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Self Employed Tax Filing

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Self Employed Tax Filing

Self employed tax filing 2. Self employed tax filing   Roth IRAs Table of Contents What's New for 2013 What's New for 2014 Reminders Introduction What Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA?How Much Can Be Contributed? When Can You Make Contributions? What if You Contribute Too Much? Can You Move Amounts Into a Roth IRA?Conversions Rollover From Employer's Plan Into a Roth IRA Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments Rollover From a Roth IRA Rollover of Exxon Valdez Settlement Income Rollover of Airline Payments Are Distributions Taxable?What Are Qualified Distributions? Additional Tax on Early Distributions Ordering Rules for Distributions How Do You Figure the Taxable Part? Must You Withdraw or Use Assets?Minimum distributions. Self employed tax filing Recognizing Losses on Investments Distributions After Owner's Death What's New for 2013 Roth IRA contribution limit. Self employed tax filing  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Self employed tax filing If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Self employed tax filing However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Self employed tax filing For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter. Self employed tax filing Modified AGI limit for Roth IRA contributions increased. Self employed tax filing  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Self employed tax filing Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Self employed tax filing Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Self employed tax filing Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Self employed tax filing See Can You Contribute to a Roth IRA? in this chapter. Self employed tax filing Net Investment Income Tax. Self employed tax filing  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Self employed tax filing However, these distributions are taken into account when determining the modified adjusted gross income threshold. Self employed tax filing Distributions from a nonqualified retirement plan are included in net investment income. Self employed tax filing See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Self employed tax filing What's New for 2014 Modified AGI limit for Roth IRA contributions increased. Self employed tax filing  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. Self employed tax filing Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. Self employed tax filing Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. Self employed tax filing Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Self employed tax filing You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Self employed tax filing Reminders Deemed IRAs. Self employed tax filing  For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. Self employed tax filing If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. Self employed tax filing An employee's account can be treated as a traditional IRA or a Roth IRA. Self employed tax filing For this purpose, a “qualified employer plan” includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), A tax-sheltered annuity plan (section 403(b) plan), and A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Self employed tax filing Designated Roth accounts. Self employed tax filing  Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. Self employed tax filing These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Self employed tax filing Designated Roth accounts are not IRAs and should not be confused with Roth IRAs. Self employed tax filing Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. Self employed tax filing A contribution to one does not impact your eligibility to contribute to the other. Self employed tax filing See Publication 575, for more information on designated Roth accounts. Self employed tax filing Introduction Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Self employed tax filing Contributions not reported. Self employed tax filing   You do not report Roth IRA contributions on your return. Self employed tax filing What Is a Roth IRA? A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). Self employed tax filing It can be either an account or an annuity. Self employed tax filing Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. Self employed tax filing To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. Self employed tax filing A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Self employed tax filing Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. Self employed tax filing But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Self employed tax filing Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live. Self employed tax filing Traditional IRA. Self employed tax filing   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Self employed tax filing Traditional IRAs are discussed in chapter 1. Self employed tax filing When Can a Roth IRA Be Opened? You can open a Roth IRA at any time. Self employed tax filing However, the time for making contributions for any year is limited. Self employed tax filing See When Can You Make Contributions , later under Can You Contribute to a Roth IRA. Self employed tax filing Can You Contribute to a Roth IRA? Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than: $188,000 for married filing jointly or qualifying widow(er), $127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and $10,000 for married filing separately and you lived with your spouse at any time during the year. Self employed tax filing You may be able to claim a credit for contributions to your Roth IRA. Self employed tax filing For more information, see chapter 4. Self employed tax filing Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age. Self employed tax filing Can you contribute to a Roth IRA for your spouse?   You can contribute to a Roth IRA for your spouse provided the contributions satisfy the Kay Bailey Hutchison Spousal IRA limit discussed in chapter 1 under How Much Can Be Contributed, you file jointly, and your modified AGI is less than $188,000. Self employed tax filing Compensation. Self employed tax filing   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. Self employed tax filing It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. Self employed tax filing For more information, see What Is Compensation? under Who Can Open a Traditional IRA? in chapter 1. Self employed tax filing Modified AGI. Self employed tax filing   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. Self employed tax filing Use Worksheet 2-1 , later, to determine your modified AGI. Self employed tax filing    Do not subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Self employed tax filing Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. Self employed tax filing How Much Can Be Contributed? The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. Self employed tax filing Worksheet 2-1. Self employed tax filing Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. Self employed tax filing 1. Self employed tax filing Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1. Self employed tax filing   2. Self employed tax filing Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b, Form 1040A, line 11b, or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b, Form 1040A, line 12b, or Form 1040NR, line 17b) 2. Self employed tax filing   3. Self employed tax filing Subtract line 2 from line 1 3. Self employed tax filing   4. Self employed tax filing Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4. Self employed tax filing   5. Self employed tax filing Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5. Self employed tax filing   6. Self employed tax filing Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 6. Self employed tax filing   7. Self employed tax filing Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 7. Self employed tax filing   8. Self employed tax filing Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8. Self employed tax filing   9. Self employed tax filing Enter any foreign housing deduction from Form 2555, line 50 9. Self employed tax filing   10. Self employed tax filing Enter any excludable qualified savings bond interest from Form 8815, line 14 10. Self employed tax filing   11. Self employed tax filing Enter any excluded employer-provided adoption benefits from Form 8839, line 28 11. Self employed tax filing   12. Self employed tax filing Add the amounts on lines 3 through 11 12. Self employed tax filing   13. Self employed tax filing Enter: $188,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $127,000 for all others 13. Self employed tax filing   Is the amount on line 12 more than the amount on line 13? If yes, see the note below. Self employed tax filing  If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes. Self employed tax filing       Note. Self employed tax filing If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. Self employed tax filing (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI. Self employed tax filing ) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. Self employed tax filing If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above. Self employed tax filing Roth IRAs only. Self employed tax filing   If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation. Self employed tax filing   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced . Self employed tax filing Roth IRAs and traditional IRAs. Self employed tax filing   If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Self employed tax filing Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. Self employed tax filing   This means that your contribution limit is the lesser of: $5,500 ($6,500 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs. Self employed tax filing   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained below under Contribution limit reduced . Self employed tax filing   Simplified employee pensions (SEPs) are discussed in Publication 560. Self employed tax filing Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3. Self employed tax filing Repayment of reservist distributions. Self employed tax filing   You can repay qualified reservist distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. Self employed tax filing However, the total repayments cannot be more than the amount of your distribution. Self employed tax filing Note. Self employed tax filing If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. Self employed tax filing For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. Self employed tax filing Contribution limit reduced. Self employed tax filing   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Self employed tax filing Use Table 2-1, later, to determine if this reduction applies to you. Self employed tax filing Table 2-1. Self employed tax filing Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI). Self employed tax filing IF you have taxable compensation and your filing status is . Self employed tax filing . Self employed tax filing . Self employed tax filing AND your modified AGI is . Self employed tax filing . Self employed tax filing . Self employed tax filing THEN . Self employed tax filing . Self employed tax filing . Self employed tax filing married filing jointly or  qualifying widow(er) less than $178,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Self employed tax filing at least $178,000 but less than $188,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Self employed tax filing $188,000 or more you cannot contribute to a Roth IRA. Self employed tax filing married filing separately and you lived with your spouse at any time during the year zero (-0-) you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Self employed tax filing more than zero (-0-) but less than $10,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Self employed tax filing $10,000 or more you cannot contribute to a Roth IRA. Self employed tax filing single, head of household,  or married filing separately and you did not live with your spouse at any time during the year less than $112,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Self employed tax filing at least $112,000 but less than $127,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Self employed tax filing $127,000 or more you cannot contribute to a Roth IRA. Self employed tax filing Figuring the reduction. Self employed tax filing   If the amount you can contribute must be reduced, use Worksheet 2-2, later, to figure your reduced contribution limit. Self employed tax filing Worksheet 2-2. Self employed tax filing Determining Your Reduced Roth IRA Contribution Limit Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Self employed tax filing If it is, use this worksheet to determine how much it is reduced. Self employed tax filing 1. Self employed tax filing Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Self employed tax filing   2. Self employed tax filing Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Self employed tax filing   3. Self employed tax filing Subtract line 2 from line 1 3. Self employed tax filing   4. Self employed tax filing Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Self employed tax filing   5. Self employed tax filing Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Self employed tax filing If the result is 1. Self employed tax filing 000 or more, enter 1. Self employed tax filing 000 5. Self employed tax filing   6. Self employed tax filing Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Self employed tax filing   7. Self employed tax filing Multiply line 5 by line 6 7. Self employed tax filing   8. Self employed tax filing Subtract line 7 from line 6. Self employed tax filing Round the result up to the nearest $10. Self employed tax filing If the result is less than $200, enter $200 8. Self employed tax filing   9. Self employed tax filing Enter contributions for the year to other IRAs 9. Self employed tax filing   10. Self employed tax filing Subtract line 9 from line 6 10. Self employed tax filing   11. Self employed tax filing Enter the lesser of line 8 or line 10. Self employed tax filing This is your reduced Roth IRA contribution limit 11. Self employed tax filing      Round your reduced contribution limit up to the nearest $10. Self employed tax filing If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. Self employed tax filing Example. Self employed tax filing You are a 45-year-old, single individual with taxable compensation of $113,000. Self employed tax filing You want to make the maximum allowable contribution to your Roth IRA for 2013. Self employed tax filing Your modified AGI for 2013 is $113,000. Self employed tax filing You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,500. Self employed tax filing You figure your reduced Roth IRA contribution of $5,140 as shown on Worksheet 2-2. Self employed tax filing Example—Illustrated, later. Self employed tax filing   Worksheet 2-2. Self employed tax filing Example—Illustrated Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Self employed tax filing If it is, use this worksheet to determine how much it is reduced. Self employed tax filing 1. Self employed tax filing Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Self employed tax filing 113,000 2. Self employed tax filing Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Self employed tax filing 112,000 3. Self employed tax filing Subtract line 2 from line 1 3. Self employed tax filing 1,000 4. Self employed tax filing Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Self employed tax filing 15,000 5. Self employed tax filing Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Self employed tax filing If the result is 1. Self employed tax filing 000 or more, enter 1. Self employed tax filing 000 5. Self employed tax filing . Self employed tax filing 067 6. Self employed tax filing Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Self employed tax filing 5,500 7. Self employed tax filing Multiply line 5 by line 6 7. Self employed tax filing 369 8. Self employed tax filing Subtract line 7 from line 6. Self employed tax filing Round the result up to the nearest $10. Self employed tax filing If the result is less than $200, enter $200 8. Self employed tax filing 5,140 9. Self employed tax filing Enter contributions for the year to other IRAs 9. Self employed tax filing 0 10. Self employed tax filing Subtract line 9 from line 6 10. Self employed tax filing 5,500 11. Self employed tax filing Enter the lesser of line 8 or line 10. Self employed tax filing This is your reduced Roth IRA contribution limit 11. Self employed tax filing 5,140 When Can You Make Contributions? You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). Self employed tax filing You can make contributions for 2013 by the due date (not including extensions) for filing your 2013 tax return. Self employed tax filing This means that most people can make contributions for 2013 by April 15, 2014. Self employed tax filing What if You Contribute Too Much? A 6% excise tax applies to any excess contribution to a Roth IRA. Self employed tax filing Excess contributions. Self employed tax filing   These are the contributions to your Roth IRAs for a year that equal the total of: Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed? ), plus Any excess contributions for the preceding year, reduced by the total of: Any distributions out of your Roth IRAs for the year, plus Your contribution limit for the year minus your contributions to all your IRAs for the year. Self employed tax filing Withdrawal of excess contributions. Self employed tax filing   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. Self employed tax filing This treatment only applies if any earnings on the contributions are also withdrawn. Self employed tax filing The earnings are considered earned and received in the year the excess contribution was made. Self employed tax filing   If you timely filed your 2013 tax return without withdrawing a contribution that you made in 2013, you can still have the contribution returned to you within 6 months of the due date of your 2013 tax return, excluding extensions. Self employed tax filing If you do, file an amended return with “Filed pursuant to section 301. Self employed tax filing 9100-2” written at the top. Self employed tax filing Report any related earnings on the amended return and include an explanation of the withdrawal. Self employed tax filing Make any other necessary changes on the amended return. Self employed tax filing Applying excess contributions. Self employed tax filing    If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Self employed tax filing Can You Move Amounts Into a Roth IRA? You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Self employed tax filing You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. Self employed tax filing You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. Self employed tax filing You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. Self employed tax filing Conversions You can convert a traditional IRA to a Roth IRA. Self employed tax filing The conversion is treated as a rollover, regardless of the conversion method used. Self employed tax filing Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Self employed tax filing However, the 1-year waiting period does not apply. Self employed tax filing Conversion methods. Self employed tax filing   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways. Self employed tax filing Rollover. Self employed tax filing You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution. Self employed tax filing Trustee-to-trustee transfer. Self employed tax filing You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA. Self employed tax filing Same trustee transfer. Self employed tax filing If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA. Self employed tax filing Same trustee. Self employed tax filing   Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract. Self employed tax filing Income. Self employed tax filing   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Self employed tax filing These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Self employed tax filing If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Self employed tax filing See Publication 505, Tax Withholding and Estimated Tax. Self employed tax filing More information. Self employed tax filing   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Self employed tax filing Rollover From Employer's Plan Into a Roth IRA You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan); Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Self employed tax filing Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. Self employed tax filing See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Self employed tax filing Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. Self employed tax filing Rollover methods. Self employed tax filing   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways. Self employed tax filing Rollover. Self employed tax filing You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. Self employed tax filing Since the distribution is paid directly to you, the payer generally must withhold 20% of it. Self employed tax filing Direct rollover option. Self employed tax filing Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Self employed tax filing Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA. Self employed tax filing Rollover by nonspouse beneficiary. Self employed tax filing   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a Roth IRA. Self employed tax filing You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. Self employed tax filing   You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. Self employed tax filing For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Publication 575. Self employed tax filing Income. Self employed tax filing   You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. Self employed tax filing You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid. Self employed tax filing These amounts are normally included in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. Self employed tax filing If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Self employed tax filing See Publication 505, Tax Withholding and Estimated Tax. Self employed tax filing For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1. Self employed tax filing Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. Self employed tax filing The contribution is treated as a qualified rollover contribution. Self employed tax filing The amount you can roll over to your Roth IRA cannot exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Self employed tax filing Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. Self employed tax filing The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. Self employed tax filing The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Self employed tax filing Rollover From a Roth IRA You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Self employed tax filing Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Self employed tax filing However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. Self employed tax filing A rollover from a Roth IRA to an employer retirement plan is not allowed. Self employed tax filing A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. Self employed tax filing If you roll over an amount from one Roth IRA to another Roth IRA, the 5-year period used to determine qualified distributions does not change. Self employed tax filing The 5-year period begins with the first taxable year for which the contribution was made to the initial Roth IRA. Self employed tax filing See What are Qualified Distributions , later. Self employed tax filing Rollover of Exxon Valdez Settlement Income If you are a qualified taxpayer (defined in chapter 1, earlier) and you received qualified settlement income (defined in chapter 1, earlier), you can contribute all or part of the amount received to an eligible retirement plan which includes a Roth IRA. Self employed tax filing The rules for contributing qualified settlement income to a Roth IRA are the same as the rules for contributing qualified settlement income to a traditional IRA with the following exception. Self employed tax filing Qualified settlement income that is contributed to a Roth IRA, or to a designated Roth account, will be: Included in your taxable income for the year the qualified settlement income was received, and Treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Self employed tax filing For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1. Self employed tax filing Rollover of Airline Payments If you are a qualified airline employee (defined next), you may contribute any portion of an airline payment (defined below) you receive to a Roth IRA. Self employed tax filing The contribution must be made within 180 days from the date you received the payment. Self employed tax filing The contribution will be treated as a qualified rollover contribution. Self employed tax filing The rollover contribution is included in income to the extent it would be included in income if it were not part of the rollover contribution. Self employed tax filing Also, any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can contribute to your Roth IRA. Self employed tax filing Qualified airline employee. Self employed tax filing    A current or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier which was terminated or became subject to restrictions under Section 402(b) of the Pension Protection Act of 2006. Self employed tax filing These provisions also apply to surviving spouses of qualified airline employees. Self employed tax filing Airline payment. Self employed tax filing    An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. Self employed tax filing The payment also must be made both: Under the approval of an order of federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and In respect of the qualified airline employee’s interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount. Self employed tax filing Any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can roll over to your traditional IRA. Self employed tax filing Also, an airline payment shall not include any amount payable on the basis of the airline carrier’s future earnings or profits. Self employed tax filing Are Distributions Taxable? You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). Self employed tax filing You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. Self employed tax filing You may have to include part of other distributions in your income. Self employed tax filing See Ordering Rules for Distributions , later. Self employed tax filing Basis of distributed property. Self employed tax filing   The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution. Self employed tax filing Withdrawals of contributions by due date. Self employed tax filing   If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. Self employed tax filing If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. Self employed tax filing The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions. Self employed tax filing What Are Qualified Distributions? A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. Self employed tax filing It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and The payment or distribution is: Made on or after the date you reach age 59½, Made because you are disabled (defined earlier), Made to a beneficiary or to your estate after your death, or One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit). Self employed tax filing Additional Tax on Early Distributions If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs. Self employed tax filing Distributions of conversion and certain rollover contributions within 5-year period. Self employed tax filing   If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. Self employed tax filing You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). Self employed tax filing A separate 5-year period applies to each conversion and rollover. Self employed tax filing See Ordering Rules for Distributions , later, to determine the recapture amount, if any. Self employed tax filing   The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. Self employed tax filing See What Are Qualified Distributions , earlier. Self employed tax filing   For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2013, and makes a regular contribution for 2012 on the same date, the 5-year period for the conversion begins January 1, 2013, while the 5-year period for the regular contribution begins on January 1, 2012. Self employed tax filing   Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover. Self employed tax filing   You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. Self employed tax filing You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions. Self employed tax filing Other early distributions. Self employed tax filing   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. Self employed tax filing Exceptions. Self employed tax filing   You may not have to pay the 10% additional tax in the following situations. Self employed tax filing You have reached age 59½. Self employed tax filing You are totally and permanently disabled. Self employed tax filing You are the beneficiary of a deceased IRA owner. Self employed tax filing You use the distribution to buy, build, or rebuild a first home. Self employed tax filing The distributions are part of a series of substantially equal payments. Self employed tax filing You have unreimbursed medical expenses that are more than 10% (or 7. Self employed tax filing 5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year. Self employed tax filing You are paying medical insurance premiums during a period of unemployment. Self employed tax filing The distributions are not more than your qualified higher education expenses. Self employed tax filing The distribution is due to an IRS levy of the qualified plan. Self employed tax filing The distribution is a qualified reservist distribution. Self employed tax filing Most of these exceptions are discussed earlier in chapter 1 under Early Distributions . Self employed tax filing Please click here for the text description of the image. Self employed tax filing Is Roth Distributions a Qualified Distribution? Ordering Rules for Distributions If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. Self employed tax filing There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. Self employed tax filing For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much ). Self employed tax filing Order the distributions as follows. Self employed tax filing Regular contributions. Self employed tax filing Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). Self employed tax filing See Aggregation (grouping and adding) rules, later. Self employed tax filing Take these conversion and rollover contributions into account as follows: Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the Nontaxable portion. Self employed tax filing Earnings on contributions. Self employed tax filing Disregard rollover contributions from other Roth IRAs for this purpose. Self employed tax filing Aggregation (grouping and adding) rules. Self employed tax filing   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows. Self employed tax filing Add all distributions from all your Roth IRAs during the year together. Self employed tax filing Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Self employed tax filing Add this total to the total undistributed regular contributions made in prior years. Self employed tax filing Add all conversion and rollover contributions made during the year together. Self employed tax filing For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2013 and the conversion or rollover contribution is made in 2014, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2014. Self employed tax filing Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA. Self employed tax filing   Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Self employed tax filing Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose. Self employed tax filing Example. Self employed tax filing On October 15, 2009, Justin converted all $80,000 in his traditional IRA to his Roth IRA. Self employed tax filing His Forms 8606 from prior years show that $20,000 of the amount converted is his basis. Self employed tax filing Justin included $60,000 ($80,000 − $20,000) in his gross income. Self employed tax filing On February 23, 2013, Justin made a regular contribution of $5,000 to a Roth IRA. Self employed tax filing On November 8, 2013, at age 60, Justin took a $7,000 distribution from his Roth IRA. Self employed tax filing The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income. Self employed tax filing The next $2,000 of the distribution is not includible in income because it was included previously. Self employed tax filing Figuring your recapture amount. Self employed tax filing   If you had an early distribution from your Roth IRAs in 2013, you must allocate the early distribution by using the Recapture Amount—Allocation Chart, later. Self employed tax filing Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19   Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Self employed tax filing   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Self employed tax filing The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Self employed tax filing Note. Self employed tax filing Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Self employed tax filing See the Example , earlier. Self employed tax filing Tax Year Your Form 2013 Form 8606, line 20   Form 8606, line 22   1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18   Form 8606, line 17   2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Self employed tax filing  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Self employed tax filing Amount to include on Form 5329, line 1. Self employed tax filing   Include on line 1 of your 2013 Form 5329 the following four amounts from the Recapture Amount—Allocation Chart that you filled out. Self employed tax filing The amount you allocated to line 20 of your 2013 Form 8606. Self employed tax filing The amount(s) allocated to your 2009 through 2013 Forms 8606, line 18, and your 2010 Form 8606, line 23. Self employed tax filing The amount(s) allocated to your 2009, 2011, 2012, and 2013 Forms 1040, line 16b; Forms 1040A, line 12b; and Forms 1040NR, line 17b. Self employed tax filing The amount from your 2013 Form 8606, line 25. Self employed tax filing   Also, include any amount you allocated to line 20 of your 2013 Form 8606 on your 2013 Form 5329, line 2, and enter exception number 09. Self employed tax filing Example. Self employed tax filing Ishmael, age 32, opened a Roth IRA in 2000. Self employed tax filing He made the maximum contributions to it every year. Self employed tax filing In addition, he made the following transactions into his Roth IRA. Self employed tax filing In 2005, he converted $10,000 from his traditional IRA into his Roth IRA. Self employed tax filing He filled out a 2005 Form 8606 and attached it with his 2005 Form 1040. Self employed tax filing He entered $0 on line 17 of Form 8606 because he took a deduction for all the contributions to the traditional IRA, therefore he has no basis. Self employed tax filing He entered $10,000 on line 18 of Form 8606. Self employed tax filing In 2011, he rolled over the entire balance of his qualified retirement plan, $20,000, into a Roth IRA when he changed jobs. Self employed tax filing He used a 2011 Form 1040 to file his taxes. Self employed tax filing He entered $20,000 on line 16a of Form 1040 because that was the amount reported in box 1 of his 2011 Form 1099-R. Self employed tax filing Box 5 of his 2011 Form 1099-R reported $0 since he did not make any after-tax contributions to the qualified retirement plan. Self employed tax filing He entered $20,000 on line 16b of Form 1040 since that is the taxable amount that was rolled over in 2011. Self employed tax filing The total balance in his Roth IRA as of January 1, 2013 was $105,000 ($50,000 in contributions from 2000 through 2012 + $10,000 from the 2005 conversion + $20,000 from the 2011 rollover + $25,000 from earnings). Self employed tax filing He has not taken any early distribution from his Roth IRA before 2013. Self employed tax filing In 2013, he made the maximum contribution of $5,500 to his Roth IRA. Self employed tax filing In August of 2013, he took a $85,500 early distribution from his Roth IRA to use as a down payment on the purchase of his first home. Self employed tax filing See his filled out Illustrated Recapture Amount—Allocation Chart, later, to see how he allocated the amounts from the above transactions. Self employed tax filing Based on his allocation, he would enter $20,000 on his 2013 Form 5329, line 1 (see Amount to include on Form 5329, line 1 , above). Self employed tax filing He should also report $10,000 on his 2013 Form 5329, line 2, and enter exception 09 since that amount is not subject to the 10% additional tax on early distributions. Self employed tax filing Illustrated Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19 $85,500 Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Self employed tax filing   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Self employed tax filing The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Self employed tax filing Note. Self employed tax filing Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Self employed tax filing See the Example , earlier. Self employed tax filing Tax Year Your Form 2013 Form 8606, line 20 $10,000 Form 8606, line 22 $55,500 1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18 $10,000 Form 8606, line 17 $-0- 2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b* $10,000 Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Self employed tax filing  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Self employed tax filing How Do You Figure the Taxable Part? To figure the taxable part of a distribution that is not a qualified distribution, complete Form 8606, Part III. Self employed tax filing Must You Withdraw or Use Assets? You are not required to take distributions from your Roth IRA at any age. Self employed tax filing The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. Self employed tax filing However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death . Self employed tax filing Minimum distributions. Self employed tax filing   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Self employed tax filing Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. Self employed tax filing See Distributions to beneficiaries , later. Self employed tax filing Recognizing Losses on Investments If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. Self employed tax filing Your basis is the total amount of contributions in your Roth IRAs. Self employed tax filing You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Self employed tax filing Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax. Self employed tax filing Distributions After Owner's Death If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. Self employed tax filing See When Can You Withdraw or Use Assets? in chapter 1. Self employed tax filing Distributions to beneficiaries. Self employed tax filing   Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. Self employed tax filing (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. Self employed tax filing )   If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Self employed tax filing Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent. Self employed tax filing   If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½ or treat the Roth IRA as his or her own. Self employed tax filing Combining with other Roth IRAs. Self employed tax filing   A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either: Inherited the other Roth IRA from the same decedent, or Was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA. Self employed tax filing Distributions that are not qualified distributions. Self employed tax filing   If a distribution to a beneficiary is not a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive. Self employed tax filing   If the owner of a Roth IRA dies before the end of: The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA, each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. Self employed tax filing See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable. Self employed tax filing Example. Self employed tax filing When Ms. Self employed tax filing Hibbard died in 2013, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2009, and earnings of $2,000. Self employed tax filing No distributions had been made from her IRA. Self employed tax filing She had no basis in the conversion contribution in 2009. Self employed tax filing When she established this Roth IRA (her first) in 2009, she named each of her four children as equal beneficiaries. Self employed tax filing Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. Self employed tax filing An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings. Self employed tax filing In this case, because the distributions are made before the end of the applicable 5-year period for a qualified distribution, each beneficiary includes $500 in income for 2013. Self employed tax filing The 10% additional tax on early distributions does not apply because the distribution was made to the beneficiaries as a result of the death of the IRA owner. Self employed tax filing If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. Self employed tax filing For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. Self employed tax filing If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion. Self employed tax filing Prev  Up  Next   Home   More Online Publications
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The Self Employed Tax Filing

Self employed tax filing Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Self employed tax filing Adjustment for premium. Self employed tax filing Adjustment for acquisition premium. Self employed tax filing Adjustment for market discount. Self employed tax filing Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Self employed tax filing “Original issue discount” is defined first. Self employed tax filing The other terms are listed alphabetically. Self employed tax filing Original issue discount (OID). Self employed tax filing   OID is a form of interest. Self employed tax filing It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Self employed tax filing Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Self employed tax filing Accrual period. Self employed tax filing   An accrual period is an interval of time used to measure OID. Self employed tax filing The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Self employed tax filing Acquisition premium. Self employed tax filing   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Self employed tax filing A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Self employed tax filing See Premium, later. Self employed tax filing Adjusted issue price. Self employed tax filing   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Self employed tax filing In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Self employed tax filing The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Self employed tax filing Debt instrument. Self employed tax filing   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Self employed tax filing It generally does not include an annuity contract. Self employed tax filing Issue price. Self employed tax filing   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Self employed tax filing Market discount. Self employed tax filing   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Self employed tax filing An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Self employed tax filing The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Self employed tax filing Premium. Self employed tax filing   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Self employed tax filing The premium is the excess of the adjusted basis over the payable amounts. Self employed tax filing See Publication 550 for information on the tax treatment of bond premium. Self employed tax filing Qualified stated interest. Self employed tax filing   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Self employed tax filing Stated redemption price at maturity. Self employed tax filing   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Self employed tax filing Yield to maturity (YTM). Self employed tax filing   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Self employed tax filing The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Self employed tax filing If you do not have this information, consult your broker, tax advisor, or the issuer. Self employed tax filing Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Self employed tax filing If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Self employed tax filing The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Self employed tax filing For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Self employed tax filing The following discussions explain what information is contained in each section of the list. Self employed tax filing Section I. Self employed tax filing   This section contains publicly offered, long-term debt instruments. Self employed tax filing Section I-A: Corporate Debt Instruments Issued Before 1985. Self employed tax filing Section I-B: Corporate Debt Instruments Issued After 1984. Self employed tax filing Section I-C: Inflation-Indexed Debt Instruments. Self employed tax filing For each publicly offered debt instrument in Section I, the list contains the following information. Self employed tax filing The name of the issuer. Self employed tax filing The Committee on Uniform Security Identification Procedures (CUSIP) number. Self employed tax filing The issue date. Self employed tax filing The maturity date. Self employed tax filing The issue price expressed as a percent of principal or of stated redemption price at maturity. Self employed tax filing The annual stated or coupon interest rate. Self employed tax filing (This rate is shown as 0. Self employed tax filing 00 if no annual interest payments are provided. Self employed tax filing ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Self employed tax filing The total OID accrued up to January 1 of a calendar year. Self employed tax filing (This information is not available for every instrument. Self employed tax filing ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Self employed tax filing The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Self employed tax filing Section II. Self employed tax filing   This section contains stripped coupons and principal components of U. Self employed tax filing S. Self employed tax filing Treasury and Government-Sponsored Enterprise debt instruments. Self employed tax filing These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Self employed tax filing This section also includes debt instruments backed by U. Self employed tax filing S. Self employed tax filing Treasury securities that represent ownership interests in those securities. Self employed tax filing   The obligations listed in Section II are arranged by maturity date. Self employed tax filing The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Self employed tax filing Section III. Self employed tax filing   This section contains short-term discount obligations. Self employed tax filing Section III-A: Short-Term U. Self employed tax filing S. Self employed tax filing Treasury Bills. Self employed tax filing Section III-B: Federal Home Loan Banks. Self employed tax filing Section III-C: Federal National Mortgage Association. Self employed tax filing Section III-D: Federal Farm Credit Banks. Self employed tax filing Section III-E: Federal Home Loan Mortgage Corporation. Self employed tax filing Section III-F: Federal Agricultural Mortgage Corporation. Self employed tax filing    Information that supplements Section III-A is available on the Internet at http://www. Self employed tax filing treasurydirect. Self employed tax filing gov/tdhome. Self employed tax filing htm. Self employed tax filing   The short-term obligations listed in this section are arranged by maturity date. Self employed tax filing For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Self employed tax filing Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Self employed tax filing Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Self employed tax filing U. Self employed tax filing S. Self employed tax filing savings bonds. Self employed tax filing Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Self employed tax filing Obligations issued by tax-exempt organizations. Self employed tax filing OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Self employed tax filing Mortgage-backed securities and mortgage participation certificates. Self employed tax filing Long-term OID debt instruments issued before May 28, 1969. Self employed tax filing Short-term obligations, other than the obligations listed in Section III. Self employed tax filing Debt instruments issued at a discount by states or their political subdivisions. Self employed tax filing REMIC regular interests and CDOs. Self employed tax filing Commercial paper and banker's acceptances issued at a discount. Self employed tax filing Obligations issued at a discount by individuals. Self employed tax filing Foreign obligations not traded in the United States and obligations not issued in the United States. Self employed tax filing Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Self employed tax filing In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Self employed tax filing You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Self employed tax filing See Backup Withholding, later. Self employed tax filing If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Self employed tax filing File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Self employed tax filing Electronic payee statements. Self employed tax filing   You can issue Form 1099-OID electronically with the consent of the recipient. Self employed tax filing More information. Self employed tax filing   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Self employed tax filing Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Self employed tax filing To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Self employed tax filing If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Self employed tax filing Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Self employed tax filing If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Self employed tax filing A special rule is used to determine the original issue price for information reporting on U. Self employed tax filing S. Self employed tax filing Treasury bills (T-bills) listed in Section III-A. Self employed tax filing Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Self employed tax filing This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Self employed tax filing A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Self employed tax filing Example 1. Self employed tax filing There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Self employed tax filing The price actually paid by the owner cannot be established by owner or middleman records. Self employed tax filing You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Self employed tax filing The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Self employed tax filing Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Self employed tax filing For this purpose, you can rely on Section I of the OID list to determine the following information. Self employed tax filing Whether a debt instrument has OID. Self employed tax filing The OID to be reported on the Form 1099-OID. Self employed tax filing In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Self employed tax filing You also can report OID on other long-term debt instruments. Self employed tax filing Form 1099-OID. Self employed tax filing   On Form 1099-OID for a calendar year show the following information. Self employed tax filing Box 1. Self employed tax filing The OID for the actual dates the owner held the debt instruments during a calendar year. Self employed tax filing To determine this amount, see Figuring OID, next. Self employed tax filing Box 2. Self employed tax filing The qualified stated interest paid or credited during the calendar year. Self employed tax filing Interest reported here is not reported on Form 1099-INT. Self employed tax filing The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Self employed tax filing Box 3. Self employed tax filing Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Self employed tax filing Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Self employed tax filing Box 4. Self employed tax filing Any backup withholding for this debt instrument. Self employed tax filing Box 7. Self employed tax filing The CUSIP number, if any. Self employed tax filing If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Self employed tax filing 50 2006). Self employed tax filing If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Self employed tax filing Box 8. Self employed tax filing The OID on a U. Self employed tax filing S. Self employed tax filing Treasury obligation for the part of the year the owner held the debt instrument. Self employed tax filing Box 9. Self employed tax filing Investment expenses passed on to holders of a single-class REMIC. Self employed tax filing Boxes 10-12. Self employed tax filing Use to report any state income tax withheld for this debt instrument. Self employed tax filing Figuring OID. Self employed tax filing   You can determine the OID on a long-term debt instrument by using either of the following. Self employed tax filing Section I of the OID list. Self employed tax filing The income tax regulations. Self employed tax filing Using Section I. Self employed tax filing   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Self employed tax filing Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Self employed tax filing For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Self employed tax filing   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Self employed tax filing Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Self employed tax filing Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Self employed tax filing Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Self employed tax filing Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Self employed tax filing If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Self employed tax filing Report the result on Form 1099-OID in box 1. Self employed tax filing Using the income tax regulations. Self employed tax filing   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Self employed tax filing For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Self employed tax filing (If you use Section I-B, the OID is figured using 6-month accrual periods. Self employed tax filing )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Self employed tax filing Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Self employed tax filing You must file an information return showing the reportable interest and OID, if any, on the CD. Self employed tax filing These rules apply whether or not you sold the CD to the owner. Self employed tax filing Report OID on a CD in the same way as OID on other debt instruments. Self employed tax filing See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Self employed tax filing Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Self employed tax filing However, do not report the interest if either of the following apply. Self employed tax filing You hold the bond as a nominee for the true owner. Self employed tax filing The payee is a foreign person. Self employed tax filing See Payments to foreign person under Backup Withholding, later. Self employed tax filing Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Self employed tax filing The coupon may have been “stripped” (separated) from the bond and separately purchased. Self employed tax filing However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Self employed tax filing Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Self employed tax filing The backup withholding is deducted at the time a cash payment is made. Self employed tax filing See Pub. Self employed tax filing 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Self employed tax filing Backup withholding generally applies in the following situations. Self employed tax filing The payee does not give you a taxpayer identification number (TIN). Self employed tax filing The IRS notifies you that the payee gave an incorrect TIN. Self employed tax filing The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Self employed tax filing For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Self employed tax filing However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Self employed tax filing S. Self employed tax filing savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Self employed tax filing Short-term obligations. Self employed tax filing   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Self employed tax filing However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Self employed tax filing   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Self employed tax filing However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Self employed tax filing If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Self employed tax filing Long-term obligations. Self employed tax filing   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Self employed tax filing The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Self employed tax filing The amount to be withheld is limited to the cash paid. Self employed tax filing Registered long-term obligations with cash payments. Self employed tax filing   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Self employed tax filing The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Self employed tax filing If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Self employed tax filing For any payment, the required withholding is limited to the cash paid. Self employed tax filing Payee not the original owner. Self employed tax filing   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Self employed tax filing The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Self employed tax filing Bearer long-term obligations with cash payments. Self employed tax filing   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Self employed tax filing For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Self employed tax filing For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Self employed tax filing The required withholding at maturity is limited to the cash paid. Self employed tax filing Sales and redemptions. Self employed tax filing   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Self employed tax filing Backup withholding applies in the following situations. Self employed tax filing The payee does not give you a TIN. Self employed tax filing The IRS notifies you that the payee gave an incorrect TIN. Self employed tax filing For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Self employed tax filing Payments outside the United States to U. Self employed tax filing S. Self employed tax filing person. Self employed tax filing   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Self employed tax filing S. Self employed tax filing person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Self employed tax filing S. Self employed tax filing trade or business. Self employed tax filing Payments to foreign person. Self employed tax filing   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Self employed tax filing U. Self employed tax filing S. Self employed tax filing -source amount. Self employed tax filing   Backup withholding and information reporting are not required for payments of U. Self employed tax filing S. Self employed tax filing -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Self employed tax filing A U. Self employed tax filing S. Self employed tax filing resident is not a foreign person. Self employed tax filing For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Self employed tax filing Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Self employed tax filing S. Self employed tax filing person. Self employed tax filing   For information about the 28% withholding tax that may apply to payments of U. Self employed tax filing S. Self employed tax filing -source OID or interest to foreign persons, see Publication 515. Self employed tax filing Foreign-source amount. Self employed tax filing   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Self employed tax filing However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Self employed tax filing More information. Self employed tax filing   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Self employed tax filing 6049-5. Self employed tax filing Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Self employed tax filing It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Self employed tax filing It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Self employed tax filing However, the information provided does not cover every situation. Self employed tax filing More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Self employed tax filing Including OID in income. Self employed tax filing   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Self employed tax filing Exceptions. Self employed tax filing   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Self employed tax filing U. Self employed tax filing S. Self employed tax filing savings bonds. Self employed tax filing Tax-exempt obligations. Self employed tax filing (However, see Tax-Exempt Bonds and Coupons, later. Self employed tax filing ) Obligations issued by individuals before March 2, 1984. Self employed tax filing Loans of $10,000 or less between individuals who are not in the business of lending money. Self employed tax filing (The dollar limit includes outstanding prior loans by the lender to the borrower. Self employed tax filing ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Self employed tax filing   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Self employed tax filing Publication 550 also discusses rules for holders of REMIC interests and CDOs. Self employed tax filing De minimis rule. Self employed tax filing   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Self employed tax filing 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Self employed tax filing Debt instruments with de minimis OID are not listed in this publication. Self employed tax filing There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Self employed tax filing Also, the de minimis rules generally do not apply to tax-exempt obligations. Self employed tax filing Example 2. Self employed tax filing You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Self employed tax filing One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Self employed tax filing Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Self employed tax filing Example 3. Self employed tax filing Assume the same facts as Example 2, except the debt instrument was issued at $950. Self employed tax filing You must report part of the $50 OID each year because it is more than $25. Self employed tax filing Choice to report all interest as OID. Self employed tax filing   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Self employed tax filing See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Self employed tax filing   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Self employed tax filing For more information, see Regulations section 1. Self employed tax filing 1272-3. Self employed tax filing Purchase after date of original issue. Self employed tax filing   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Self employed tax filing If so, the OID reported to you on Form 1099-OID may have to be adjusted. Self employed tax filing For more information, see Showing an OID adjustment under How To Report OID, later. Self employed tax filing The following rules generally do not apply to contingent payment debt instruments. Self employed tax filing Adjustment for premium. Self employed tax filing   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Self employed tax filing Your adjustment is the total OID shown on your Form 1099-OID. Self employed tax filing Adjustment for acquisition premium. Self employed tax filing   If your debt instrument has acquisition premium, reduce the OID you report. Self employed tax filing Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Self employed tax filing Adjustment for market discount. Self employed tax filing   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Self employed tax filing Your adjustment is the accrued market discount for the year. Self employed tax filing See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Self employed tax filing If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Self employed tax filing The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Self employed tax filing For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Self employed tax filing 1275-7. Self employed tax filing Sale, exchange, or redemption. Self employed tax filing   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Self employed tax filing If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Self employed tax filing Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Self employed tax filing   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Self employed tax filing Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Self employed tax filing In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Self employed tax filing   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Self employed tax filing Example 4. Self employed tax filing Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Self employed tax filing 00 on November 1 of Year 1. Self employed tax filing The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Self employed tax filing The debt instrument provides for semiannual payments of interest at 10%. Self employed tax filing Assume the debt instrument is a capital asset in Larry's hands. Self employed tax filing The debt instrument has $13,765. Self employed tax filing 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Self employed tax filing 00 issue price). Self employed tax filing Larry sold the debt instrument for $90,000 on November 1 of Year 4. Self employed tax filing Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Self employed tax filing 00 of OID in income and has increased his basis by that amount to $90,791. Self employed tax filing 00. Self employed tax filing Larry has realized a loss of $791. Self employed tax filing 00. Self employed tax filing All of Larry's loss is capital loss. Self employed tax filing Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Self employed tax filing Form 1099-OID shows all OID income in box 1 except OID on a U. Self employed tax filing S. Self employed tax filing Treasury obligation, which is shown in box 8. Self employed tax filing It also shows, in box 2, any qualified stated interest you must include in income. Self employed tax filing (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Self employed tax filing ) A copy of Form 1099-OID will be sent to the IRS. Self employed tax filing Do not attach your copy to your tax return. Self employed tax filing Keep it for your records. Self employed tax filing If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Self employed tax filing A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Self employed tax filing Form 1099-OID not received. Self employed tax filing   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Self employed tax filing Refiguring OID. Self employed tax filing   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Self employed tax filing You bought the debt instrument at a premium or at an acquisition premium. Self employed tax filing The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Self employed tax filing S. Self employed tax filing Treasury securities). Self employed tax filing The debt instrument is a contingent payment or inflation-indexed debt instrument. Self employed tax filing See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Self employed tax filing Refiguring interest. Self employed tax filing   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Self employed tax filing Nominee. Self employed tax filing   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Self employed tax filing ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Self employed tax filing Show the owner of the debt instrument as the “recipient” and you as the “payer. Self employed tax filing ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Self employed tax filing You must also give a copy of the Form 1099-OID to the actual owner. Self employed tax filing However, you are not required to file a nominee return to show amounts belonging to your spouse. Self employed tax filing See the Form 1099 instructions for more information. Self employed tax filing   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Self employed tax filing How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Self employed tax filing Form 1040 or Form 1040A required. Self employed tax filing   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Self employed tax filing You received a Form 1099-OID as a nominee for the actual owner. Self employed tax filing Your total interest and OID income for the year was more than $1,500. Self employed tax filing Form 1040 required. Self employed tax filing   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Self employed tax filing For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Self employed tax filing Also, you must use Form 1040 if you were charged an early withdrawal penalty. Self employed tax filing Where to report. Self employed tax filing   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Self employed tax filing Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Self employed tax filing Also include any other OID and interest income for which you did not receive a Form 1099. Self employed tax filing Showing an OID adjustment. Self employed tax filing   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Self employed tax filing   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Self employed tax filing If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Self employed tax filing Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Self employed tax filing Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Self employed tax filing Subtract that OID from the subtotal and enter the result on line 2. Self employed tax filing If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Self employed tax filing Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Self employed tax filing Below the subtotal, write “OID Adjustment” and show the additional OID. Self employed tax filing Add that OID to the subtotal and enter the result on line 2. Self employed tax filing Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Self employed tax filing It also may depend on the type of the debt instrument. Self employed tax filing There are different rules for each of the following debt instruments. Self employed tax filing Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Self employed tax filing Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Self employed tax filing Debt instruments issued after July 1, 1982, and before 1985. Self employed tax filing Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Self employed tax filing Contingent payment debt instruments issued after August 12, 1996. Self employed tax filing Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Self employed tax filing Zero coupon bonds. Self employed tax filing   The rules for figuring OID on zero coupon bonds backed by U. Self employed tax filing S. Self employed tax filing Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Self employed tax filing Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Self employed tax filing The OID, which is taxed as ordinary income, generally equals the following amount. Self employed tax filing   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Self employed tax filing If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Self employed tax filing Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Self employed tax filing For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Self employed tax filing Your basis in the debt instrument is increased by the OID you include in income. Self employed tax filing Form 1099-OID. Self employed tax filing   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Self employed tax filing However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Self employed tax filing See Reduction for acquisition premium, later. Self employed tax filing If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Self employed tax filing irs. Self employed tax filing gov/pub1212 by clicking the link under Recent Developments. Self employed tax filing Form 1099-OID not received. Self employed tax filing    The OID listed is for each $1,000 of redemption price. Self employed tax filing You must adjust the listed amount if your debt instrument has a different principal amount. Self employed tax filing For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Self employed tax filing   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Self employed tax filing (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Self employed tax filing ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Self employed tax filing Divide the OID shown by 12. Self employed tax filing Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Self employed tax filing This is the OID to include in income unless you paid an acquisition premium. Self employed tax filing The reduction for acquisition premium is discussed next. Self employed tax filing Reduction for acquisition premium. Self employed tax filing   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Self employed tax filing Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Self employed tax filing This is the monthly OID. Self employed tax filing Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Self employed tax filing (If the result is zero or less, stop here. Self employed tax filing You did not pay an acquisition premium. Self employed tax filing ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Self employed tax filing Subtract the amount figured in (3) from the amount figured in (1). Self employed tax filing This is the OID to include in income for each month you hold the debt instrument during the year. Self employed tax filing Transfers during the month. Self employed tax filing   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Self employed tax filing Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Self employed tax filing Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Self employed tax filing For information about showing the correct OID on your tax return, see How To Report OID, earlier. Self employed tax filing Form 1099-OID. Self employed tax filing   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Self employed tax filing However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Self employed tax filing See Constant yield method and the discussions on acquisition premium that follow, later. Self employed tax filing If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Self employed tax filing irs. Self employed tax filing gov/pub1212 by clicking the link under Recent Developments. Self employed tax filing Form 1099-OID not received. Self employed tax filing    The OID listed is for each $1,000 of redemption price. Self employed tax filing You must adjust the listed amount if your debt instrument has a different principal amount. Self employed tax filing For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Self employed tax filing   If you held the debt instrument the entire year, use the OID shown in Section I-A. Self employed tax filing (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Self employed tax filing ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Self employed tax filing Method 1. Self employed tax filing    Divide the total OID for a calendar year by 365 (366 for leap years). Self employed tax filing Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Self employed tax filing  This computation is an approximation and may result in a slightly higher OID than Method 2. Self employed tax filing Method 2. Self employed tax filing    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Self employed tax filing (See Accrual period under Constant yield method, next. Self employed tax filing ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Self employed tax filing If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Self employed tax filing Add the results of (2) and (3). Self employed tax filing This is the OID to include in income, unless you paid an acquisition premium. Self employed tax filing (The reduction for acquisition premium is discussed later. Self employed tax filing ) Constant yield method. Self employed tax filing   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Self employed tax filing OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Self employed tax filing   Figure the OID allocable to any accrual period as follows. Self employed tax filing Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Self employed tax filing Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Self employed tax filing Accrual period. Self employed tax filing   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Self employed tax filing Your tax year will usually include parts of two accrual periods. Self employed tax filing Daily OID. Self employed tax filing   The OID for any accrual period is allocated equally to each day in the accrual period. Self employed tax filing You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Self employed tax filing If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Self employed tax filing Figuring daily OID. Self employed tax filing   The daily OID for the initial accrual period is figured using the following formula. Self employed tax filing   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Self employed tax filing Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Self employed tax filing   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Self employed tax filing Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Self employed tax filing Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Self employed tax filing   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Self employed tax filing However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Self employed tax filing To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Self employed tax filing The numerator is the acquisition premium. Self employed tax filing The denominator is the total OID remaining for the debt instrument after your purchase date. Self employed tax filing Section I-A is available at www. Self employed tax filing irs. Self employed tax filing gov/pub1212 and clicking the link under Recent Developments. Self employed tax filing Using Section I-A to figure accumulated OID. Self employed tax filing   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Self employed tax filing The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Self employed tax filing The OID from January 1 of a calendar year to the date of purchase, figured as follows. Self employed tax filing Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Self employed tax filing Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Self employed tax filing Add the amounts figured in (2a) and (2b). Self employed tax filing Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Self employed tax filing You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Self employed tax filing Your basis in the debt instrument is increased by the OID you include in income. Self employed tax filing For information about showing the correct OID on your tax return, see How To Report OID, earlier. Self employed tax filing Form 1099-OID. Self employed tax filing   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Self employed tax filing However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Self employed tax filing See Constant yield method and Reduction for acquisition premium, later. Self employed tax filing   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Self employed tax filing See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Self employed tax filing If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Self employed tax filing irs. Self employed tax filing gov/pub1212 by clicking the link under Recent Developments. Self employed tax filing Form 1099-OID not received. Self employed tax filing   The OID listed is for each $1,000 of redemption price. Self employed tax filing You must adjust the listed amount if your debt instrument has a different principal amount. Self employed tax filing For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Self employed tax filing   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Self employed tax filing (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Self employed tax filing ) If you did not hold the debt instrument the entire year, figure your OID as follows. Self employed tax filing Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Self employed tax filing (See Accrual period under Constant yield method, later. Self employed tax filing ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Self employed tax filing Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Self employed tax filing Add the results of (2) and (3). Self employed tax filing This is the OID to include in income for that year, unless you paid an acquisition premium. Self employed tax filing (The reduction for acquisition premium is discussed later. Self employed tax filing ) Tax-exempt bond. Self employed tax filing   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Self employed tax filing You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Self employed tax filing In general, use the rules that follow to determine your OID. Self employed tax filing Constant yield method. Self employed tax filing   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Self employed tax filing (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Self employed tax filing ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Self employed tax filing   Figure the OID allocable to any accrual period as follows. Self employed tax filing Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Self employed tax filing The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Self employed tax filing The yield must be stated appropriately taking into account the length of the particular accrual period. Self employed tax filing Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Self employed tax filing Accrual period. Self employed tax filing   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Self employed tax filing For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Self employed tax filing Any short period is included as the first accrual period. Self employed tax filing   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Self employed tax filing However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Self employed tax filing Daily OID. Self employed tax filing   The OID for any accrual period is allocated equally to each day in the accrual period. Self employed tax filing Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Self employed tax filing Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Self employed tax filing If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Self employed tax filing Figuring daily OID. Self employed tax filing   The daily OID for the initial accrual period is figured using the following formula. Self employed tax filing   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Self employed tax filing Example 5. Self employed tax filing On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Self employed tax filing 17. Self employed tax filing According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Self employed tax filing The yield to maturity is 12%, compounded semiannually. Self employed tax filing The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Self employed tax filing The accrual periods are the 6-month periods ending on each of these dates. Self employed tax filing The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Self employed tax filing The daily OID for the first accrual period is figured as follows. Self employed tax filing   ($86,235. Self employed tax filing 17 x . Self employed tax filing 12/2) – $5,000     181 days     = $174. Self employed tax filing 11020 = $. Self employed tax filing 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Self employed tax filing 17 + $174. Self employed tax filing 11), or $86,409. Self employed tax filing 28. Self employed tax filing The number of days for the second accrual period (July 1 through December 31) is 184 days. Self employed tax filing The daily OID for the second accrual period is figured as follows. Self employed tax filing   ($86,409. Self employed tax filing 28 x . Self employed tax filing 12/2) – $5,000     184 days     = $184. Self employed tax filing 55681 = $1. Self employed tax filing 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Self employed tax filing 11 ($. Self employed tax filing 95665 × 182 days) plus $184. Self employed tax filing 56 ($1. Self employed tax filing 00303 × 184 days), or $358. Self employed tax filing 67. Self employed tax filing Add the OID to the $10,000 interest you report on your income tax return for Year 1. Self employed tax filing Example 6. Self employed tax filing Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Self employed tax filing Also, the interest payment dates are October 31 and April 30 of each calendar year. Self employed tax filing The accrual periods are the 6-month periods ending on each of these dates. Self employed tax filing The number of days for the first accrual period (May 1 through October 31) is 184 days. Self employed tax filing The daily OID for the first accrual period is figured as follows. Self employed tax filing   ($86,235. Self employed tax filing 17 x . Self employed tax filing 12/2) – $5,000     184 days     = $174. Self employed tax filing 11020 = $. Self employed tax filing 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Self employed tax filing The daily OID for the second accrual period is figured as follows. Self employed tax filing   ($86,409. Self employed tax filing 28 x . Self employed tax filing 12/2) – $5,000     181 days     = $184. Self employed tax filing 55681 = $1. Self employed tax filing 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Self employed tax filing 31 of OID in income. Self employed tax filing This is $174. Self employed tax filing 11 ($. Self employed tax filing 94625 × 184 days) for the period May 1 through October 31 plus $62. Self employed tax filing 20 ($1. Self employed tax filing 01965 × 61 days) for the period November 1 through December 31. Self employed tax filing The OID is added to the $5,000 interest income paid on October 31 of Year 1. Self employed tax filing Your basis in the debt instrument is increased by the OID you include in income. Self employed tax filing On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Self employed tax filing 48 ($86,235. Self employed tax filing 17 + $236. Self employed tax filing 31). Self employed tax filing Short first accrual period. Self employed tax filing   You may have to make adjustments if a debt instrument has a short first accrual period. Self employed tax filing For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Self employed tax filing (The remaining accrual periods begin on May 1 and November 1. Self employed tax filing ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Self employed tax filing You may use any reasonable compounding method in determining OID for a short period. Self employed tax filing Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Self employed tax filing Consult your tax advisor for more information about making this computation. Self employed tax filing   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Self employed tax filing Reduction for acquisition premium. Self employed tax filing   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Self employed tax filing To figure the daily acquisition premium, multiply the daily OID by the following fraction. Self employed tax filing The numerator is the acquisition premium. Self employed tax filing The denominator is the total OID remaining for the debt instrument after your purchase date. Self employed tax filing Example 7. Self employed tax filing Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Self employed tax filing The adjusted issue price on November 1 of Year 1 is $86,409. Self employed tax filing 28 ($86,235. Self employed tax filing 17 + $174. Self employed tax filing 11). Self employed tax filing In this case, you paid an acquisition premium of $590. Self employed tax filing 72 ($87,000 − $86,409. Self employed tax filing 28). Self employed tax filing The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Self employed tax filing 1) Daily OID on date of purchase (2nd accrual period) $1. Self employed tax filing 01965*  2)  Acquisition premium $590. Self employed tax filing 72    3)  Total OID remaining after purchase date ($13,764. Self employed tax filing 83 − $174. Self employed tax filing 11) 13,590. Self employed tax filing 72   4) Line 2 ÷ line 3 . Self employed tax filing 04346  5)  Line 1 × line 4 . Self employed tax filing 04432  6)  Daily OID reduced for the acquisition premium. Self employed tax filing Line 1 − line 5 $0. Self employed tax filing 97533  * As shown in Example 6. Self employed tax filing The total OID to include in income for Year 1 is $59. Self employed tax filing 50 ($. Self employed tax filing 97533 × 61 days). Self employed tax filing Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Self employed tax filing In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Self employed tax filing If you hold a contingent payment bond, you must report OID as it accrues each year. Self employed tax filing Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Self employed tax filing To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Self employed tax filing Noncontingent bond method. Self employed tax filing    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Self employed tax filing In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Self employed tax filing When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Self employed tax filing If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Self employed tax filing If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Self employed tax filing Form 1099-OID. Self employed tax filing   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Self employed tax filing For example, the amount may not be correct if the contingent payment was different from the projected amount. Self employed tax filing If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Self employed tax filing For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Self employed tax filing Figuring OID. Self employed tax filing   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Self employed tax filing The issuer must make these available to you. Self employed tax filing Comparable yield. Self employed tax filing   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Self employed tax filing The comparable yield is determined as of the debt instrument's issue date. Self employed tax filing Projected payment schedule. Self employed tax filing   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Self employed tax filing The projected payment schedule is created by the issuer as of the debt instrument's issue date. Self employed tax filing It is used to determine the issuer's and holder's interest accruals and adjustments. Self employed tax filing Steps for figuring OID. Self employed tax filing   Figure the OID on a contingent payment debt instrument in two steps. Self employed tax filing Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Self employed tax filing Use the comparable yield as the yield to maturity. Self employed tax filing In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Self employed tax filing Do not treat any amount payable as qualified stated interest. Self employed tax filing Adjust the OID in (1) to account for actual contingent payments. Self employed tax filing If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Self employed tax filing If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Self employed tax filing Net positive adjustment. Self employed tax filing   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Self employed tax filing Treat a net positive adjustment as additional OID for the tax year. Self employed tax filing Net negative adjustment. Self employed tax filing   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Self employed tax filing Use a net negative adjustment to offset OID on the debt instrument for the tax year. Self employed tax filing If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Self employed tax filing However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Self employed tax filing You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Self employed tax filing Basis adjustments. Self employed tax filing   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Self employed tax filing Your basis, however, is not affected by any negative or positive adjustments. Self employed tax filing Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Self employed tax filing Treatment of gain or loss on sale or exchange. Self employed tax filing   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Self employed tax filing If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Self employed tax filing If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Self employed tax filing See Regulations section 1. Self employed tax filing 1275-4 for exceptions to these rules. Self employed tax filing Premium, acquisition premium, and market discount. Self employed tax filing   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Self employed tax filing See Regulations section 1. Self employed tax filing 1275-4 to determine how to account for these items. Self employed tax filing Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Self employed tax filing An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d