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Taxes online Publication 555 - Main Content Table of Contents Domicile Community or Separate Property and Income Identifying Income, Deductions, and CreditsIncome Exemptions Deductions Credits, Taxes, and Payments Community Property Laws DisregardedRequesting relief. Taxes online Equitable relief. Taxes online Earned income. Taxes online Trade or business income. Taxes online Partnership income or loss. Taxes online Separate property income. Taxes online Social security benefits. Taxes online Other income. Taxes online End of the Community Preparing a Federal Income Tax ReturnJoint Return Versus Separate Returns Separate Return Preparation How To Get Tax HelpLow Income Taxpayer Clinics Domicile Whether you have community property and community income depends on the state where you are domiciled. Taxes online If you and your spouse (or your registered domestic partner) have different domiciles, check the laws of each to see whether you have community property or community income. Taxes online You have only one domicile even if you have more than one home. Taxes online Your domicile is a permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Taxes online The question of your domicile is mainly a matter of your intention as indicated by your actions. Taxes online You must be able to show that you intend a given place or state to be your permanent home. Taxes online If you move into or out of a community property state during the year, you may or may not have community income. Taxes online Factors considered in determining domicile include: Where you pay state income tax, Where you vote, Location of property you own, Your citizenship, Length of residence, and Business and social ties to the community. Taxes online Amount of time spent. Taxes online    The amount of time spent in one place does not always explain the difference between home and domicile. Taxes online A temporary home or residence may continue for months or years while a domicile may be established the first moment you occupy the property. Taxes online Your intent is the determining factor in proving where you have your domicile. Taxes online    Note. Taxes online When this publication refers to where you live, it means your domicile. Taxes online Community or Separate Property and Income If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income. Taxes online Likewise, a registered domestic partner must report half of all community income and all of his or her separate income on his or her federal tax return. Taxes online You each must attach your Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Taxes online Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes. Taxes online The following is a summary of the general rules. Taxes online These rules are also shown in Table 1. Taxes online Community property. Taxes online    Generally, community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Taxes online That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Taxes online That cannot be identified as separate property. Taxes online Community income. Taxes online    Generally, community income is income from: Community property. Taxes online Salaries, wages, and other pay received for the services performed by you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Taxes online Real estate that is treated as community property under the laws of the state where the property is located. Taxes online Note Separate property. Taxes online    Generally, separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Taxes online Money earned while domiciled in a noncommunity property state. Taxes online Property that you or your spouse (or your registered domestic partner) received separately as a gift or inheritance during your marriage (or registered domestic partnership). Taxes online Property that you or your spouse (or your registered domestic partner) bought with separate funds, or acquired in exchange for separate property, during your marriage (or registered domestic partnership). Taxes online Property that you and your spouse (or your registered domestic partner) converted from community property to separate property through an agreement valid under state law. Taxes online The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Taxes online Separate income. Taxes online    Generally, income from separate property is the separate income of the spouse (or the registered domestic partner) who owns the property. Taxes online    In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Taxes online Table 1. Taxes online General Rules — Property and Income: Community or Separate? Community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Taxes online (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds. Taxes online ) That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Taxes online That cannot be identified as separate property. Taxes online Separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Taxes online Money earned while domiciled in a noncommunity property state. Taxes online Property either of you received as a gift or inherited separately during your marriage (or registered domestic partnership). Taxes online Property bought with separate funds, or exchanged for separate property, during your marriage (or registered domestic partnership). Taxes online Property that you and your spouse (or your registered domestic partner) agreed to convert from community to separate property through an agreement valid under state law. Taxes online The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Taxes online Community income 1,2,3 is income from: Community property. Taxes online Salaries, wages, or pay for services of you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Taxes online Real estate that is treated as community property under the laws of the state where the property is located. Taxes online Separate income 1,2 is income from: Separate property which belongs to the spouse (or registered domestic partner) who owns the property. Taxes online 1In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Taxes online 2Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year , later. Taxes online In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Taxes online In other states, it is separate income. Taxes online 3Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Taxes online See Community Property Laws Disregarded , later. Taxes online Identifying Income, Deductions, and Credits If you file separate returns, you and your spouse (or your registered domestic partner) each must attach your Form 8958 to your Form 1040 to identify your community and separate income, deductions, credits, and other return amounts according to the laws of your state. Taxes online Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Taxes online See Community Property Laws Disregarded, later. Taxes online Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year, later. Taxes online In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Taxes online In other states, it is separate income. Taxes online Income The following is a discussion of the general effect of community property laws on the federal income tax treatment of certain items of income. Taxes online Wages, earnings, and profits. Taxes online    A spouse's (or your registered domestic partner's) wages, earnings, and net profits from a sole proprietorship are community income and must be evenly split. Taxes online Dividends, interest, and rents. Taxes online    Dividends, interest, and rents from community property are community income and must be evenly split. Taxes online Dividends, interest, and rents from separate property are characterized in accordance with the discussion under Income from separate property , later. Taxes online Example. Taxes online If you and your spouse (or your registered domestic partner) buy a bond that is considered community property under your state laws, half the bond interest belongs to you and half belongs to your spouse. Taxes online You each must show the bond interest and the split of that interest on your Form 8958, and report half the interest on your Form 1040. Taxes online Attach your Form 8958 to your Form 1040. Taxes online Alimony received. Taxes online    Alimony or separate maintenance payments made prior to divorce are taxable to the payee spouse only to the extent they exceed 50% (his or her share) of the reportable community income. Taxes online This is so because the payee spouse is already required to report half of the community income. Taxes online See also Alimony paid , later. Taxes online Gains and losses. Taxes online    Gains and losses are classified as separate or community depending on how the property is held. Taxes online For example, a loss on separate property, such as stock held separately, is a separate loss. Taxes online On the other hand, a loss on community property, such as a casualty loss to your home held as community property, is a community loss. Taxes online See Publication 544, Sales and Other Dispositions of Assets, for information on gains and losses. Taxes online See Publication 547, Casualties, Disasters, and Thefts, for information on losses due to a casualty or theft. Taxes online Withdrawals from individual retirement arrangements (IRAs) and Coverdell Education Savings Accounts (ESAs). Taxes online    There are several kinds of individual retirement arrangements (IRAs). Taxes online They are traditional IRAs (including SEP-IRAs), SIMPLE IRAs, and Roth IRAs. Taxes online IRAs and ESAs by law are deemed to be separate property. Taxes online Therefore, taxable IRA and ESA distributions are separate property, even if the funds in the account would otherwise be community property. Taxes online These distributions are wholly taxable to the spouse (or registered domestic partner) whose name is on the account. Taxes online That spouse (or registered domestic partner) is also liable for any penalties and additional taxes on the distributions. Taxes online Pensions. Taxes online    Generally, distributions from pensions will be characterized as community or separate income depending on the respective periods of participation in the pension while married (or during the registered domestic partnership) and domiciled in a community property state or in a noncommunity property state during the total period of participation in the pension. Taxes online See the example under Civil service retirement , later. Taxes online These rules may vary between states. Taxes online Check your state law. Taxes online Lump-sum distributions. Taxes online    If you were born before January 2, 1936, and receive a lump-sum distribution from a qualified retirement plan, you may be able to choose an optional method of figuring the tax on the distribution. Taxes online For the 10-year tax option, you must disregard community property laws. Taxes online For more information, see Publication 575, Pension and Annuity Income, and Form 4972, Tax on Lump-Sum Distributions. Taxes online Civil service retirement. Taxes online    For income tax purposes, community property laws apply to annuities payable under the Civil Service Retirement Act (CSRS) or Federal Employee Retirement System (FERS). Taxes online   Whether a civil service annuity is separate or community income depends on your marital status (or your status as a registered domestic partner) and domicile of the employee when the services were performed for which the annuity is paid. Taxes online Even if you now live in a noncommunity property state and you receive a civil service annuity, it may be community income if it is based on services you performed while married (or during the registered domestic partnership) and domiciled in a community property state. Taxes online   If a civil service annuity is a mixture of community income and separate income, it must be divided between the two kinds of income. Taxes online The division is based on the employee's domicile and marital status (or registered domestic partnership) in community and noncommunity property states during his or her periods of service. Taxes online Example. Taxes online Henry Wright retired this year after 30 years of civil service. Taxes online He and his wife were domiciled in a community property state during the past 15 years. Taxes online Since half the service was performed while the Wrights were married and domiciled in a community property state, half the civil service retirement pay is considered to be community income. Taxes online If Mr. Taxes online Wright receives $1,000 a month in retirement pay, $500 is considered community income—half ($250) is his income and half ($250) is his wife's. Taxes online Military retirement pay. Taxes online    State community property laws apply to military retirement pay. Taxes online Generally, the pay is either separate or community income based on the marital status and domicile of the couple while the member of the Armed Forces was in active military service. Taxes online For example, military retirement pay for services performed during marriage and domicile in a community property state is community income. Taxes online   Active military pay earned while married and domiciled in a community property state is also community income. Taxes online This income is considered to be received half by the member of the Armed Forces and half by the spouse. Taxes online Partnership income. Taxes online    If an interest is held in a partnership, and income from the partnership is attributable to the efforts of either spouse (or registered domestic partner), the partnership income is community property. Taxes online If it is merely a passive investment in a separate property partnership, the partnership income will be characterized in accordance with the discussion under Income from separate property , later. Taxes online Tax-exempt income. Taxes online    For spouses, community income exempt from federal tax generally keeps its exempt status for both spouses. Taxes online For example, under certain circumstances, income earned outside the United States is tax exempt. Taxes online If you earned income and met the conditions that made it exempt, the income is also exempt for your spouse even though he or she may not have met the conditions. Taxes online Registered domestic partners should consult the particular exclusion provision to see if the exempt status applies to both. Taxes online Income from separate property. Taxes online    In some states, income from separate property is separate income. Taxes online These states include Arizona, California, Nevada, New Mexico, and Washington. Taxes online Other states characterize income from separate property as community income. Taxes online These states include Idaho, Louisiana, Texas, and Wisconsin. Taxes online Exemptions When you file separate returns, you must claim your own exemption amount for that year. Taxes online (See your tax return instructions. Taxes online ) You cannot divide the amount allowed as an exemption for a dependent between you and your spouse (or your registered domestic partner). Taxes online When community funds provide support for more than one person, each of whom otherwise qualifies as a dependent, you and your spouse (or your registered domestic partner) may divide the number of dependency exemptions as explained in the following example. Taxes online Example. Taxes online Ron and Diane White have three dependent children and live in Nevada. Taxes online If Ron and Diane file separately, only Ron can claim his own exemption, and only Diane can claim her own exemption. Taxes online Ron and Diane can agree that one of them will claim the exemption for one, two, or all of their children and the other will claim any remaining exemptions. Taxes online They cannot each claim half of the total exemption amount for their three children. Taxes online Deductions If you file separate returns, your deductions generally depend on whether the expenses involve community or separate income. Taxes online Business and investment expenses. Taxes online    If you file separate returns, expenses incurred to earn or produce community business or investment income are generally divided equally between you and your spouse (or your registered domestic partner). Taxes online Each of you is entitled to deduct one-half of the expenses on your separate returns. Taxes online Expenses incurred by a spouse (or registered domestic partner) to produce separate business or investment income is deductible by the spouse (or the registered domestic partner) who earns the corresponding separate business or investment income. Taxes online    Other limits may also apply to business and investment expenses. Taxes online For more information, see Publication 535, Business Expenses, and Publication 550, Investment Income and Expenses. Taxes online Alimony paid. Taxes online    Payments that may otherwise qualify as alimony are not deductible by the payer if they are the recipient spouse's part of community income. Taxes online They are deductible as alimony only to the extent they are more than that spouse's part of community income. Taxes online Example. Taxes online You live in a community property state. Taxes online You are separated but the special rules explained later under Spouses living apart all year do not apply. Taxes online Under a written agreement, you pay your spouse $12,000 of your $20,000 total yearly community income. Taxes online Your spouse receives no other community income. Taxes online Under your state law, earnings of a spouse living separately and apart from the other spouse continue as community property. Taxes online On your separate returns, each of you must report $10,000 of the total community income. Taxes online In addition, your spouse must report $2,000 as alimony received. Taxes online You can deduct $2,000 as alimony paid. Taxes online IRA deduction. Taxes online    Deductions for IRA contributions cannot be split between spouses (or registered domestic partners). Taxes online The deduction for each spouse (or each registered domestic partner) is figured separately and without regard to community property laws. Taxes online Personal expenses. Taxes online   Expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. Taxes online If these expenses are paid from community funds, divide the deduction equally between you and your spouse. Taxes online Credits, Taxes, and Payments The following is a discussion of the general effect of community property laws on the treatment of certain credits, taxes, and payments on your separate return. Taxes online Child tax credit. Taxes online    You may be entitled to a child tax credit for each of your qualifying children. Taxes online You must provide the name and identification number (usually the social security number) of each qualifying child on your return. Taxes online See your tax return instructions for the maximum amount of the credit you can claim for each qualifying child. Taxes online Limit on credit. Taxes online    The credit is limited if your modified adjusted gross income (modified AGI) is above a certain amount. Taxes online The amount at which the limitation (phaseout) begins depends on your filing status. Taxes online Generally, your credit is limited to your tax liability unless you have three or more qualifying children. Taxes online See your tax return instructions for more information. Taxes online Self-employment tax. Taxes online    For the effect of community property laws on the income tax treatment of income from a sole proprietorship and partnerships, see Wages, earnings, and profits and Partnership income , earlier. Taxes online The following rules only apply to persons married for federal tax purposes. Taxes online Registered domestic partners report community income for self-employment tax purposes the same way they do for income tax purposes. Taxes online Sole proprietorship. Taxes online    With regard to net income from a trade or business (other than a partnership) that is community income, self-employment tax is imposed on the spouse carrying on the trade or business. Taxes online Partnerships. Taxes online    All of the distributive share of a married partner's income or loss from a partnership trade or business is attributable to the partner for computing any self-employment tax, even if a portion of the partner's distributive share of income or loss is community income or loss that is otherwise attributable to the partner's spouse for income tax purposes. Taxes online If both spouses are partners, any self-employment tax is allocated based on their distributive shares. Taxes online Federal income tax withheld. Taxes online    Report the credit for federal income tax withheld on community wages in the same manner as your wages. Taxes online If you and your spouse file separate returns on which each of you reports half the community wages, each of you is entitled to credit for half the income tax withheld on those wages. Taxes online Likewise, each registered domestic partner is entitled to credit for half the income tax withheld on those wages. Taxes online Estimated tax payments. Taxes online    In determining whether you must pay estimated tax, apply the estimated tax rules to your estimated income. Taxes online These rules are explained in Publication 505. Taxes online   If you think you may owe estimated tax and want to pay the tax separately (registered domestic partners must pay the tax separately), determine whether you must pay it by taking into account: Half the community income and deductions, All of your separate income and deductions, and Your own exemption and any exemptions for dependents that you may claim. Taxes online   Whether you and your spouse pay estimated tax jointly or separately will not affect your choice of filing joint or separate income tax returns. Taxes online   If you and your spouse paid estimated tax jointly but file separate income tax returns, either of you can claim all of the estimated tax paid, or you may divide it between you in any way that you agree upon. Taxes online   If you cannot agree on how to divide it, the estimated tax you can claim equals the total estimated tax paid times the tax shown on your separate return, divided by the total of the tax shown on your return and your spouse's return. Taxes online   If you paid your estimated taxes separately, you get credit for only the estimated taxes you paid. Taxes online Earned income credit. Taxes online    You may be entitled to an earned income credit (EIC). Taxes online You cannot claim this credit if your filing status is married filing separately. Taxes online   If you are married, but qualify to file as head of household under rules for married taxpayers living apart (see Publication 501, Exemptions, Standard Deduction, and Filing Information), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under community property laws. Taxes online That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Taxes online Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Taxes online The same rule applies to registered domestic partners. Taxes online    This rule does not apply when determining your adjusted gross income (AGI) for the EIC. Taxes online Your AGI includes that part of both your and your spouse's (or your registered domestic partner's) wages that you are required to include in gross income shown on your tax return. Taxes online   For more information about the EIC, see Publication 596, Earned Income Credit (EIC). Taxes online Overpayments. Taxes online    The amount of an overpayment on a joint return is allocated under the community property laws of the state in which you are domiciled. Taxes online If, under the laws of your state, community property is subject to premarital or other separate debts of either spouse, the full joint overpayment may be used to offset the obligation. Taxes online If, under the laws of your state, community property is not subject to premarital or other separate debts of either spouse, only the portion of the joint overpayment allocated to the spouse liable for the obligation can be used to offset that liability. Taxes online The portion allocated to the other spouse can be refunded. Taxes online Community Property Laws Disregarded The following discussions are situations where special rules apply to community property and community income for spouses. Taxes online These rules do not apply to registered domestic partners. Taxes online Certain community income not treated as community income by one spouse. Taxes online    Community property laws may not apply to an item of community income that you received but did not treat as community income. Taxes online You are responsible for reporting all of that income item if: You treat the item as if only you are entitled to the income, and You do not notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions). Taxes online Relief from liability arising from community property law. Taxes online    You are not responsible for the tax relating to an item of community income if all the following conditions are met. Taxes online You did not file a joint return for the tax year. Taxes online You did not include an item of community income in gross income. Taxes online The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Taxes online Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Taxes online Your spouse's (or former spouse's) distributive share of partnership income. Taxes online Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Taxes online Use the appropriate community property law to determine what is separate property. Taxes online Any other income that belongs to your spouse (or former spouse) under community property law. Taxes online You establish that you did not know of, and had no reason to know of, that community income. Taxes online Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Taxes online Requesting relief. Taxes online    For information on how and when to request relief from liabilities arising from community property laws, see Community Property Laws in Publication 971, Innocent Spouse Relief. Taxes online Equitable relief. Taxes online    If you do not qualify for the relief discussed earlier under Relief from liability arising from community property law and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief. Taxes online To request equitable relief, you must file Form 8857, Request for Innocent Spouse Relief. Taxes online Also see Publication 971. Taxes online Spousal agreements. Taxes online    In some states a married couple may enter into an agreement that affects the status of property or income as community or separate property. Taxes online Check your state law to determine how it affects you. Taxes online Nonresident alien spouse. Taxes online    If you are a U. Taxes online S. Taxes online citizen or resident alien and you choose to treat your nonresident alien spouse as a U. Taxes online S. Taxes online resident for tax purposes and you are domiciled in a community property state or country, use the community property rules. Taxes online You must file a joint return for the year you make the choice. Taxes online You can file separate returns in later years. Taxes online For details on making this choice, see Publication 519, U. Taxes online S. Taxes online Tax Guide for Aliens. Taxes online   If you are a U. Taxes online S. Taxes online citizen or resident alien and do not choose to treat your nonresident alien spouse as a U. Taxes online S. Taxes online resident for tax purposes, treat your community income as explained next under Spouses living apart all year. Taxes online However, you do not have to meet the four conditions discussed there. Taxes online Spouses living apart all year. Taxes online    If you are married at any time during the calendar year, special rules apply for reporting certain community income. Taxes online You must meet all the following conditions for these special rules to apply. Taxes online You and your spouse lived apart all year. Taxes online You and your spouse did not file a joint return for a tax year beginning or ending in the calendar year. Taxes online You and/or your spouse had earned income for the calendar year that is community income. Taxes online You and your spouse have not transferred, directly or indirectly, any of the earned income in condition (3) above between yourselves before the end of the year. Taxes online Do not take into account transfers satisfying child support obligations or transfers of very small amounts or value. Taxes online If all these conditions are met, you and your spouse must report your community income as discussed next. Taxes online See also Certain community income not treated as community income by one spouse , earlier. Taxes online Earned income. Taxes online    Treat earned income that is not trade or business or partnership income as the income of the spouse who performed the services to earn the income. Taxes online Earned income is wages, salaries, professional fees, and other pay for personal services. Taxes online   Earned income does not include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered. Taxes online Trade or business income. Taxes online    Treat income and related deductions from a trade or business that is not a partnership as those of the spouse carrying on the trade or business. Taxes online Partnership income or loss. Taxes online    Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner. Taxes online Separate property income. Taxes online    Treat income from the separate property of one spouse as the income of that spouse. Taxes online Social security benefits. Taxes online    Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits. Taxes online Other income. Taxes online    Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law. Taxes online Example. Taxes online George and Sharon were married throughout the year but did not live together at any time during the year. Taxes online Both domiciles were in a community property state. Taxes online They did not file a joint return or transfer any of their earned income between themselves. Taxes online During the year their incomes were as follows:   George Sharon Wages $20,000 $22,000 Consulting business 5,000   Partnership   10,000 Dividends from separate property 1,000 2,000 Interest from community property 500 500 Total $26,500 $34,500 Under the community property law of their state, all the income is considered community income. Taxes online (Some states treat income from separate property as separate income—check your state law. Taxes online ) Sharon did not take part in George's consulting business. Taxes online Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). Taxes online But because they meet the four conditions listed earlier under Spouses living apart all year , they must disregard community property law in reporting all their income (except the interest income) from community property. Taxes online They each report on their returns only their own earnings and other income, and their share of the interest income from community property. Taxes online George reports $26,500 and Sharon reports $34,500. Taxes online Other separated spouses. Taxes online    If you and your spouse are separated but do not meet the four conditions discussed earlier under Spouses living apart all year , you must treat your income according to the laws of your state. Taxes online In some states, income earned after separation but before a decree of divorce continues to be community income. Taxes online In other states, it is separate income. Taxes online End of the Community The marital community may end in several ways. Taxes online When the marital community ends, the community assets (money and property) are divided between the spouses. Taxes online Similarly, a registered domestic partnership may end in several ways and the community assets must be divided between the registered domestic partners. Taxes online Death of spouse. Taxes online    If you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. Taxes online For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule does not apply to registered domestic partners). Taxes online Example. Taxes online Bob and Ann owned community property that had a basis of $80,000. Taxes online When Bob died, his and Ann's community property had an FMV of $100,000. Taxes online One-half of the FMV of their community interest was includible in Bob's estate. Taxes online The basis of Ann's half of the property is $50,000 after Bob died (half of the $100,000 FMV). Taxes online The basis of the other half to Bob's heirs is also $50,000. Taxes online   For more information about the basis of assets, see Publication 551, Basis of Assets. Taxes online    The above basis rule does not apply if your spouse died in 2010 and the spouse's executor elected out of the estate tax, in which case section 1022 will apply. Taxes online See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for additional information. Taxes online Divorce or separation. Taxes online    If spouses divorce or separate, the (equal or unequal) division of community property in connection with the divorce or property settlement does not result in a gain or loss. Taxes online For registered domestic partners, an unequal division of community property in a property settlement may result in a gain or loss. Taxes online For information on the tax consequences of the division of property under a property settlement or divorce decree, see Publication 504. Taxes online   Each spouse (or each registered domestic partner) is taxed on half the community income for the part of the year before the community ends. Taxes online However, see Spouses living apart all year , earlier. Taxes online Any income received after the community ends is separate income. Taxes online This separate income is taxable only to the spouse (or the registered domestic partner) to whom it belongs. Taxes online   An absolute decree of divorce or annulment ends the marital community in all community property states. Taxes online A decree of annulment, even though it holds that no valid marriage ever existed, usually does not nullify community property rights arising during the “marriage. Taxes online ” However, you should check your state law for exceptions. Taxes online   A decree of legal separation or of separate maintenance may or may not end the marital community. Taxes online The court issuing the decree may terminate the marital community and divide the property between the spouses. Taxes online   A separation agreement may divide the community property between you and your spouse. Taxes online It may provide that this property, along with future earnings and property acquired, will be separate property. Taxes online This agreement may end the community. Taxes online   In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Taxes online Check your state law. Taxes online   If you are a registered domestic partner, you should check your state law to determine when the community ends. Taxes online Preparing a Federal Income Tax Return The following discussion does not apply to spouses who meet the conditions under Spouses living apart all year , discussed earlier. Taxes online Those spouses must report their community income as explained in that discussion. Taxes online Joint Return Versus Separate Returns Ordinarily, filing a joint return will give you a greater tax advantage than filing a separate return. Taxes online But in some cases, your combined income tax on separate returns may be less than it would be on a joint return. Taxes online This discussion concerning joint versus separate returns does not apply to registered domestic partners. Taxes online The following rules apply if your filing status is married filing separately. Taxes online You should itemize deductions if your spouse itemizes deductions, because you cannot claim the standard deduction. Taxes online You cannot take the credit for child and dependent care expenses in most instances. Taxes online You cannot take the earned income credit. Taxes online You cannot exclude any interest income from qualified U. Taxes online S. Taxes online savings bonds that you used for higher education expenses. Taxes online You cannot take the credit for the elderly or the disabled unless you lived apart from your spouse all year. Taxes online You may have to include in income more of any social security benefits (including any equivalent railroad retirement benefits) you received during the year than you would on a joint return. Taxes online You cannot deduct interest paid on a qualified student loan. Taxes online You cannot take the education credits. Taxes online You may have a smaller child tax credit than you would on a joint return. Taxes online You cannot take the exclusion or credit for adoption expenses in most instances. Taxes online Figure your tax both on a joint return and on separate returns under the community property laws of your state. Taxes online You can then compare the tax figured under both methods and use the one that results in less tax. Taxes online Separate Return Preparation If you file separate returns, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Taxes online Each of you must complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Taxes online On the appropriate lines of your separate Form 1040, list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc. Taxes online ). Taxes online The same reporting rule applies to registered domestic partners. Taxes online For a discussion of the effect of community property laws on certain items of income, deductions, credits, and other return amounts, see Identifying Income, Deductions, and Credits , earlier. Taxes online Attach your Form 8958 to your separate return showing how you figured the income, deductions, and federal income tax withheld that each of you reported. Taxes online Form 8958 is used for married spouses in community property states who choose to file married filing separately. Taxes online Form 8958 is also used for registered domestic partners who are domiciled in Nevada, Washington, or California. Taxes online A registered domestic partner in Nevada, Washington, or California must follow state community property laws and report half the combined community income of the individual and his or her registered domestic partner. Taxes online Extension of time to file. Taxes online    An extension of time for filing your separate return does not extend the time for filing your spouse's (or your registered domestic partner's) separate return. Taxes online If you and your spouse file a joint return, you cannot file separate returns after the due date for filing either separate return has passed. Taxes online How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Taxes online Free help with your tax return. Taxes online    You can get free help preparing your return nationwide from IRS-certified volunteers. Taxes online The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Taxes online The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Taxes online Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Taxes online In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Taxes online To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Taxes online gov, download the IRS2Go app, or call 1-800-906-9887. Taxes online   As part of the TCE program, AARP offers the Tax-Aide counseling program. Taxes online To find the nearest AARP Tax-Aide site, visit AARP's website at www. Taxes online aarp. Taxes online org/money/taxaide or call 1-888-227-7669. Taxes online For more information on these programs, go to IRS. Taxes online gov and enter “VITA” in the search box. Taxes online Internet. Taxes online    IRS. Taxes online gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Taxes online Download the free IRS2Go app from the iTunes app store or from Google Play. Taxes online Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Taxes online Check the status of your 2013 refund with the Where's My Refund? application on IRS. Taxes online gov or download the IRS2Go app and select the Refund Status option. Taxes online The IRS issues more than 9 out of 10 refunds in less than 21 days. Taxes online Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Taxes online You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Taxes online The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Taxes online Use the Interactive Tax Assistant (ITA) to research your tax questions. Taxes online No need to wait on the phone or stand in line. Taxes online The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Taxes online When you reach the response screen, you can print the entire interview and the final response for your records. Taxes online New subject areas are added on a regular basis. Taxes online  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Taxes online gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Taxes online You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Taxes online The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Taxes online When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Taxes online Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Taxes online You can also ask the IRS to mail a return or an account transcript to you. Taxes online Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Taxes online gov or by calling 1-800-908-9946. Taxes online Tax return and tax account transcripts are generally available for the current year and the past three years. Taxes online Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Taxes online Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Taxes online If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Taxes online Check the status of your amended return using Where's My Amended Return? Go to IRS. Taxes online gov and enter Where's My Amended Return? in the search box. Taxes online You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Taxes online It can take up to 3 weeks from the date you mailed it to show up in our system. Taxes online Make a payment using one of several safe and convenient electronic payment options available on IRS. Taxes online gov. Taxes online Select the Payment tab on the front page of IRS. Taxes online gov for more information. Taxes online Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Taxes online Figure your income tax withholding with the IRS Withholding Calculator on IRS. Taxes online gov. Taxes online Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Taxes online Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Taxes online gov. Taxes online Request an Electronic Filing PIN by going to IRS. Taxes online gov and entering Electronic Filing PIN in the search box. Taxes online Download forms, instructions and publications, including accessible versions for people with disabilities. Taxes online Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Taxes online gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Taxes online An employee can answer questions about your tax account or help you set up a payment plan. Taxes online Before you visit, check the Office Locator on IRS. Taxes online gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Taxes online If you have a special need, such as a disability, you can request an appointment. Taxes online Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Taxes online Apply for an Employer Identification Number (EIN). Taxes online Go to IRS. Taxes online gov and enter Apply for an EIN in the search box. Taxes online Read the Internal Revenue Code, regulations, or other official guidance. Taxes online Read Internal Revenue Bulletins. Taxes online Sign up to receive local and national tax news and more by email. Taxes online Just click on “subscriptions” above the search box on IRS. Taxes online gov and choose from a variety of options. Taxes online    Phone. Taxes online You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Taxes online Download the free IRS2Go app from the iTunes app store or from Google Play. Taxes online Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Taxes online gov, or download the IRS2Go app. Taxes online Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Taxes online The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Taxes online Most VITA and TCE sites offer free electronic filing. Taxes online Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Taxes online Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Taxes online Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Taxes online If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Taxes online The IRS issues more than 9 out of 10 refunds in less than 21 days. Taxes online Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Taxes online Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Taxes online The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Taxes online Note, the above information is for our automated hotline. Taxes online Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Taxes online Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Taxes online You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Taxes online It can take up to 3 weeks from the date you mailed it to show up in our system. Taxes online Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Taxes online You should receive your order within 10 business days. Taxes online Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Taxes online If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Taxes online Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Taxes online The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Taxes online These individuals can also contact the IRS through relay services such as the Federal Relay Service. Taxes online    Walk-in. Taxes online You can find a selection of forms, publications and services — in-person. Taxes online Products. Taxes online You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Taxes online Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Taxes online Services. Taxes online You can walk in to your local TAC for face-to-face tax help. Taxes online An employee can answer questions about your tax account or help you set up a payment plan. Taxes online Before visiting, use the Office Locator tool on IRS. Taxes online gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Taxes online    Mail. Taxes online You can send your order for forms, instructions, and publications to the address below. Taxes online You should receive a response within 10 business days after your request is received. Taxes online Internal Revenue Service 1201 N. Taxes online Mitsubishi Motorway Bloomington, IL 61705-6613   The Taxpayer Advocate Service Is Here to Help You. Taxes online The Taxpayer Advocate Service (TAS) is your voice at the IRS. Taxes online Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Taxes online   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Taxes online We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Taxes online You face (or your business is facing) an immediate threat of adverse action. Taxes online You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Taxes online   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Taxes online Here's why we can help: TAS is an independent organization within the IRS. Taxes online Our advocates know how to work with the IRS. Taxes online Our services are free and tailored to meet your needs. Taxes online We have offices in every state, the District of Columbia, and Puerto Rico. Taxes online   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Taxes online irs. Taxes online gov/advocate, or call us toll-free at 1-877-777-4778. Taxes online   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Taxes online If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Taxes online irs. Taxes online gov/sams. Taxes online Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Taxes online Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Taxes online Visit www. Taxes online irs. Taxes online gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. Taxes online Prev  Up  Next   Home   More Online Publications
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Taxes online Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Taxes online Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Taxes online An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Taxes online 7701-3. Taxes online The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Taxes online Check your state's requirements and the federal tax regulations for further information. Taxes online Classification of an LLC Default classification rules. Taxes online   An LLC with at least two members is classified as a partnership for federal income tax purposes. Taxes online An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Taxes online Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Taxes online Elected classification. Taxes online   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Taxes online After an LLC has determined its federal tax classification, it can later elect to change that classification. Taxes online For details, see Subsequent Elections, later. Taxes online LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Taxes online S. Taxes online Return of Partnership Income. Taxes online Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Taxes online For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Taxes online For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Taxes online 469-5T(e)). Taxes online See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Taxes online Member manager. Taxes online   Only a member manager of an LLC can sign the partnership tax return. Taxes online And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Taxes online A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Taxes online If there are no elected or designated member managers, each owner is treated as a member manager. Taxes online Change in default classification. Taxes online   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Taxes online 7701-3(f)(2). Taxes online However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Taxes online   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Taxes online If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Taxes online Example 1. Taxes online Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Taxes online Each holds an equal membership interest. Taxes online The LLC does not hold any unrealized receivables or substantially appreciated inventory. Taxes online Ethel sells her entire interest in the LLC to Francis for $10,000. Taxes online After the sale, the business is continued by the LLC, which is owned solely by Francis. Taxes online No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Taxes online The partnership terminates when Francis buys Ethel's entire interest. Taxes online Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Taxes online For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Taxes online Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Taxes online Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Taxes online Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Taxes online See Partnership Distributions in Publication 541. Taxes online Example 2. Taxes online George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Taxes online Each holds an equal membership interest. Taxes online The LLC does not hold any unrealized receivables or substantially appreciated inventory. Taxes online George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Taxes online After the sale, the business is continued by the LLC, which is owned solely by Ian. Taxes online No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Taxes online The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Taxes online George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Taxes online For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Taxes online Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Taxes online   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Taxes online R. Taxes online B. Taxes online 6. Taxes online You can find Revenue Ruling 99-6 at www. Taxes online irs. Taxes online gov/pub/irs-irbs/irb99-06. Taxes online pdf. Taxes online LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Taxes online For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Taxes online Employment tax and certain excise taxes. Taxes online   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Taxes online For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Taxes online A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Taxes online See the employment and excise tax returns for more information. Taxes online Self-employment tax rule for disregarded entity LLCs. Taxes online   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Taxes online Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Taxes online Example 3. Taxes online LLC is a disregarded entity owned by Irene. Taxes online LLC has three employees (Kent, Patricia, and Tex) and pays wages. Taxes online LLC is treated as an entity separate from its owner for purposes of employment taxes. Taxes online For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Taxes online In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Taxes online Irene is self-employed for purposes of the self-employment tax. Taxes online Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Taxes online Irene is not an employee of LLC for purposes of employment taxes. Taxes online Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Taxes online Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Taxes online Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Taxes online Taxpayer identification number. Taxes online   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Taxes online This includes all information returns and reporting related to income tax. Taxes online For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Taxes online   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Taxes online An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Taxes online See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Taxes online Change in default classification. Taxes online   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Taxes online 7701-3(f)(2). Taxes online However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Taxes online   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Taxes online If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Taxes online Example 4. Taxes online Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Taxes online Alain does not contribute any portion of the $5,000 to the LLC. Taxes online Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Taxes online The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Taxes online Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Taxes online Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Taxes online Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Taxes online Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Taxes online Example 5. Taxes online Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Taxes online The LLC uses all of the contributed cash in its business. Taxes online Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Taxes online The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Taxes online Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Taxes online Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Taxes online Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Taxes online   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Taxes online R. Taxes online B. Taxes online 8. Taxes online You can find Revenue Ruling 99-5 at www. Taxes online irs. Taxes online gov/pub/irs-irbs/irb99-06. Taxes online pdf. Taxes online LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Taxes online File Form 8832, Entity Classification Election, to elect classification as a C corporation. Taxes online File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Taxes online LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Taxes online By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Taxes online If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Taxes online Example 6. Taxes online Classification as a corporation without an S election. Taxes online Wanda and Sylvester are members of an LLC. Taxes online They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Taxes online The LLC must file Form 8832. Taxes online Example 7. Taxes online Classification as a corporation with an S election. Taxes online Evelyn and Carol are members of an LLC. Taxes online They agree that the LLC should be classified as an S corporation. Taxes online The LLC must file Form 2553 instead of Form 8832. Taxes online If the LLC is classified as a corporation, it must file a corporation income tax return. Taxes online If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Taxes online If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Taxes online Corporations generally file either: Form 1120, U. Taxes online S. Taxes online Corporation Income Tax Return; or Form 1120S, U. Taxes online S. Taxes online Income Tax Return for an S Corporation. Taxes online For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Taxes online For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Taxes online S. Taxes online Income Tax Return for an S Corporation. Taxes online Subsequent Elections An LLC can elect to change its classification. Taxes online Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Taxes online An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Taxes online For more information and exceptions, see Regulations section 301. Taxes online 7701-3(c) and the Form 8832 instructions. Taxes online An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Taxes online Partnership to corporation. Taxes online   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Taxes online   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Taxes online Corporation to partnership. Taxes online   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Taxes online   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Taxes online Corporation to disregarded entity. Taxes online   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Taxes online   For more information, see Distributions to Shareholders in Publication 542. Taxes online Disregarded entity to corporation. Taxes online   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Taxes online   For more information, see Property Exchanged for Stock in Publication 542. Taxes online How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Taxes online Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Taxes online By selecting the method that is best for you, you will have quick and easy access to tax help. Taxes online Contacting your Taxpayer Advocate. Taxes online   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Taxes online   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Taxes online You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Taxes online You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Taxes online For more information, go to www. Taxes online irs. Taxes online gov/advocate. Taxes online Low Income Taxpayer Clinics (LITCs). Taxes online   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Taxes online The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Taxes online Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Taxes online It is available at www. Taxes online irs. Taxes online gov or at your local IRS office. Taxes online Small business workshops. Taxes online   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Taxes online Workshops are sponsored and presented by IRS partners who are federal tax specialists. Taxes online Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Taxes online Although most are free, some workshops have fees associated with them. Taxes online Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Taxes online   For more information, visit www. Taxes online irs. Taxes online gov/businesses/small. Taxes online Subscribe to e-news for small businesses. Taxes online   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Taxes online Visit the website at www. Taxes online irs. Taxes online gov/businesses/small and click on “Subscribe to e-News. Taxes online ” Free tax services. Taxes online   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Taxes online It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Taxes online   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Taxes online Internet. Taxes online You can access the IRS website at www. Taxes online irs. Taxes online gov 24 hours a day, 7 days a week, to: E-file your return. Taxes online Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Taxes online Check the status of your refund. Taxes online Go to www. Taxes online irs. Taxes online gov and click on Where's My Refund. Taxes online Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Taxes online If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Taxes online Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Taxes online Download forms, instructions, and publications. Taxes online Order IRS products online. Taxes online Research your tax questions online. Taxes online Search publications online by topic or keyword. Taxes online View Internal Revenue Bulletins (IRBs) published in the last few years. Taxes online Figure your withholding allowances using the withholding calculator online at www. Taxes online irs. Taxes online gov/individuals. Taxes online Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Taxes online Sign up to receive local and national tax news by email. Taxes online Get information on starting and operating a small business. Taxes online Phone. Taxes online Many services are available by phone. Taxes online Ordering forms, instructions, and publications. Taxes online Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Taxes online You should receive your order within 10 days. Taxes online Asking tax questions. Taxes online Call the IRS with your tax questions at 1-800-829-1040. Taxes online Solving problems. Taxes online You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Taxes online An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Taxes online Call your local Taxpayer Assistance Center for an appointment. Taxes online To find the number, go to www. Taxes online irs. Taxes online gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Taxes online TTY/TDD equipment. Taxes online If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Taxes online TeleTax topics. Taxes online Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Taxes online Refund information. Taxes online To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Taxes online Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Taxes online If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Taxes online Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Taxes online Refunds are sent out weekly on Fridays. Taxes online If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Taxes online Evaluating the quality of our telephone services. Taxes online To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Taxes online One method is for a second IRS representative to listen in on or record random telephone calls. Taxes online Another is to ask some callers to complete a short survey at the end of the call. Taxes online Walk-in. Taxes online Many products and services are available on a walk-in basis. Taxes online Products. Taxes online You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Taxes online Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Taxes online Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Taxes online Services. Taxes online You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Taxes online An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Taxes online If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Taxes online No appointment is necessary—just walk in. Taxes online If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Taxes online A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Taxes online If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Taxes online All other issues will be handled without an appointment. Taxes online To find the number of your local office, go to www. Taxes online irs. Taxes online gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Taxes online Mail. Taxes online You can send your order for forms, instructions, and publications to the address below. Taxes online You should receive a response within 10 days after your request is received. Taxes online Internal Revenue Service1201 N. Taxes online Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Taxes online You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Taxes online Prior-year forms, instructions, and publications. Taxes online Tax Map: an electronic research tool and finding aid. Taxes online Tax law frequently asked questions. Taxes online Tax Topics from the IRS telephone response system. Taxes online Internal Revenue Code—Title 26 of the U. Taxes online S. Taxes online Code. Taxes online Fill-in, print, and save features for most tax forms. Taxes online Internal Revenue Bulletins. Taxes online Toll-free and email technical support. Taxes online Two releases during the year. Taxes online – The first release will ship the beginning of January. Taxes online – The final release will ship the beginning of March. Taxes online Purchase the DVD from National Technical Information Service (NTIS) at www. Taxes online irs. Taxes online gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Taxes online Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Taxes online The SBA also has publications and videos on a variety of business topics. Taxes online The following briefly describes assistance provided by the SBA. Taxes online Small Business Development Centers (SBDCs). Taxes online   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Taxes online Help is available when beginning, improving, or expanding a small business. Taxes online Business Information Centers (BICs). Taxes online   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Taxes online BICs also offer one-on-one assistance. Taxes online Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Taxes online Service Corps of Retired Executives (SCORE). Taxes online   SCORE provides small business counseling and training to current and prospective small business owners. Taxes online SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Taxes online SCORE also offers a variety of small business workshops. Taxes online    Internet. Taxes online You can visit the SBA website at www. Taxes online sba. Taxes online gov. Taxes online While visiting the SBA website, you can find a variety of information of interest to small business owners. Taxes online    Phone. Taxes online Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Taxes online    Walk-in. Taxes online You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Taxes online To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Taxes online Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Taxes online Most of these are available from the Superintendent of Documents at the Government Printing Office. Taxes online You can get information and order these publications and pamphlets in several ways. Taxes online Internet. Taxes online You can visit the GPO website at www. Taxes online access. Taxes online gpo. Taxes online gov. Taxes online Mail. Taxes online Write to the GPO at the following address. Taxes online Superintendent of DocumentsU. Taxes online S. Taxes online Government Printing OfficeP. Taxes online O. Taxes online Box 979050St. Taxes online Louis, MO 63917-9000 Phone. Taxes online Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Taxes online Prev  Up  Next   Home   More Online Publications