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Filing 2012 Tax Return Online

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Filing 2012 Tax Return Online

Filing 2012 tax return online 2. Filing 2012 tax return online   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Filing 2012 tax return online Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Filing 2012 tax return online S. Filing 2012 tax return online or foreign source income. Filing 2012 tax return online This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Filing 2012 tax return online S. Filing 2012 tax return online Virgin Islands (USVI). Filing 2012 tax return online Generally, the same rules that apply for determining U. Filing 2012 tax return online S. Filing 2012 tax return online source income also apply for determining possession source income. Filing 2012 tax return online However, there are some important exceptions to these rules. Filing 2012 tax return online Both the general rules and the exceptions are discussed in this chapter. Filing 2012 tax return online U. Filing 2012 tax return online S. Filing 2012 tax return online income rule. Filing 2012 tax return online   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Filing 2012 tax return online Table 2-1 shows the general rules for determining whether income is from sources within the United States. Filing 2012 tax return online Table 2-1. Filing 2012 tax return online General Rules for Determining U. Filing 2012 tax return online S. Filing 2012 tax return online Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Filing 2012 tax return online Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Filing 2012 tax return online For more information, see Regulations section 1. Filing 2012 tax return online 863-1(b). Filing 2012 tax return online Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Filing 2012 tax return online Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Filing 2012 tax return online Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Filing 2012 tax return online It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Filing 2012 tax return online Services performed wholly within a relevant possession. Filing 2012 tax return online   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Filing 2012 tax return online However, there is an exception for income earned as a member of the U. Filing 2012 tax return online S. Filing 2012 tax return online Armed Forces or a civilian spouse. Filing 2012 tax return online U. Filing 2012 tax return online S. Filing 2012 tax return online Armed Forces. Filing 2012 tax return online   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Filing 2012 tax return online However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Filing 2012 tax return online Civilian spouse of active duty member of the U. Filing 2012 tax return online S. Filing 2012 tax return online Armed Forces. Filing 2012 tax return online   If you are a bona fide resident of a U. Filing 2012 tax return online S. Filing 2012 tax return online possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Filing 2012 tax return online Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Filing 2012 tax return online S. Filing 2012 tax return online possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Filing 2012 tax return online Services performed partly inside and partly outside a relevant possession. Filing 2012 tax return online   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Filing 2012 tax return online Compensation (other than certain fringe benefits) is sourced on a time basis. Filing 2012 tax return online Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Filing 2012 tax return online   Or, you may be permitted to use an alternative basis to determine the source of compensation. Filing 2012 tax return online See Alternative basis , later. Filing 2012 tax return online   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Filing 2012 tax return online In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Filing 2012 tax return online Time basis. Filing 2012 tax return online   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Filing 2012 tax return online Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Filing 2012 tax return online The time period for which the income is made does not have to be a year. Filing 2012 tax return online Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Filing 2012 tax return online Example. Filing 2012 tax return online In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Filing 2012 tax return online Your Puerto Rico source income is $60,000, figured as follows. Filing 2012 tax return online       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Filing 2012 tax return online   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Filing 2012 tax return online Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Filing 2012 tax return online You determine the period to which the income is attributable based on the facts and circumstances of your case. Filing 2012 tax return online For more information on multi-year compensation, see Treasury Decision (T. Filing 2012 tax return online D. Filing 2012 tax return online ) 9212 and Regulations section 1. Filing 2012 tax return online 861-4, 2005-35 I. Filing 2012 tax return online R. Filing 2012 tax return online B. Filing 2012 tax return online 429, available at www. Filing 2012 tax return online irs. Filing 2012 tax return online gov/irb/2005-35_IRB/ar14. Filing 2012 tax return online html. Filing 2012 tax return online Certain fringe benefits sourced on a geographical basis. Filing 2012 tax return online   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Filing 2012 tax return online Housing. Filing 2012 tax return online Education. Filing 2012 tax return online Local transportation. Filing 2012 tax return online Tax reimbursement. Filing 2012 tax return online Hazardous or hardship duty pay. Filing 2012 tax return online Moving expense reimbursement. Filing 2012 tax return online For information on determining the source of the fringe benefits listed above, see Regulations section 1. Filing 2012 tax return online 861-4. Filing 2012 tax return online Alternative basis. Filing 2012 tax return online   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Filing 2012 tax return online If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Filing 2012 tax return online De minimis exception. Filing 2012 tax return online   There is an exception to the rule for determining the source of income earned in a possession. Filing 2012 tax return online Generally, you will not have income from a possession if during a tax year you: Are a U. Filing 2012 tax return online S. Filing 2012 tax return online citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Filing 2012 tax return online This exception began with income earned during your 2008 tax year. Filing 2012 tax return online Pensions. Filing 2012 tax return online   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Filing 2012 tax return online The contribution portion is sourced according to where services were performed that earned the pension. Filing 2012 tax return online The investment earnings portion is sourced according to the location of the pension trust. Filing 2012 tax return online Example. Filing 2012 tax return online You are a U. Filing 2012 tax return online S. Filing 2012 tax return online citizen who worked in Puerto Rico for a U. Filing 2012 tax return online S. Filing 2012 tax return online company. Filing 2012 tax return online All services were performed in Puerto Rico. Filing 2012 tax return online Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Filing 2012 tax return online S. Filing 2012 tax return online pension trust of your employer. Filing 2012 tax return online Distributions from the U. Filing 2012 tax return online S. Filing 2012 tax return online pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Filing 2012 tax return online S. Filing 2012 tax return online source income. Filing 2012 tax return online Investment Income This category includes such income as interest, dividends, rents, and royalties. Filing 2012 tax return online Interest income. Filing 2012 tax return online   The source of interest income is generally determined by the residence of the payer. Filing 2012 tax return online Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Filing 2012 tax return online   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Filing 2012 tax return online See Regulations section 1. Filing 2012 tax return online 937-2(i) for more information. Filing 2012 tax return online Dividends. Filing 2012 tax return online   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Filing 2012 tax return online There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Filing 2012 tax return online For more information, see Regulations section 1. Filing 2012 tax return online 937-2(g). Filing 2012 tax return online Rental income. Filing 2012 tax return online   Rents from property located in a relevant possession are treated as income from sources within that possession. Filing 2012 tax return online Royalties. Filing 2012 tax return online   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Filing 2012 tax return online   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Filing 2012 tax return online Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Filing 2012 tax return online The most common situations are discussed below. Filing 2012 tax return online Real property. Filing 2012 tax return online   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Filing 2012 tax return online The location of the property generally determines the source of income from the sale. Filing 2012 tax return online For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Filing 2012 tax return online If, however, the home you sold was located in the United States, the gain is U. Filing 2012 tax return online S. Filing 2012 tax return online source income. Filing 2012 tax return online Personal property. Filing 2012 tax return online   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Filing 2012 tax return online Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Filing 2012 tax return online If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Filing 2012 tax return online   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Filing 2012 tax return online The rules applying to sales of inventory are discussed below. Filing 2012 tax return online For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Filing 2012 tax return online Inventory. Filing 2012 tax return online   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Filing 2012 tax return online The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Filing 2012 tax return online Purchased. Filing 2012 tax return online   Income from the sale of inventory that you purchased is sourced where you sell the property. Filing 2012 tax return online Generally, this is where title to the property passes to the buyer. Filing 2012 tax return online Produced. Filing 2012 tax return online   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Filing 2012 tax return online For information on making the allocation, see Regulations section 1. Filing 2012 tax return online 863-3(f). Filing 2012 tax return online Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Filing 2012 tax return online S. Filing 2012 tax return online citizen or resident alien prior to becoming a bona fide resident of a possession. Filing 2012 tax return online You are subject to these special rules if you meet both of the following conditions. Filing 2012 tax return online For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Filing 2012 tax return online For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Filing 2012 tax return online If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Filing 2012 tax return online Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Filing 2012 tax return online S. Filing 2012 tax return online tax return. Filing 2012 tax return online (See chapter 3 for additional filing information. Filing 2012 tax return online ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Filing 2012 tax return online These rules apply to dispositions after April 11, 2005. Filing 2012 tax return online For details, see Regulations section 1. Filing 2012 tax return online 937-2(f)(1) and Examples 1 and 2 of section 1. Filing 2012 tax return online 937-2(k). Filing 2012 tax return online Example 1. Filing 2012 tax return online In 2007, Cheryl Jones, a U. Filing 2012 tax return online S. Filing 2012 tax return online citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Filing 2012 tax return online S. Filing 2012 tax return online corporation listed on the New York Stock Exchange. Filing 2012 tax return online On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Filing 2012 tax return online Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Filing 2012 tax return online On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Filing 2012 tax return online On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Filing 2012 tax return online Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Filing 2012 tax return online The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Filing 2012 tax return online This existing special rule applies if you are a U. Filing 2012 tax return online S. Filing 2012 tax return online citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Filing 2012 tax return online S. Filing 2012 tax return online assets during the 10-year period beginning when you became a bona fide resident. Filing 2012 tax return online The gain is U. Filing 2012 tax return online S. Filing 2012 tax return online source income that generally is subject to U. Filing 2012 tax return online S. Filing 2012 tax return online tax if the property is either (1) located in the United States; (2) stock issued by a U. Filing 2012 tax return online S. Filing 2012 tax return online corporation or a debt obligation of a U. Filing 2012 tax return online S. Filing 2012 tax return online person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Filing 2012 tax return online See chapter 3 for filing information. Filing 2012 tax return online Special election. Filing 2012 tax return online   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Filing 2012 tax return online Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Filing 2012 tax return online This election overrides both of the special rules discussed earlier. Filing 2012 tax return online   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Filing 2012 tax return online Marketable securities. Filing 2012 tax return online   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Filing 2012 tax return online Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Filing 2012 tax return online S. Filing 2012 tax return online holding periods. Filing 2012 tax return online   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Filing 2012 tax return online The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Filing 2012 tax return online This is your gain (or loss) that is treated as being from sources within the relevant possession. Filing 2012 tax return online If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Filing 2012 tax return online Example 2. Filing 2012 tax return online Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Filing 2012 tax return online S. Filing 2012 tax return online and possession holding periods. Filing 2012 tax return online Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Filing 2012 tax return online Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Filing 2012 tax return online By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Filing 2012 tax return online Other personal property. Filing 2012 tax return online   For personal property other than marketable securities, use a time-based allocation. Filing 2012 tax return online Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Filing 2012 tax return online      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Filing 2012 tax return online Example 3. Filing 2012 tax return online In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Filing 2012 tax return online On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Filing 2012 tax return online On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Filing 2012 tax return online She had owned the interest for a total of 1,720 days. Filing 2012 tax return online Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Filing 2012 tax return online The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Filing 2012 tax return online By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Filing 2012 tax return online Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Filing 2012 tax return online Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Filing 2012 tax return online These rules do not apply to amounts paid as salary or other compensation for services. Filing 2012 tax return online See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Filing 2012 tax return online Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Filing 2012 tax return online These circumstances are listed below. Filing 2012 tax return online You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Filing 2012 tax return online That office or place of business is a material factor in producing the income. Filing 2012 tax return online The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Filing 2012 tax return online An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Filing 2012 tax return online The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Filing 2012 tax return online Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Filing 2012 tax return online Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Filing 2012 tax return online Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Filing 2012 tax return online Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Filing 2012 tax return online Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Filing 2012 tax return online Example. Filing 2012 tax return online Marcy Jackson is a bona fide resident of American Samoa. Filing 2012 tax return online Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Filing 2012 tax return online A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Filing 2012 tax return online Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Filing 2012 tax return online The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Filing 2012 tax return online However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Filing 2012 tax return online Prev  Up  Next   Home   More Online Publications
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