online tax software 2010   For information on business and nonbusiness casualty and theft losses, see Publication 547. Free online tax software 2010 How to report. Free online tax software 2010    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Free online tax software 2010 Follow the Instructions for Form 4684 for where to carry your net gain or loss. Free online tax software 2010 Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Free online tax software 2010 In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Free online tax software 2010 In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Free online tax software 2010 Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Free online tax software 2010 This means using the straight line method over a recovery period of 27. Free online tax software 2010 5 years. Free online tax software 2010 She uses Table 2-2d to find her depreciation percentage. Free online tax software 2010 Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Free online tax software 2010 For year 6, the rate is 3. Free online tax software 2010 636%. Free online tax software 2010 Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Free online tax software 2010 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. Free online tax software 2010 Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Free online tax software 2010 Marie also meets all of the requirements for not having to file Form 8582. Free online tax software 2010 She uses Schedule E, Part I, to report her rental income and expenses. Free online tax software 2010 She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Free online tax software 2010 Form 4562 is not required. Free online tax software 2010 Prev  Up  Next   Home   More Online Publications
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LT 16 (Letter 2050) Frequently Asked Questions (FAQs)

What is the notice telling me?

Enforcement action may be taken to collect taxes you owe because you have not responded to previous notices sent to you on this matter.

What do I have to do?

Contact us to resolve your account. The letter includes a number of options available to you.

How much time do I have?

Contact us as soon as possible to avoid collection action, no later than 10 days from the date on the letter.

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Enforcement action including levy on your wages, bank accounts, federal payment, state tax refunds, or other income sources may result if your balance is not resolved. If you are unable to pay in full, a monthly payment plan may be available, or collection may be delayed if you are unable to pay due to financial hardship. Please be ready to discuss you income, expenses and assets owned if you feel that you are unable to pay; proof may be requested.

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Contact us at the number shown at the top of the letter; the person who answers will be able to assist you.

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If you do not agree with this notice, call us immediately at the number printed at the top of the notice. We will do our best to help you. If you called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.

If you have already paid or arranged for an installment agreement, you should still call us at the number printed at the top of the notice to make sure your account reflects this.

Page Last Reviewed or Updated: 30-Jan-2014

The Free Online Tax Software 2010

Free online tax software 2010 1. Free online tax software 2010   Definitions You Need To Know Table of Contents Other options. Free online tax software 2010 Exception. Free online tax software 2010 Certain terms used in this publication are defined below. Free online tax software 2010 The same term used in another publication may have a slightly different meaning. Free online tax software 2010 Annual additions. Free online tax software 2010   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. Free online tax software 2010 Annual benefits. Free online tax software 2010   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. Free online tax software 2010 Business. Free online tax software 2010   A business is an activity in which a profit motive is present and economic activity is involved. Free online tax software 2010 Service as a newspaper carrier under age 18 or as a public official is not a business. Free online tax software 2010 Common-law employee. Free online tax software 2010   A common-law employee is any individual who, under common law, would have the status of an employee. Free online tax software 2010 A leased employee can also be a common-law employee. Free online tax software 2010   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. Free online tax software 2010 For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. Free online tax software 2010   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. Free online tax software 2010 For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. Free online tax software 2010 S. Free online tax software 2010 citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. Free online tax software 2010   However, an individual may be a common-law employee and a self-employed person as well. Free online tax software 2010 For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. Free online tax software 2010 In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. Free online tax software 2010 However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. Free online tax software 2010 Compensation. Free online tax software 2010   Compensation for plan allocations is the pay a participant received from you for personal services for a year. Free online tax software 2010 You can generally define compensation as including all the following payments. Free online tax software 2010 Wages and salaries. Free online tax software 2010 Fees for professional services. Free online tax software 2010 Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. Free online tax software 2010 Commissions and tips. Free online tax software 2010 Fringe benefits. Free online tax software 2010 Bonuses. Free online tax software 2010   For a self-employed individual, compensation means the earned income, discussed later, of that individual. Free online tax software 2010   Compensation generally includes amounts deferred in the following employee benefit plans. Free online tax software 2010 These amounts are elective deferrals. Free online tax software 2010 Qualified cash or deferred arrangement (section 401(k) plan). Free online tax software 2010 Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. Free online tax software 2010 Section 457 nonqualified deferred compensation plan. Free online tax software 2010 Section 125 cafeteria plan. Free online tax software 2010   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. Free online tax software 2010 The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. Free online tax software 2010 Other options. Free online tax software 2010   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. Free online tax software 2010 The employee's wages as defined for income tax withholding purposes. Free online tax software 2010 The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. Free online tax software 2010 The employee's social security wages (including elective deferrals). Free online tax software 2010   Compensation generally cannot include either of the following items. Free online tax software 2010 Nontaxable reimbursements or other expense allowances. Free online tax software 2010 Deferred compensation (other than elective deferrals). Free online tax software 2010 SIMPLE plans. Free online tax software 2010   A special definition of compensation applies for SIMPLE plans. Free online tax software 2010 See chapter 3. Free online tax software 2010 Contribution. Free online tax software 2010   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. Free online tax software 2010 Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. Free online tax software 2010 Deduction. Free online tax software 2010   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. Free online tax software 2010 Limits apply to the amount deductible. Free online tax software 2010 Earned income. Free online tax software 2010   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. Free online tax software 2010   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. Free online tax software 2010 Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. Free online tax software 2010 It includes income from licensing the use of property other than goodwill. Free online tax software 2010   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. Free online tax software 2010   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. Free online tax software 2010 Employer. Free online tax software 2010   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. Free online tax software 2010 A sole proprietor is treated as his or her own employer for retirement plan purposes. Free online tax software 2010 However, a partner is not an employer for retirement plan purposes. Free online tax software 2010 Instead, the partnership is treated as the employer of each partner. Free online tax software 2010 Highly compensated employee. Free online tax software 2010   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. Free online tax software 2010 Leased employee. Free online tax software 2010   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. Free online tax software 2010 Provides services to you under an agreement between you and a leasing organization. Free online tax software 2010 Has performed services for you (or for you and related persons) substantially full time for at least 1 year. Free online tax software 2010 Performs services under your primary direction or control. Free online tax software 2010 Exception. Free online tax software 2010   A leased employee is not treated as your employee if all the following conditions are met. Free online tax software 2010 Leased employees are not more than 20% of your non-highly compensated work force. Free online tax software 2010 The employee is covered under the leasing organization's qualified pension plan. Free online tax software 2010 The leasing organization's plan is a money purchase pension plan that has all the following provisions. Free online tax software 2010 Immediate participation. Free online tax software 2010 (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. Free online tax software 2010 ) Full and immediate vesting. Free online tax software 2010 A nonintegrated employer contribution rate of at least 10% of compensation for each participant. Free online tax software 2010 However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. Free online tax software 2010 Net earnings from self-employment. Free online tax software 2010   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Free online tax software 2010 Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. Free online tax software 2010   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. Free online tax software 2010   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. Free online tax software 2010 You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. Free online tax software 2010   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). Free online tax software 2010 It does not include income passed through to shareholders of S corporations. Free online tax software 2010 Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Free online tax software 2010 Distributions of other income or loss to limited partners are not net earnings from self-employment. Free online tax software 2010   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. Free online tax software 2010 Qualified plan. Free online tax software 2010   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. Free online tax software 2010 You can deduct contributions made to the plan for your employees. Free online tax software 2010 Earnings on these contributions are generally tax free until distributed at retirement. Free online tax software 2010 Profit-sharing, money purchase, and defined benefit plans are qualified plans. Free online tax software 2010 A 401(k) plan is also a qualified plan. Free online tax software 2010 Participant. Free online tax software 2010   A participant is an eligible employee who is covered by your retirement plan. Free online tax software 2010 See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. Free online tax software 2010 Partner. Free online tax software 2010   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. Free online tax software 2010 For retirement plans, a partner is treated as an employee of the partnership. Free online tax software 2010 Self-employed individual. Free online tax software 2010   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. Free online tax software 2010 Sole proprietors and partners are self-employed. Free online tax software 2010 Self-employment can include part-time work. Free online tax software 2010   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. Free online tax software 2010 See Common-law employee and Net earnings from self-employment , earlier. Free online tax software 2010   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. Free online tax software 2010 See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. Free online tax software 2010 Sole proprietor. Free online tax software 2010   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. Free online tax software 2010 For retirement plans, a sole proprietor is treated as both an employer and an employee. Free online tax software 2010 Prev  Up  Next   Home   More Online Publications