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Irs free efile 4. Irs free efile   Reporting Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Information Returns Schedule D and Form 8949Long and Short Term Net Gain or Loss Treatment of Capital Losses Capital Gains Tax Rates Form 4797Mark-to-market election. Irs free efile Introduction This chapter explains how to report capital gains and losses and ordinary gains and losses from sales, exchanges, and other dispositions of property. Irs free efile Although this discussion refers to Schedule D (Form 1040) and Form 8949, many of the rules discussed here also apply to taxpayers other than individuals. Irs free efile However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Irs free efile Topics - This chapter discusses: Information returns Schedule D (Form 1040) Form 4797 Form 8949 Useful Items - You may want to see: Publication 550 Investment Income and Expenses 537 Installment Sales Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-S Proceeds From Real Estate Transactions 4684 Casualties and Thefts 4797 Sales of Business Property 6252 Installment Sale Income 6781 Gains and Losses from Section 1256 Contracts and Straddles 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Irs free efile Information Returns If you sell or exchange certain assets, you should receive an information return showing the proceeds of the sale. Irs free efile This information is also provided to the IRS. Irs free efile Form 1099-B. Irs free efile   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a substitute statement from the broker. Irs free efile Use the Form 1099-B or a substitute statement to complete Form 8949 and/or Schedule D. Irs free efile Whether or not you receive 1099-B, you must report all taxable sales of stock, bonds, commodities, etc. Irs free efile on Form 8949 and/or Schedule D, as applicable. Irs free efile For more information on figuring gains and losses from these transactions, see chapter 4 in Publication 550. Irs free efile For information on reporting the gains and losses, see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Irs free efile Form 1099-S. Irs free efile   An information return must be provided on certain real estate transactions. Irs free efile Generally, the person responsible for closing the transaction (the “real estate reporting person”) must report on Form 1099-S sales or exchanges of the following types of property. Irs free efile Land (improved or unimproved), including air space. Irs free efile An inherently permanent structure, including any residential, commercial, or industrial building. Irs free efile A condominium unit and its related fixtures and common elements (including land). Irs free efile Stock in a cooperative housing corporation. Irs free efile If you sold or exchanged any of the above types of property, the “real estate reporting person” must give you a copy of Form 1099-S or a statement containing the same information as the Form 1099-S. Irs free efile The “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. Irs free efile   For more information see chapter 4 in Publication 550. Irs free efile Also, see the Instructions for Form 8949. Irs free efile Schedule D and Form 8949 Form 8949. Irs free efile   Individuals, corporations, and partnerships, use Form 8949 to report the following. Irs free efile    Sales or exchanges of capital assets, including stocks, bonds, etc. Irs free efile , and real estate (if not reported on another form or schedule such as Form 4684, 4797, 6252, 6781, or 8824). Irs free efile Include these transactions even if you did not receive a Form 1099-B or 1099-S. Irs free efile Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit. Irs free efile Nonbusiness bad debts. Irs free efile   Individuals, If you are filing a joint return, complete as many copies of Form 8949 as you need to report all of your and your spouse's transactions. Irs free efile You and your spouse may list your transactions on separate forms or you may combine them. Irs free efile However, you must include on your Schedule D the totals from all Forms 8949 for both you and your spouse. Irs free efile    Corporations and electing large partnerships also use Form 8949 to report their share of gain or loss from a partnership, S Corporation, estate or trust. Irs free efile   Business entities meeting certain criteria, may have an exception to some of the normal requirements for completing Form 8949. Irs free efile See the Instructions for Form 8949. Irs free efile Schedule D. Irs free efile    Use Schedule D (Form 1040) to figure the overall gain or loss from transactions reported on Form 8949, and to report certain transactions you do not have to report on Form 8949. Irs free efile Before completing Schedule D, you may have to complete other forms as shown below. Irs free efile    Complete all applicable lines of Form 8949 before completing lines 1b, 2, 3, 8b, 9, or 10 of your applicable Schedule D. Irs free efile Enter on Schedule D the combined totals from all your Forms 8949. Irs free efile For a sale, exchange, or involuntary conversion of business property, complete Form 4797 (discussed later). Irs free efile For a like-kind exchange, complete Form 8824. Irs free efile See Reporting the exchange under Like-Kind Exchanges in chapter 1. Irs free efile For an installment sale, complete Form 6252. Irs free efile See Publication 537. Irs free efile For an involuntary conversion due to casualty or theft, complete Form 4684. Irs free efile See Publication 547, Casualties, Disasters, and Thefts. Irs free efile For a disposition of an interest in, or property used in, an activity to which the at-risk rules apply, complete Form 6198, At-Risk Limitations. Irs free efile See Publication 925, Passive Activity and At-Risk Rules. Irs free efile For a disposition of an interest in, or property used in, a passive activity, complete Form 8582, Passive Activity Loss Limitations. Irs free efile See Publication 925. Irs free efile For gains and losses from section 1256 contracts and straddles, complete Form 6781. Irs free efile See Publication 550. Irs free efile Personal-use property. Irs free efile   Report gain on the sale or exchange of property held for personal use (such as your home) on Form 8949 and Schedule D (Form 1040), as applicable. Irs free efile Loss from the sale or exchange of property held for personal use is not deductible. Irs free efile But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, report the transaction on Form 8949 and Schedule D, even though the loss is not deductible. Irs free efile See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for information on how to report the transaction. Irs free efile Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Irs free efile The time you own an asset before disposing of it is the holding period. Irs free efile If you received a Form 1099-B, (or substitute statement) box 1c may help you determine whether the gain or loss is short-term or long-term. Irs free efile If you hold a capital asset 1 year or less, the gain or loss from its disposition is short term. Irs free efile Report it in Part I of Form 8949 and/or Schedule D, as applicable. Irs free efile If you hold a capital asset longer than 1 year, the gain or loss from its disposition is long term. Irs free efile Report it in Part II of Form 8949 and/or Schedule D, as applicable. Irs free efile   Table 4-1. Irs free efile Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. Irs free efile . Irs free efile . Irs free efile  THEN you have a. Irs free efile . Irs free efile . Irs free efile 1 year or less, Short-term capital gain or  loss. Irs free efile More than 1 year, Long-term capital gain or  loss. Irs free efile These distinctions are essential to correctly arrive at your net capital gain or loss. Irs free efile Capital losses are allowed in full against capital gains plus up to $3,000 of ordinary income. Irs free efile See Capital Gains Tax Rates, later. Irs free efile Holding period. Irs free efile   To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property. Irs free efile The day you disposed of the property is part of your holding period. Irs free efile Example. Irs free efile If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Irs free efile If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Irs free efile Patent property. Irs free efile   If you dispose of patent property, you generally are considered to have held the property longer than 1 year, no matter how long you actually held it. Irs free efile For more information, see Patents in chapter 2. Irs free efile Inherited property. Irs free efile   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Irs free efile Installment sale. Irs free efile   The gain from an installment sale of an asset qualifying for long-term capital gain treatment in the year of sale continues to be long term in later tax years. Irs free efile If it is short term in the year of sale, it continues to be short term when payments are received in later tax years. Irs free efile    The date the installment payment is received determines the capital gains rate that should be applied not the date the asset was sold under an installment contract. Irs free efile Nontaxable exchange. Irs free efile   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Irs free efile That is, it begins on the same day as your holding period for the old property. Irs free efile Example. Irs free efile You bought machinery on December 4, 2012. Irs free efile On June 4, 2013, you traded this machinery for other machinery in a nontaxable exchange. Irs free efile On December 5, 2013, you sold the machinery you got in the exchange. Irs free efile Your holding period for this machinery began on December 5, 2012. Irs free efile Therefore, you held it longer than 1 year. Irs free efile Corporate liquidation. Irs free efile   The holding period for property you receive in a liquidation generally starts on the day after you receive it if gain or loss is recognized. Irs free efile Profit-sharing plan. Irs free efile   The holding period of common stock withdrawn from a qualified contributory profit-sharing plan begins on the day following the day the plan trustee delivered the stock to the transfer agent with instructions to reissue the stock in your name. Irs free efile Gift. Irs free efile   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Irs free efile For more information on basis, see Publication 551, Basis of Assets. Irs free efile Real property. Irs free efile   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, the day after you took possession of it and assumed the burdens and privileges of ownership. Irs free efile   However, taking possession of real property under an option agreement is not enough to start the holding period. Irs free efile The holding period cannot start until there is an actual contract of sale. Irs free efile The holding period of the seller cannot end before that time. Irs free efile Repossession. Irs free efile   If you sell real property but keep a security interest in it and then later repossess it, your holding period for a later sale includes the period you held the property before the original sale, as well as the period after the repossession. Irs free efile Your holding period does not include the time between the original sale and the repossession. Irs free efile That is, it does not include the period during which the first buyer held the property. Irs free efile Nonbusiness bad debts. Irs free efile   Nonbusiness bad debts are short-term capital losses. Irs free efile For information on nonbusiness bad debts, see chapter 4 of Publication 550. Irs free efile    Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Irs free efile Net short-term capital gain or loss. Irs free efile   Combine your short-term capital gains and losses, including your share of short-term capital gains or losses from partnerships, S corporations, and fiduciaries and any short-term capital loss carryover. Irs free efile Do this by adding all your short-term capital gains. Irs free efile Then add all your short-term capital losses. Irs free efile Subtract the lesser total from the other. Irs free efile The result is your net short-term capital gain or loss. Irs free efile Net long-term capital gain or loss. Irs free efile   Follow the same steps to combine your long-term capital gains and losses. Irs free efile Include the following items. Irs free efile Net section 1231 gain from Part I, Form 4797, after any adjustment for nonrecaptured section 1231 losses from prior tax years. Irs free efile Capital gain distributions from regulated investment companies (mutual funds) and real estate investment trusts. Irs free efile Your share of long-term capital gains or losses from partnerships, S corporations, and fiduciaries. Irs free efile Any long-term capital loss carryover. Irs free efile The result from combining these items with other long-term capital gains and losses is your net long-term capital gain or loss. Irs free efile Net gain. Irs free efile   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Irs free efile Different tax rates may apply to the part that is a net capital gain. Irs free efile See Capital Gains Tax Rates, later. Irs free efile Net loss. Irs free efile   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Irs free efile But there are limits on how much loss you can deduct and when you can deduct it. Irs free efile See Treatment of Capital Losses, next. Irs free efile    Treatment of Capital Losses If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you do not have ordinary income to offset it. Irs free efile The yearly limit on the amount of the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Irs free efile Table 4-2. Irs free efile Holding Period for Different Types of Acquisitions Type of acquisition: When your holding period starts: Stocks and bonds bought on a securities market Day after trading date you bought security. Irs free efile Ends on trading date you sold security. Irs free efile U. Irs free efile S. Irs free efile Treasury notes and bonds If bought at auction, day after notification of bid acceptance. Irs free efile If bought through subscription, day after subscription was submitted. Irs free efile Nontaxable exchanges Day after date you acquired old property. Irs free efile Gift If your basis is giver's adjusted basis, same day as giver's holding period began. Irs free efile If your basis is FMV, day after date of gift. Irs free efile Real property bought Generally, day after date you received title to the property. Irs free efile Real property repossessed Day after date you originally received title to the property, but does not include time between the original sale and date of repossession. Irs free efile Capital loss carryover. Irs free efile   Generally, you have a capital loss carryover if either of the following situations applies to you. Irs free efile Your net loss is more than the yearly limit. Irs free efile Your taxable income without your deduction for exemptions is less than zero. Irs free efile If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carryover to 2014. Irs free efile Example. Irs free efile Bob and Gloria Sampson sold property in 2013. Irs free efile The sale resulted in a capital loss of $7,000. Irs free efile The Sampsons had no other capital transactions. Irs free efile On their joint 2013 return, the Sampsons deduct $3,000, the yearly limit. Irs free efile They had taxable income of $2,000. Irs free efile The unused part of the loss, $4,000 ($7,000 − $3,000), is carried over to 2014. Irs free efile If the Sampsons' capital loss had been $2,000, it would not have been more than the yearly limit. Irs free efile Their capital loss deduction would have been $2,000. Irs free efile They would have no carryover to 2014. Irs free efile Short-term and long-term losses. Irs free efile   When you carry over a loss, it retains its original character as either long term or short term. Irs free efile A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. Irs free efile A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. Irs free efile A long-term capital loss you carry over to the next year reduces that year's long-term gains before its short-term gains. Irs free efile   If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. Irs free efile If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit. Irs free efile To figure your capital loss carryover from 2013 to 2014 use the Capital Loss Carryover Worksheet in the 2013 Instructions for Schedule D (Form 1040). Irs free efile Joint and separate returns. Irs free efile   On a joint return, the capital gains and losses of spouses are figured as the gains and losses of an individual. Irs free efile If you are married and filing a separate return, your yearly capital loss deduction is limited to $1,500. Irs free efile Neither you nor your spouse can deduct any part of the other's loss. Irs free efile   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. Irs free efile However, if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. Irs free efile Death of taxpayer. Irs free efile   Capital losses cannot be carried over after a taxpayer's death. Irs free efile They are deductible only on the final income tax return filed on the decedent's behalf. Irs free efile The yearly limit discussed earlier still applies in this situation. Irs free efile Even if the loss is greater than the limit, the decedent's estate cannot deduct the difference or carry it over to following years. Irs free efile Corporations. Irs free efile   A corporation can deduct capital losses only up to the amount of its capital gains. Irs free efile In other words, if a corporation has a net capital loss, it cannot be deducted in the current tax year. Irs free efile It must be carried to other tax years and deducted from capital gains occurring in those years. Irs free efile For more information, see Publication 542. Irs free efile Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Irs free efile These lower rates are called the maximum capital gains rates. Irs free efile The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Irs free efile For 2013, the maximum tax rates for individuals are 0%, 15%, 20%, 25%, and 28%. Irs free efile Also, individuals, use the Qualified Dividends and Capital Gain Worksheet in the Instructions for Form 1040, or the Schedule D Tax Computation Worksheet in the Instructions for Schedule D (Form 1040) (whichever applies) to figure your tax if you have qualified dividends or net capital gain. Irs free efile For more information, see chapter 4 of Publication 550. Irs free efile Also see the Instructions for Schedule D (Form 1040). Irs free efile Unrecaptured section 1250 gain. Irs free efile   Generally, this is the part of any long-term capital gain on section 1250 property (real property) that is due to depreciation. Irs free efile Unrecaptured section 1250 gain cannot be more than the net section 1231 gain or include any gain otherwise treated as ordinary income. Irs free efile Use the worksheet in the Schedule D instructions to figure your unrecaptured section 1250 gain. Irs free efile For more information about section 1250 property and net section 1231 gain, see chapter 3. Irs free efile Form 4797 Use Form 4797 to report: The sale or exchange of: Property used in your trade or business; Depreciable and amortizable property; Oil, gas, geothermal, or other mineral properties; and Section 126 property. Irs free efile The involuntary conversion (from other than casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Irs free efile The disposition of noncapital assets (other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business). Irs free efile The disposition of capital assets not reported on Schedule D. Irs free efile The gain or loss (including any related recapture) for partners and S corporation shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations. Irs free efile The computation of recapture amounts under sections 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less. Irs free efile Gains or losses treated as ordinary gains or losses, if you are a trader in securities or commodities and made a mark-to-market election under Internal Revenue Code section 475(f). Irs free efile You can use Form 4797 with Form 1040, 1065, 1120, or 1120S. Irs free efile Section 1231 gains and losses. Irs free efile   Show any section 1231 gains and losses in Part I. Irs free efile Carry a net gain to Schedule D (Form 1040) as a long-term capital gain. Irs free efile Carry a net loss to Part II of Form 4797 as an ordinary loss. Irs free efile   If you had any nonrecaptured net section 1231 losses from the preceding 5 tax years, reduce your net gain by those losses and report the amount of the reduction as an ordinary gain in Part II. Irs free efile Report any remaining gain on Schedule D (Form 1040). Irs free efile See Section 1231 Gains and Losses in chapter 3. Irs free efile Ordinary gains and losses. Irs free efile   Show any ordinary gains and losses in Part II. Irs free efile This includes a net loss or a recapture of losses from prior years figured in Part I of Form 4797. Irs free efile It also includes ordinary gain figured in Part III. Irs free efile Mark-to-market election. Irs free efile   If you made a mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Form 8949 and Schedule D (Form 1040). Irs free efile See the Instructions for Form 4797. Irs free efile Also see Special Rules for Traders in Securities, in chapter 4 of Publication 550. Irs free efile Ordinary income from depreciation. Irs free efile   Figure the ordinary income from depreciation on personal property and additional depreciation on real property (as discussed in chapter 3) in Part III. Irs free efile Carry the ordinary income to Part II of Form 4797 as an ordinary gain. Irs free efile Carry any remaining gain to Part I as section 1231 gain, unless it is from a casualty or theft. Irs free efile Carry any remaining gain from a casualty or theft to Form 4684. Irs free efile Prev  Up  Next   Home   More Online Publications
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Irs free efile 12. Irs free efile   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. Irs free efile Name change. Irs free efile Penalty for underpayment of estimated tax. Irs free efile Who Must Pay Self-Employment Tax?Limited partner. Irs free efile Community property. Irs free efile 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. Irs free efile  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Irs free efile 4% to 12. Irs free efile 4%. Irs free efile The Medicare part of the tax remains at 2. Irs free efile 9%. Irs free efile As a result, the self-employment tax is increased from 13. Irs free efile 3% to 15. Irs free efile 3%. Irs free efile Additional Medicare Tax. Irs free efile . Irs free efile  For tax years beginning in 2013, a 0. Irs free efile 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Irs free efile Use Form 8959, Additional Medicare Tax, to figure this tax. Irs free efile For more information, see the Instructions for Form 8959. Irs free efile Maximum net earnings. Irs free efile  The maximum net self-employment earnings subject to the social security part (12. Irs free efile 4%) of the self-employment tax increased to $113,700 for 2013. Irs free efile There is no maximum limit on earnings subject to the Medicare part (2. Irs free efile 9%). Irs free efile What's New for 2014 Maximum net earnings. Irs free efile  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. Irs free efile Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Irs free efile It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Irs free efile You usually have to pay SE tax if you are self-employed. Irs free efile You are usually self-employed if you operate your own farm on land you either own or rent. Irs free efile You have to figure SE tax on Schedule SE (Form 1040). Irs free efile Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Irs free efile See chapter 13 for information on employment taxes. Irs free efile Self-employment tax rate. Irs free efile   For tax years beginning in 2013, the self-employment tax rate is 15. Irs free efile 3%. Irs free efile The rate consists of two parts: 12. Irs free efile 4% for social security (old-age, survivors, and disability insurance) and 2. Irs free efile 9% for Medicare (hospital insurance). Irs free efile 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. Irs free efile S. Irs free efile Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Irs free efile S. Irs free efile Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Irs free efile See chapter 16 for information about getting publications and forms. Irs free efile Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Irs free efile Your payments of SE tax contribute to your coverage under the social security system. Irs free efile Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Irs free efile How to become insured under social security. Irs free efile   You must be insured under the social security system before you begin receiving social security benefits. Irs free efile You are insured if you have the required number of credits (also called quarters of coverage). Irs free efile Earning credits in 2013. Irs free efile   You can earn a maximum of four credits per year. Irs free efile For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Irs free efile 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. Irs free efile It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Irs free efile 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. Irs free efile socialsecurity. Irs free efile gov. Irs free efile Making false statements to get or to increase social security benefits may subject you to penalties. Irs free efile The Social Security Administration (SSA) time limit for posting self-employment earnings. Irs free efile   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. Irs free efile    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. Irs free efile The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Irs free efile 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). Irs free efile This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Irs free efile An ITIN does not entitle you to social security benefits. Irs free efile Obtaining an ITIN does not change your immigration or employment status under U. Irs free efile S. Irs free efile law. Irs free efile Obtaining a social security number. Irs free efile   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Irs free efile The application is also available in Spanish. Irs free efile You can get this form at any Social Security office or by calling 1-800-772-1213. Irs free efile    You can also download Form SS-5 from the Social Security Administration website at  www. Irs free efile socialsecurity. Irs free efile gov. Irs free efile   If you have a social security number from the time you were an employee, you must use that number. Irs free efile Do not apply for a new one. Irs free efile Replacing a lost social security card. Irs free efile   If you have a number but lost your card, file Form SS-5. Irs free efile You will get a new card showing your original number, not a new number. Irs free efile Name change. Irs free efile   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Irs free efile Obtaining an individual taxpayer identification number. Irs free efile   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. Irs free efile To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Irs free efile You can get this form by calling 1-800-829-3676. Irs free efile For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Irs free efile Form W-7 and Publication 1915 are also available in Spanish. Irs free efile    You can also download Form W-7 from the IRS website at IRS. Irs free efile gov. Irs free efile Paying estimated tax. Irs free efile   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Irs free efile 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. Irs free efile Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Irs free efile   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. Irs free efile For more information about estimated tax for farmers, see chapter 15. Irs free efile Penalty for underpayment of estimated tax. Irs free efile   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Irs free efile 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. Irs free efile The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Irs free efile Aliens. Irs free efile   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Irs free efile S. Irs free efile citizens. Irs free efile Nonresident aliens are not subject to self-employment tax. Irs free efile 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. Irs free efile S. Irs free efile residents for self-employment tax purposes. Irs free efile For more information on aliens, see Publication 519, U. Irs free efile S. Irs free efile Tax Guide for Aliens. Irs free efile 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. Irs free efile A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Irs free efile Share farmer. Irs free efile   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Irs free efile You produce a crop or raise livestock on land belonging to another person. Irs free efile Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Irs free efile 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. Irs free efile   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. Irs free efile This will depend on whether the landowner has the right to direct or control your performance of services. Irs free efile Example. Irs free efile A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Irs free efile Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Irs free efile The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Irs free efile The share farmer is provided a house in which to live. Irs free efile The landowner and the share farmer decide on a cropping plan. Irs free efile 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. Irs free efile The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Irs free efile Contract farming. Irs free efile   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. Irs free efile 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. Irs free efile 4-H Club or FFA project. Irs free efile   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. Irs free efile Report the net income as “Other income” on line 21 of Form 1040. Irs free efile If necessary, attach a statement showing the gross income and expenses. Irs free efile 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. Irs free efile Such a project is generally not considered a trade or business. Irs free efile Partners in a partnership. Irs free efile   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Irs free efile Limited partner. Irs free efile   If you are a limited partner, your partnership income is generally not subject to SE tax. Irs free efile 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). Irs free efile Business Owned and Operated by Spouses. Irs free efile   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. Irs free efile You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Irs free efile 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. Irs free efile Qualified joint venture. Irs free efile   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. Irs free efile For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Irs free efile   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. Irs free efile Each of you must file a separate Schedule F and a separate Schedule SE. Irs free efile For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Irs free efile Spouse employee. Irs free efile   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Irs free efile For more information about employment taxes, see chapter 13. Irs free efile Community property. Irs free efile   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. Irs free efile Do not treat any of your share as self-employment earnings of your spouse. Irs free efile Figuring Self-Employment Earnings Farmer. Irs free efile   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Irs free efile Partnership income or loss. Irs free efile   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). Irs free efile Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Irs free efile 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). Irs free efile   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. Irs free efile   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Irs free efile   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Irs free efile   For general information on partnerships, see Publication 541. Irs free efile More than one business. Irs free efile   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. Irs free efile A loss from one business reduces your profit from another business. Irs free efile 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. Irs free efile Community property. Irs free efile   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. Irs free efile Lost income payments. Irs free efile   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Irs free efile These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Irs free efile 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). Irs free efile A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Irs free efile Gain or loss. Irs free efile   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. Irs free efile It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Irs free efile For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Irs free efile Investment property. Irs free efile Depreciable property or other fixed assets used in your trade or business. Irs free efile 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. Irs free efile Unharvested standing crops sold with land held more than 1 year. Irs free efile 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. Irs free efile   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. Irs free efile For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Irs free efile Wages and salaries. Irs free efile   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. Irs free efile   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Irs free efile Retired partner. Irs free efile   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. Irs free efile The retired partner performs no services for the partnership during the year. Irs free efile The retired partner is owed only the retirement payments. Irs free efile The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Irs free efile The payments to the retired partner are lifelong periodic payments. Irs free efile Conservation Reserve Program (CRP) payments. Irs free efile   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. Irs free efile You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Irs free efile Cost share payments you receive may qualify for the costsharing exclusion. Irs free efile See Cost-Sharing Exclusion (Improvements), above. Irs free efile CRP payments are reported to you on Form 1099G. Irs free efile Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Irs free efile See the instructions for Schedule SE (Form 1040). Irs free efile Self-employed health insurance deduction. Irs free efile   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). Irs free efile 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. Irs free efile 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. Irs free efile Crop shares. Irs free efile   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. Irs free efile Feeding such crop shares to livestock is considered using them. Irs free efile Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Irs free efile Material participation for landlords. Irs free efile   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Irs free efile You do at least three of the following. Irs free efile Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Irs free efile Furnish at least half the tools, equipment, and livestock used in the production activities. Irs free efile Advise or consult with your tenant. Irs free efile Inspect the production activities periodically. Irs free efile You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Irs free efile You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Irs free efile You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Irs free efile These tests may be used as general guides for determining whether you are a material participant. Irs free efile Example. Irs free efile Drew Houston agrees to produce a crop on J. Irs free efile Clarke's cotton farm, with each receiving half the proceeds. Irs free efile Clarke advises Houston when to plant, spray, and pick the cotton. Irs free efile During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Irs free efile Houston furnishes all labor needed to grow and harvest the crop. Irs free efile 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. Irs free efile The income Clarke receives from his cotton farm is included in his self-employment earnings. Irs free efile Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Irs free efile The regular method. Irs free efile The farm optional method. Irs free efile The nonfarm optional method. Irs free efile You must use the regular method unless you are eligible to use one or both of the optional methods. Irs free efile See Figure 12-1 , shown later. Irs free efile Figure 12-1. Irs free efile Can I Use the Optional Methods? Please click here for the text description of the image. Irs free efile Figure 12–1. Irs free efile 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. Irs free efile You want to receive credit for social security benefit coverage. Irs free efile You incurred child or dependent care expenses for which you could claim a credit. Irs free efile (An optional method may increase your earned income, which could increase your credit. Irs free efile ) You are entitled to the earned income credit. Irs free efile (An optional method may increase your earned income, which could increase your credit. Irs free efile ) You are entitled to the additional child tax credit. Irs free efile (An optional method may increase your earned income, which could increase your credit. Irs free efile ) Effects of using an optional method. Irs free efile   Using an optional method could increase your SE tax. Irs free efile Paying more SE tax may result in you getting higher social security disability or retirement benefits. Irs free efile   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. Irs free efile   The optional methods may be used only to figure your SE tax. Irs free efile To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Irs free efile Regular Method Multiply your total self-employment earnings by 92. Irs free efile 35% (. Irs free efile 9235) to get your net earnings under the regular method. Irs free efile See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Irs free efile Net earnings figured using the regular method are also called “actual net earnings. Irs free efile ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Irs free efile You can use this method if you meet either of the following tests. Irs free efile Your gross farm income is $6,960 or less. Irs free efile Your net farm profits are less than $5,024. Irs free efile Gross farm income. Irs free efile   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). Irs free efile Net farm profits. Irs free efile   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). Irs free efile 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. Irs free efile For more information, see Partnership income or loss , earlier. Irs free efile Figuring farm net earnings. Irs free efile   If you meet either of the two tests explained above, use Table 12-1. Irs free efile Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Irs free efile Table 12-1. Irs free efile Figuring Farm Net Earnings IF your gross farm income  is. Irs free efile . Irs free efile . Irs free efile THEN your net earnings are equal to. Irs free efile . Irs free efile . Irs free efile $6,960 or less Two-thirds of your gross farm income. Irs free efile More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Irs free efile   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. Irs free efile Your actual net earnings are your net earnings figured using the regular method, explained earlier. Irs free efile Example. Irs free efile Your gross farm income is $540 and your net farm profit is $460. Irs free efile Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Irs free efile 35% of $460). Irs free efile You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Irs free efile Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Irs free efile If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Irs free efile 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. Irs free efile For more information about the nonfarm optional method, see Publication 334. Irs free efile You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Irs free efile 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. Irs free efile You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Irs free efile If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Irs free efile Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Irs free efile Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Irs free efile Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Irs free efile However, certain taxpayers must use Section B–Long Schedule SE. Irs free efile Use the chart on page 1 of Schedule SE to find out which one to use. Irs free efile 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. Irs free efile Deduction for employer-equivalent portion of self-employment tax. Irs free efile   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Irs free efile This deduction only affects your income tax. Irs free efile It does not affect either your net earnings from self-employment or your SE tax. Irs free efile   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. Irs free efile Joint return. Irs free efile   Even if you file a joint return, you cannot file a joint Schedule SE. Irs free efile This is true whether one spouse or both spouses have self-employment earnings. Irs free efile Your spouse is not considered self-employed just because you are. Irs free efile If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Irs free efile 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. Irs free efile Attach both schedules to the joint return. Irs free efile 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 . Irs free efile Prev  Up  Next   Home   More Online Publications