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1040 Ez Instructions

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1040 Ez Instructions

1040 ez instructions 1. 1040 ez instructions   Filing and Paying Business Taxes Table of Contents Introduction Useful Items - You may want to see: Identification NumbersNew EIN. 1040 ez instructions Employee. 1040 ez instructions Other payee. 1040 ez instructions Income TaxDo I Have To File an Income Tax Return? How Do I File? IRS e-file (Electronic Filing) When Is My Tax Return Due? How Do I Pay Income Tax? Self-Employment (SE) TaxHow to become insured under social security. 1040 ez instructions Earning credits in 2013 and 2014. 1040 ez instructions Employment Taxes Excise Taxes Information ReturnsWaiver of penalties. 1040 ez instructions Penalties. 1040 ez instructions Introduction This chapter explains the business taxes you may have to pay and the forms you may have to file. 1040 ez instructions It also discusses taxpayer identification numbers. 1040 ez instructions Table 1-1 lists the benefits of filing electronically. 1040 ez instructions Table 1-2 lists the federal taxes you may have to pay, their due dates, and the forms you use to report them. 1040 ez instructions Table 1-3 provides checklists that highlight the typical forms and schedules you may need to file if you ever go out of business. 1040 ez instructions You may want to get Publication 509, Tax Calendars. 1040 ez instructions It has tax calendars that tell you when to file returns and make tax payments. 1040 ez instructions Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 1040 U. 1040 ez instructions S. 1040 ez instructions Individual Income Tax Return 1040-ES Estimated Tax for Individuals Sch C (Form 1040) Profit or Loss From Business Sch C-EZ (Form 1040) Net Profit From Business Sch SE (Form 1040) Self-Employment Tax See chapter 12 for information about getting publications and forms. 1040 ez instructions Identification Numbers This section explains three types of taxpayer identification numbers, who needs them, when to use them, and how to get them. 1040 ez instructions Social security number (SSN). 1040 ez instructions   Generally, use your SSN as your taxpayer identification number. 1040 ez instructions You must put this number on each of your individual income tax forms, such as Form 1040 and its schedules. 1040 ez instructions   To apply for an SSN, use Form SS-5, Application for a Social Security Card. 1040 ez instructions This form is available at Social Security Administration (SSA) offices or by calling 1-800-772-1213. 1040 ez instructions It is also available from the SSA website at www. 1040 ez instructions socialsecurity. 1040 ez instructions gov. 1040 ez instructions Individual taxpayer identification number (ITIN). 1040 ez instructions   The IRS will issue an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. 1040 ez instructions In general, if you need to obtain an ITIN, you must attach Form W-7, Application for IRS Individual Taxpayer Identification Number, with your signed, original, completed tax return and any other required documentation and mail them to the following address. 1040 ez instructions  Internal Revenue Service ITIN Operation P. 1040 ez instructions O. 1040 ez instructions Box 149342 Austin, TX 78714-9342 The exceptions are covered in detail in the instructions for Form W-7. 1040 ez instructions If you must include another person's SSN on your return and that person does not have and cannot get an SSN, enter that person's ITIN. 1040 ez instructions The application is also available in Spanish. 1040 ez instructions The form is available at IRS. 1040 ez instructions gov or you can call 1-800-829-3676 to order the form. 1040 ez instructions    An ITIN is for tax use only. 1040 ez instructions It does not entitle the holder to social security benefits or change the holder's employment or immigration status. 1040 ez instructions Employer identification number (EIN). 1040 ez instructions   You must also have an EIN to use as a taxpayer identification number if you do either of the following. 1040 ez instructions Pay wages to one or more employees. 1040 ez instructions File pension or excise tax returns. 1040 ez instructions   If you must have an EIN, include it along with your SSN on your Schedule C or C-EZ. 1040 ez instructions   You can apply for an EIN: Online by clicking on the Employer ID Numbers (EINs) link at www. 1040 ez instructions irs. 1040 ez instructions gov/businesses/small. 1040 ez instructions The EIN is issued immediately once the application information is validated. 1040 ez instructions By telephone at 1-800-829-4933. 1040 ez instructions By mailing or faxing Form SS-4, Application for Employer Identification Number. 1040 ez instructions New EIN. 1040 ez instructions   You may need to get a new EIN if either the form or the ownership of your business changes. 1040 ez instructions For more information, see Publication 1635, Understanding Your EIN. 1040 ez instructions When you need identification numbers of other persons. 1040 ez instructions   In operating your business, you will probably make certain payments you must report on information returns. 1040 ez instructions These payments are discussed under Information Returns, later in this chapter. 1040 ez instructions You must give the recipient of these payments (the payee) a statement showing the total amount paid during the year. 1040 ez instructions You must include the payee's identification number and your identification number on the returns and statements. 1040 ez instructions Employee. 1040 ez instructions   If you have employees, you must get an SSN from each of them. 1040 ez instructions Record the name and SSN of each employee exactly as they are shown on the employee's social security card. 1040 ez instructions If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. 1040 ez instructions This may occur if the employee's name was changed due to marriage or divorce. 1040 ez instructions   Form W-4, Employee's Withholding Allowance Certificate, is completed by each employee so the correct federal income tax can be withheld from their pay. 1040 ez instructions   If your employee does not have an SSN, he or she should file Form SS-5 with the SSA. 1040 ez instructions Other payee. 1040 ez instructions   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. 1040 ez instructions If you must report payments to an organization, such as a corporation or partnership, you must get its EIN. 1040 ez instructions   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. 1040 ez instructions   A payee who does not provide you with an identification number may be subject to backup withholding. 1040 ez instructions For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. 1040 ez instructions Income Tax This part explains whether you have to file an income tax return and when you file it. 1040 ez instructions It also explains how you pay the tax. 1040 ez instructions Do I Have To File an Income Tax Return? You have to file an income tax return for 2013 if your net earnings from self-employment were $400 or more. 1040 ez instructions If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions. 1040 ez instructions How Do I File? File your income tax return on Form 1040 and attach Schedule C or Schedule C-EZ. 1040 ez instructions Enter the net profit or loss from Schedule C or Schedule C-EZ on page 1 of Form 1040. 1040 ez instructions Use Schedule C to figure your net profit or loss from your business. 1040 ez instructions If you operated more than one business as a sole proprietorship, you must attach a separate Schedule C for each business. 1040 ez instructions You can use the simpler Schedule C-EZ if you operated only one business as a sole proprietorship, you did not have a net loss, and you meet the other requirements listed in Part I of the schedule. 1040 ez instructions IRS e-file (Electronic Filing) Please click here for the text description of the image. 1040 ez instructions E-file logo You may be able to file your tax returns electronically using an IRS e-file option. 1040 ez instructions Table 1-1 lists the benefits of IRS e-file. 1040 ez instructions IRS e-file uses automation to replace most of the manual steps needed to process paper returns. 1040 ez instructions As a result, the processing of e-file returns is faster and more accurate than the processing of paper returns. 1040 ez instructions As with a paper return, you are responsible for making sure your return contains accurate information and is filed on time. 1040 ez instructions Using e-file does not affect your chances of an IRS examination of your return. 1040 ez instructions You can file most commonly used business forms using IRS e-file. 1040 ez instructions For more information, visit IRS. 1040 ez instructions gov. 1040 ez instructions Electronic signatures. 1040 ez instructions   Paperless filing is easier than you think and it's available to most taxpayers who file electronically—including those first-time filers who were 16 or older at the end of 2013. 1040 ez instructions If you file electronically using tax preparation software or a tax professional, you will participate in the Self-Select PIN (personal identification number) program. 1040 ez instructions If you are married filing jointly, you and your spouse will each need to create a PIN and enter these PINs as your electronic signatures. 1040 ez instructions    To create a PIN, you must know your adjusted gross income (AGI) from your originally filed 2012 income tax return (not from an amended return, Form 1040X, or any math error notice from the IRS). 1040 ez instructions You will also need to provide your date of birth (DOB). 1040 ez instructions Make sure your DOB is accurate and matches the information on record with the Social Security Administration before you e-file. 1040 ez instructions To do this, check your annual Social Security Statement. 1040 ez instructions   With a Self-Select PIN, there is nothing to sign and nothing to mail—not even your Forms W-2. 1040 ez instructions For more details on the Self-Select PIN program, visit IRS. 1040 ez instructions gov. 1040 ez instructions State returns. 1040 ez instructions   In most states, you can file an electronic state return simultaneously with your federal return. 1040 ez instructions For more information, check with your local IRS office, state tax agency, tax professional, or IRS. 1040 ez instructions gov. 1040 ez instructions Refunds. 1040 ez instructions   You can have your refund check mailed to you, or you can have your refund deposited directly to your checking or savings account. 1040 ez instructions   With e-file, your refund will be issued in half the time as when filing on paper. 1040 ez instructions Most refunds are issued within 3 weeks. 1040 ez instructions If you choose Direct Deposit, you can receive your refund in as few as 10 days. 1040 ez instructions Offset against debts. 1040 ez instructions   As with a paper return, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. 1040 ez instructions You will be notified if the refund you claimed has been offset against your debts. 1040 ez instructions Refund inquiries. 1040 ez instructions   You can check the status of your refund if it has been at least 24 hours (4 weeks if you mailed a paper return) from the date you filed your return. 1040 ez instructions Be sure to have a copy of your tax return available because you will need to know the filing status, the first social security number shown on the return, and the exact whole-dollar amount of the refund. 1040 ez instructions To check on your refund, do one of the following. 1040 ez instructions Go to IRS. 1040 ez instructions gov and click on Where's My Refund. 1040 ez instructions Call 1-800-829-4477 for automated refund information, and follow the recorded instructions. 1040 ez instructions Call 1-800-829-1954 during the hours shown in your form instructions. 1040 ez instructions Balance due. 1040 ez instructions   If you owe tax, you must pay it by April 15, 2014, to avoid late-payment penalties and interest. 1040 ez instructions You can make your payment electronically by scheduling an electronic funds withdrawal from your checking or savings account or by credit card. 1040 ez instructions Using an Authorized IRS e-file Provider Many tax professionals can electronically file paperless returns for their clients. 1040 ez instructions You have two options. 1040 ez instructions You can prepare your return, take it to an authorized IRS e-file provider, and have the provider transmit it electronically to the IRS. 1040 ez instructions You can have an authorized IRS e-file provider prepare your return and transmit it for you electronically. 1040 ez instructions You will be asked to complete Form 8879, IRS e-file Signature Authorization, to authorize the provider to enter your self-selected PIN on your return. 1040 ez instructions Depending on the provider and the specific services requested, a fee may be charged. 1040 ez instructions To find an authorized IRS e-file provider near you, go to IRS. 1040 ez instructions gov or look for an “Authorized IRS e-file Provider” sign. 1040 ez instructions Using Your Personal Computer A computer with Internet access is all you need to file your tax return using IRS e-file. 1040 ez instructions When you use your personal computer, you can e-file your return from your home any time of the day or night. 1040 ez instructions Sign your return electronically using a self-selected PIN to complete the process. 1040 ez instructions There is no signature form to submit or Forms W-2 to send in. 1040 ez instructions Free Internet filing options. 1040 ez instructions   More taxpayers can now prepare and e-file their individual income tax returns free using commercial tax preparation software accessible through IRS. 1040 ez instructions gov or www. 1040 ez instructions usa. 1040 ez instructions gov. 1040 ez instructions The IRS is partnering with the tax software industry to offer free preparation and filing services to a significant number of taxpayers. 1040 ez instructions Security and privacy certificate programs will assure tax data is safe and secure. 1040 ez instructions To see if you qualify for these services, visit the Return Preparation and Filing Options page at IRS. 1040 ez instructions gov. 1040 ez instructions   If you cannot use the free services, you can buy tax preparation software at various electronics stores or computer and office supply stores. 1040 ez instructions You can also download software from the Internet or prepare and file your return completely online by using tax preparation software available on the Internet. 1040 ez instructions Filing Through Employers and Financial Institutions Some businesses offer free e-file to their employees, members, or customers. 1040 ez instructions Others offer it for a fee. 1040 ez instructions Ask your employer or financial institution if they offer IRS e-file as an employee, member, or customer benefit. 1040 ez instructions Free Help With Your Return Free help in preparing your return is available nationwide from IRS-trained volunteers. 1040 ez instructions The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers, and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 or older with their tax returns. 1040 ez instructions Some locations offer free electronic filing. 1040 ez instructions Table 1-1. 1040 ez instructions Benefits of IRS e-file Accuracy • Your chance of getting an error notice from the IRS is significantly reduced. 1040 ez instructions Security • Your privacy and security are assured. 1040 ez instructions Electronic signatures • Create your own personal identification number (PIN) and file a completely paperless return through your tax preparation software or tax professional. 1040 ez instructions There is nothing to mail. 1040 ez instructions Proof of acceptance • You receive an electronic acknowledgment within 48 hours that the IRS has accepted your return for processing. 1040 ez instructions Fast refunds • You get your refund faster with Direct Deposit—in as few as 10 days. 1040 ez instructions Free Internet filing options • Use IRS. 1040 ez instructions gov to access commercial tax preparation and e-file services available at no cost to eligible taxpayers. 1040 ez instructions Electronic payment options • Convenient, safe, and secure electronic payment options are available. 1040 ez instructions E-file and pay your taxes in a single step. 1040 ez instructions Schedule an electronic funds withdrawal from your checking or savings account (up to and including April 15, 2014) or pay by credit card. 1040 ez instructions Federal/State filing • Prepare and file your federal and state tax returns together and double the benefits you get from e-file. 1040 ez instructions When Is My Tax Return Due? Form 1040 for calendar year 2013 is due by April 15, 2014. 1040 ez instructions If you use a fiscal year (explained in chapter 2), your return is due by the 15th day of the 4th month after the end of your fiscal year. 1040 ez instructions If you file late, you may have to pay penalties and interest. 1040 ez instructions If you cannot file your return on time, use Form 4868, Application for Automatic Extension of Time To File U. 1040 ez instructions S. 1040 ez instructions Individual Income Tax Return, to request an automatic 6-month extension. 1040 ez instructions For calendar year taxpayers, this will extend the tax filing due date until October 15. 1040 ez instructions Filing an extension does not extend the time to pay your taxes, only the time to file the tax return. 1040 ez instructions How Do I Pay Income Tax? Federal income tax is a pay-as-you-go tax. 1040 ez instructions You must pay it as you earn or receive income during the year. 1040 ez instructions An employee usually has income tax withheld from his or her pay. 1040 ez instructions If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. 1040 ez instructions You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax (discussed later), of $1,000 or more when you file your return. 1040 ez instructions Use Form 1040-ES to figure and pay the tax. 1040 ez instructions If you do not have to make estimated tax payments, you can pay any tax due when you file your return. 1040 ez instructions For more information on estimated tax, see Publication 505, Tax Withholding and Estimated Tax. 1040 ez instructions What are my payment options?   You can pay your estimated tax electronically using various options. 1040 ez instructions If you pay electronically, there is no need to mail in Form 1040-ES payment vouchers. 1040 ez instructions These options include: Paying electronically through the Electronic Federal Tax Payment System (EFTPS). 1040 ez instructions Paying by authorizing an electronic funds withdrawal when you file Form 1040 electronically. 1040 ez instructions Paying by credit or debit card over the phone or by Internet. 1040 ez instructions Other options include crediting an overpayment from your 2013 return to your 2014 estimated tax, or mailing a check or money order with a Form 1040-ES payment voucher. 1040 ez instructions EFTPS    To enroll in EFTPS, go to www. 1040 ez instructions eftps. 1040 ez instructions gov or call 1-800-555-4477. 1040 ez instructions When you request a new EIN and you will have a tax obligation, you are automatically enrolled in EFTPS. 1040 ez instructions Benefits of EFTPS: The chance of an error in making your payments is reduced. 1040 ez instructions You receive immediate confirmation of every transaction. 1040 ez instructions Penalty for underpayment of tax. 1040 ez instructions   If you did not pay enough income tax and self-employment tax for 2013 by withholding or by making estimated tax payments, you may have to pay a penalty on the amount not paid. 1040 ez instructions The IRS will figure the penalty for you and send you a bill. 1040 ez instructions Or you can use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you have to pay a penalty and to figure the penalty amount. 1040 ez instructions For more information, see Publication 505. 1040 ez instructions Self-Employment (SE) Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. 1040 ez instructions It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. 1040 ez instructions If you earned income as a statutory employee, you do not pay SE tax on that income. 1040 ez instructions Social security coverage. 1040 ez instructions   Social security benefits are available to self-employed persons just as they are to wage earners. 1040 ez instructions Your payments of SE tax contribute to your coverage under the social security system. 1040 ez instructions Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. 1040 ez instructions By not reporting all of your self-employment income, you could cause your social security benefits to be lower when you retire. 1040 ez instructions How to become insured under social security. 1040 ez instructions   You must be insured under the social security system before you begin receiving social security benefits. 1040 ez instructions You are insured if you have the required number of credits (also called quarters of coverage), discussed next. 1040 ez instructions Earning credits in 2013 and 2014. 1040 ez instructions   For 2013, you received one credit, up to a maximum of four credits, for each $1,160 ($1,200 for 2014) of income subject to social security taxes. 1040 ez instructions Therefore, for 2013, if you had income (self-employment and wages) of $4,640 that was subject to social security taxes, you receive four credits ($4,640 ÷ $1,160). 1040 ez instructions   For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office. 1040 ez instructions    Making false statements to get or to increase social security benefits may subject you to penalties. 1040 ez instructions The Social Security Administration (SSA) time limit for posting self-employment income. 1040 ez instructions   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. 1040 ez instructions If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. 1040 ez instructions The SSA will not change its records to increase your self-employment income. 1040 ez instructions Who must pay self-employment tax. 1040 ez instructions   You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. 1040 ez instructions Your net earnings from self-employment (excluding church employee income) were $400 or more. 1040 ez instructions You had church employee income of $108. 1040 ez instructions 28 or more. 1040 ez instructions The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. 1040 ez instructions SE tax rate. 1040 ez instructions   For 2013, the SE tax rate on net earnings is 15. 1040 ez instructions 3% (12. 1040 ez instructions 4% social security tax plus 2. 1040 ez instructions 9% Medicare tax). 1040 ez instructions Maximum earnings subject to SE tax. 1040 ez instructions   Only the first $113,700 of your combined wages, tips, and net earnings in 2013 is subject to any combination of the 12. 1040 ez instructions 4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. 1040 ez instructions   All your combined wages, tips, and net earnings in 2013 are subject to any combination of the 2. 1040 ez instructions 9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. 1040 ez instructions   If wages and tips you receive as an employee are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $113,700, do not pay the 12. 1040 ez instructions 4% social security part of the SE tax on any of your net earnings. 1040 ez instructions However, you must pay the 2. 1040 ez instructions 9% Medicare part of the SE tax on all your net earnings. 1040 ez instructions Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040. 1040 ez instructions   More information. 1040 ez instructions   For information on methods of calculating SE tax, see Chapter 10, Self-Employment Tax. 1040 ez instructions Table 1-2. 1040 ez instructions Which Forms Must I File? IF you are liable for: THEN use Form: DUE by:1 Income tax 1040 and Schedule C or C-EZ2 15th day of 4th month after end of  tax year. 1040 ez instructions Self-employment tax Schedule SE File with Form 1040. 1040 ez instructions Estimated tax 1040-ES 15th day of 4th, 6th, and 9th months of tax year, and 15th day of 1st month after the end of tax year. 1040 ez instructions Social security and Medicare taxes and income tax withholding 941 or 944 April 30, July 31, October 31, and January 313. 1040 ez instructions     See Publication 15. 1040 ez instructions Providing information on social security and Medicare taxes and income tax withholding W-2 (to employee)  W-2 and W-3 (to the Social Security Administration) January 313. 1040 ez instructions   Last day of February (March 31 if filing electronically)3. 1040 ez instructions Federal unemployment (FUTA) tax 940 January 313. 1040 ez instructions     April 30, July 31, October 31, and January 31, but only if the liability for unpaid tax is more than $500. 1040 ez instructions Filing information returns for payments to nonemployees and transactions with other persons See Information Returns Forms 1099 – to the recipient by January 31 and to the IRS by February 28 (March 31 if filing electronically). 1040 ez instructions     Other forms – see the General Instructions for Certain Information Returns. 1040 ez instructions Excise tax See Excise Taxes See the instructions to the forms. 1040 ez instructions 1 If a due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday. 1040 ez instructions For more information, see Publication 509, Tax Calendars. 1040 ez instructions 2 File a separate schedule for each business. 1040 ez instructions 3 See the form instructions if you go out of business, change the form of your business, or stop paying wages. 1040 ez instructions     Employment Taxes If you have employees, you will need to file forms to report employment taxes. 1040 ez instructions Employment taxes include the following items. 1040 ez instructions Social security and Medicare taxes. 1040 ez instructions Federal income tax withholding. 1040 ez instructions Federal unemployment (FUTA) tax. 1040 ez instructions For more information, see Publication 15 (Circular E), Employer's Tax Guide. 1040 ez instructions That publication explains your tax responsibilities as an employer. 1040 ez instructions To help you determine whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. 1040 ez instructions That publication has information to help you determine whether an individual is an independent contractor or an employee. 1040 ez instructions If you incorrectly classify an employee as an independent contractor, you may be held liable for employment taxes for that worker plus a penalty. 1040 ez instructions An independent contractor is someone who is self-employed. 1040 ez instructions You do not generally have to withhold or pay any taxes on payments made to an independent contractor. 1040 ez instructions Excise Taxes This section identifies some of the excise taxes you may have to pay and the forms you have to file if you do any of the following. 1040 ez instructions Manufacture or sell certain products. 1040 ez instructions Operate certain kinds of businesses. 1040 ez instructions Use various kinds of equipment, facilities, or products. 1040 ez instructions Receive payment for certain services. 1040 ez instructions For more information on excise taxes, see Publication 510, Excise Taxes. 1040 ez instructions Form 720. 1040 ez instructions   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. 1040 ez instructions Environmental taxes on the sale or use of ozone-depleting chemicals and imported products containing or manufactured with these chemicals. 1040 ez instructions Communications and air transportation taxes. 1040 ez instructions Fuel taxes. 1040 ez instructions Tax on the first retail sale of heavy trucks, trailers, and tractors. 1040 ez instructions Manufacturers taxes on the sale or use of a variety of different articles. 1040 ez instructions Tax on indoor tanning services. 1040 ez instructions Form 2290. 1040 ez instructions   There is a federal excise tax on the use of certain trucks, truck tractors, and buses on public highways. 1040 ez instructions The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. 1040 ez instructions Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. 1040 ez instructions For more information, see the Instructions for Form 2290. 1040 ez instructions Depositing excise taxes. 1040 ez instructions   If you have to file a quarterly excise tax return on Form 720, you may have to deposit your excise taxes before the return is due. 1040 ez instructions For details on depositing excise taxes, see the Instructions for Form 720. 1040 ez instructions Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. 1040 ez instructions The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. 1040 ez instructions You must give a copy of each information return you are required to file to the recipient or payer. 1040 ez instructions In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. 1040 ez instructions For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. 1040 ez instructions Form 1099-MISC. 1040 ez instructions   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your business. 1040 ez instructions These payments include the following items. 1040 ez instructions Payments of $600 or more for services performed for your business by people not treated as your employees, such as fees to subcontractors, attorneys, accountants, or directors. 1040 ez instructions Rent payments of $600 or more, other than rents paid to real estate agents. 1040 ez instructions Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. 1040 ez instructions Royalty payments of $10 or more. 1040 ez instructions Payments to certain crew members by operators of fishing boats. 1040 ez instructions You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. 1040 ez instructions Form W-2. 1040 ez instructions   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. 1040 ez instructions You can file Form W-2 online. 1040 ez instructions For more information about Form W-2, see the General Instructions for Forms W-2 and W-3. 1040 ez instructions Penalties. 1040 ez instructions   The law provides for the following penalties if you do not file Form 1099-MISC or Form W-2 or do not correctly report the information. 1040 ez instructions For more information, see the General Instructions for Certain Information Returns. 1040 ez instructions Failure to file information returns. 1040 ez instructions This penalty applies if you do not file information returns by the due date, do not include all required information, or report incorrect information. 1040 ez instructions Failure to furnish correct payee statements. 1040 ez instructions This penalty applies if you do not furnish a required statement to a payee by the required date, do not include all required information, or report incorrect information. 1040 ez instructions Waiver of penalties. 1040 ez instructions   These penalties will not apply if you can show that the failure was due to reasonable cause and not willful neglect. 1040 ez instructions   In addition, there is no penalty for failure to include all required information, or for including incorrect information, on a de minimis (small) number of information returns if you correct the errors by August 1 of the year the returns are due. 1040 ez instructions (A de minimis number of returns is the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. 1040 ez instructions ) Form 8300. 1040 ez instructions   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction, or two or more related business transactions. 1040 ez instructions Cash includes U. 1040 ez instructions S. 1040 ez instructions and foreign coin and currency. 1040 ez instructions It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. 1040 ez instructions Cash does not include a check drawn on an individual's personal account (personal check). 1040 ez instructions For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). 1040 ez instructions Penalties. 1040 ez instructions   There are civil and criminal penalties, including up to 5 years in prison, for not filing Form 8300, filing (or causing the filing of) a false or fraudulent Form 8300, or structuring a transaction to evade reporting requirements. 1040 ez instructions Table 1-3. 1040 ez instructions Going Out of Business Checklists (Note. 1040 ez instructions The following checklists highlight the typical final forms and schedules you may need to file if you ever go out of business. 1040 ez instructions For more information, see the instructions for the listed forms. 1040 ez instructions ) IF you are liable for:   THEN you may need to: Income tax □ File Schedule C or C-EZ with your Form 1040 for the year in which you go out of business. 1040 ez instructions   □ File Form 4797 with your Form 1040 for each year in which you sell or exchange property used in your business or in which the business use of certain section 179 or listed property drops to 50% or less. 1040 ez instructions   □ File Form 8594 with your Form 1040 if you sold your business. 1040 ez instructions Self-employment tax □ File Schedule SE with your Form 1040 for the year in which you go out of business. 1040 ez instructions Employment taxes □ File Form 941 (or Form 944) for the calendar quarter in which you make final wage payments. 1040 ez instructions Note. 1040 ez instructions Do not forget to check the box and enter the date final wages were paid on line 15 of Form 941 or line 14 of Form 944. 1040 ez instructions   □ File Form 940 for the calendar year in which final wages were paid. 1040 ez instructions Note. 1040 ez instructions Do not forget to check box d, Final: Business closed or stopped paying wages, under Type of Return. 1040 ez instructions Information returns □ Provide Forms W-2 to your employees for the calendar year in which you make final wage payments. 1040 ez instructions Note. 1040 ez instructions These forms are generally due by the due date of your final Form 941 or Form 944. 1040 ez instructions   □ File Form W-3 to file Forms W-2. 1040 ez instructions Note. 1040 ez instructions These forms are generally due within 1 month after the due date of your final Form 941 or Form 944. 1040 ez instructions   □ Provide Forms 1099-MISC to each person to whom you have paid at least $600 for services (including parts and materials) during the calendar year in which you go out of business. 1040 ez instructions   □ File Form 1096 to file Forms 1099-MISC. 1040 ez instructions Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Pennsylvania

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Altoona 1601 Eleventh Ave.
Altoona, PA 16601

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)
 

Services Provided

(814) 944-3532
Bethlehem 3 W. Broad St.
Bethlehem, PA 18018

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)
 

Services Provided

(610) 865-8208
Butler 220 S. Main St.
Butler PA 16001

Monday-Thursday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(724) 282-4531
Cranberry 230 Executive Drive
Cranberry TWP, PA 16066

Monday - 8:30 a.m. - 3:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(724) 772-5111
Erie 1314 Griswold Plaza
Erie, PA 16501

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(814) 456-8967
Harrisburg 228 Walnut St.
Harrisburg, PA 17108

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(717) 777-9650
Horsham 200 Lakeside Drive
Horsham, PA 19044

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 1:30 p.m. - 2:30 p.m.)

 

Services Provided

(215) 887-6134
Johnstown 319 Washington St.
Johnstown, PA 15901 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(814) 533-4221 
King of Prussia  601 South Henderson Rd.
King of Prussia, PA 19406 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(610) 992-5130 
Lancaster  1720 Hempstead Rd. 
Lancaster, PA 17601

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(717) 291-1994

 

Media  1400 N. Providence Rd.
Media, PA 19063 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 1:00 p.m.-2:00 p.m.)

 

Services Provided

(610) 891-6002 
Monroeville  4314 Old William Penn Highway
Monroeville, PA 15146

Monday-Friday - 8:30 a.m. - 4:30 p.m..
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(412) 856-1913

 

Philadelphia  600 Arch St.
Philadelphia, PA 19106 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(215) 861-1225 
Pittsburgh  1000 Liberty Avenue
Pittsburgh, PA 15222 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(412) 395-5667 
Reading  201 Penn St.
Reading, PA 19601 

Monday-Friday - 8:30  a.m.-4:30 p.m.
(Closed for lunch 1:00 p.m.-2:00 p.m.)

 

Services Provided

(610) 320-5154 
Scranton  409 Lackawanna Ave.
Scranton, PA 18503 

Monday-Friday - 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(570) 961-2493

 

State College/
remote Taxpayer
Assistance
available at
RSVP of
Centre County
Willowbank
Building
 
RSVP of Centre County,
Willowbank Building
420 Holmes Street,
Room 339
Bellefonte,PA 16823

Monday-Friday, 8:30 a.m.-4:00 p.m.
(Closed Wednesdays from 12:00 noon to 1:00 p.m.)

 

 Virtual Services Provided

(814) 234-8735
Washington  162 W. Chestnut St.
Washington, PA 15301 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m.-1:30 p.m.)

 

Services Provided

(724) 229-5985 
Wilkes-Barre  7 North Wilkes-Barre Blvd.
Wilkes-Barre, PA 18702

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(570) 821-4076 
Williamsport  330 Pine St.
Williamsport, PA 17701 

Monday - Friday - 8:30 a.m.-4:30 p.m.; 
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

**This office will be closed 3/31**

 

Services Provided

(570) 326-1632 
York  2670 Industrial Highway
York, PA 17402 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(717) 757-4977

 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses

The Taxpayer Advocate Service: Call (215) 861-1304 in Philadelphia or (412) 395-5987 in Pittsburgh, or 1-877-777-4778 elsewhere, or see Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104
 

Partnerships

IRS and organizations all over the country are partnering to assist individual and families. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
600 Arch St.
Philadelphia, PA 19106

Internal Revenue Service
WS Moorehead Bldg
1000 Liberty Ave.
Pittsburgh, PA 15226

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 31-Mar-2014

The 1040 Ez Instructions

1040 ez instructions 2. 1040 ez instructions   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. 1040 ez instructions You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. 1040 ez instructions This chapter discusses accounting methods. 1040 ez instructions For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. 1040 ez instructions Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. 1040 ez instructions Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. 1040 ez instructions Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. 1040 ez instructions A material item is one that affects the proper time for inclusion of income or allowance of a deduction. 1040 ez instructions An item considered material for financial statement purposes is generally also considered material for income tax purposes. 1040 ez instructions See Publication 538 for more information. 1040 ez instructions You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. 1040 ez instructions If you later want to change your accounting method, you generally must get IRS approval. 1040 ez instructions How to obtain IRS approval is discussed later under Changes in Methods of Accounting . 1040 ez instructions Types of accounting methods. 1040 ez instructions   Generally, you can use any of the following accounting methods. 1040 ez instructions Each method is discussed in detail below. 1040 ez instructions Cash method. 1040 ez instructions Accrual method. 1040 ez instructions Special methods of accounting for certain items of income and expenses. 1040 ez instructions Combination (hybrid) method using elements of two or more of the above. 1040 ez instructions Business and other items. 1040 ez instructions   You can account for business and personal items using different accounting methods. 1040 ez instructions For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. 1040 ez instructions Two or more businesses. 1040 ez instructions   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. 1040 ez instructions Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. 1040 ez instructions Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. 1040 ez instructions However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. 1040 ez instructions See Accrual Method Required , later. 1040 ez instructions Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. 1040 ez instructions Items of income include money received as well as property or services received. 1040 ez instructions If you receive property or services, you must include the fair market value (FMV) of the property or services in income. 1040 ez instructions See chapter 3 for information on how to report farm income on your income tax return. 1040 ez instructions Constructive receipt. 1040 ez instructions   Income is constructively received when an amount is credited to your account or made available to you without restriction. 1040 ez instructions You do not need to have possession of the income for it to be treated as income for the tax year. 1040 ez instructions If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. 1040 ez instructions Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. 1040 ez instructions Direct payments and counter-cyclical payments. 1040 ez instructions   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. 1040 ez instructions Delaying receipt of income. 1040 ez instructions   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. 1040 ez instructions You must report the income in the year the money or property is received or made available to you without restriction. 1040 ez instructions Example. 1040 ez instructions Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. 1040 ez instructions She was told in December that her payment was available. 1040 ez instructions She requested not to be paid until January 2014. 1040 ez instructions However, she must still include this payment in her 2013 income because it was made available to her in 2013. 1040 ez instructions Debts paid by another person or canceled. 1040 ez instructions   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. 1040 ez instructions If you receive income in this way, you constructively receive the income when the debt is canceled or paid. 1040 ez instructions See Cancellation of Debt in chapter 3. 1040 ez instructions Deferred payment contract. 1040 ez instructions   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. 1040 ez instructions However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. 1040 ez instructions Example. 1040 ez instructions You are a farmer who uses the cash method and a calendar tax year. 1040 ez instructions You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. 1040 ez instructions You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. 1040 ez instructions However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. 1040 ez instructions Repayment of income. 1040 ez instructions   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. 1040 ez instructions If the repayment is more than $3,000, a special rule applies. 1040 ez instructions For details, see Repayments in chapter 11 of Publication 535, Business Expenses. 1040 ez instructions Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. 1040 ez instructions This includes business expenses for which you contest liability. 1040 ez instructions However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. 1040 ez instructions See chapter 4 for information on how to deduct farm business expenses on your income tax return. 1040 ez instructions Prepayment. 1040 ez instructions   Generally, you cannot deduct expenses paid in advance. 1040 ez instructions This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 1040 ez instructions Example. 1040 ez instructions On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. 1040 ez instructions In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. 1040 ez instructions In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. 1040 ez instructions An exception applies if the expense qualifies for the 12-month rule. 1040 ez instructions See Publication 538 for more information and examples. 1040 ez instructions See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. 1040 ez instructions Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. 1040 ez instructions The purpose of an accrual method of accounting is to correctly match income and expenses. 1040 ez instructions Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. 1040 ez instructions See Accrual Method Required and Farm Inventory , later. 1040 ez instructions Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. 1040 ez instructions Under this rule, include an amount in income on the earliest of the following dates. 1040 ez instructions When you receive payment. 1040 ez instructions When the income amount is due to you. 1040 ez instructions When you earn the income. 1040 ez instructions When title passes. 1040 ez instructions If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. 1040 ez instructions Inventory. 1040 ez instructions   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. 1040 ez instructions An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. 1040 ez instructions See Publication 538 for more information. 1040 ez instructions Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. 1040 ez instructions Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. 1040 ez instructions The all-events test has been met. 1040 ez instructions This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. 1040 ez instructions Economic performance has occurred. 1040 ez instructions Economic performance. 1040 ez instructions   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. 1040 ez instructions If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. 1040 ez instructions If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 1040 ez instructions Example. 1040 ez instructions Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. 1040 ez instructions She entered into a contract with ABC Farm Consulting in 2012. 1040 ez instructions The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. 1040 ez instructions It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. 1040 ez instructions Jane paid ABC Farm Consulting $2,000 in December 2012. 1040 ez instructions Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. 1040 ez instructions Economic performance for Jane's liability in the contract occurs as the services are provided. 1040 ez instructions Jane incurs the $2,000 cost in 2013. 1040 ez instructions An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. 1040 ez instructions For more information, see Economic Performance in Publication 538. 1040 ez instructions Special rule for related persons. 1040 ez instructions   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. 1040 ez instructions Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. 1040 ez instructions For more information, see Internal Revenue Code section 267. 1040 ez instructions Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. 1040 ez instructions A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. 1040 ez instructions A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. 1040 ez instructions A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. 1040 ez instructions A tax shelter. 1040 ez instructions Note. 1040 ez instructions Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). 1040 ez instructions Family corporation. 1040 ez instructions   A family corporation is generally a corporation that meets one of the following ownership requirements. 1040 ez instructions Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. 1040 ez instructions Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. 1040 ez instructions Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. 1040 ez instructions For more information on family corporations, see Internal Revenue Code section 447. 1040 ez instructions Tax shelter. 1040 ez instructions   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. 1040 ez instructions Its principal purpose is the avoidance or evasion of federal income tax. 1040 ez instructions It is a farming syndicate. 1040 ez instructions A farming syndicate is an entity that meets either of the following tests. 1040 ez instructions Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. 1040 ez instructions More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. 1040 ez instructions   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. 1040 ez instructions   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. 1040 ez instructions Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. 1040 ez instructions This record should show the actual count or measurement of the inventory. 1040 ez instructions It should also show all factors that enter into its valuation, including quality and weight, if applicable. 1040 ez instructions Hatchery business. 1040 ez instructions   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. 1040 ez instructions Products held for sale. 1040 ez instructions   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. 1040 ez instructions , must be included in inventory. 1040 ez instructions Supplies. 1040 ez instructions   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. 1040 ez instructions Deduct the cost of supplies in the year used or consumed in operations. 1040 ez instructions Do not include incidental supplies in inventory as these are deductible in the year of purchase. 1040 ez instructions Livestock. 1040 ez instructions   Livestock held primarily for sale must be included in inventory. 1040 ez instructions Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. 1040 ez instructions See also Unit-livestock-price method , later. 1040 ez instructions If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. 1040 ez instructions Growing crops. 1040 ez instructions   Generally, growing crops are not required to be included in inventory. 1040 ez instructions However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. 1040 ez instructions See Uniform capitalization rules below. 1040 ez instructions Also see Uniform Capitalization Rules in  chapter 6. 1040 ez instructions Items to include in inventory. 1040 ez instructions   Your inventory should include all items held for sale, or for use as feed, seed, etc. 1040 ez instructions , whether raised or purchased, that are unsold at the end of the year. 1040 ez instructions Uniform capitalization rules. 1040 ez instructions   The following applies if you are required to use an accrual method of accounting. 1040 ez instructions The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. 1040 ez instructions The costs of animals are subject to the uniform capitalization rules. 1040 ez instructions Inventory valuation methods. 1040 ez instructions   The following methods, described below, are those generally available for valuing inventory. 1040 ez instructions The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 1040 ez instructions Cost. 1040 ez instructions Lower of cost or market. 1040 ez instructions Farm-price method. 1040 ez instructions Unit-livestock-price method. 1040 ez instructions Cost and lower of cost or market methods. 1040 ez instructions   See Publication 538 for information on these valuation methods. 1040 ez instructions If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. 1040 ez instructions However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. 1040 ez instructions Farm-price method. 1040 ez instructions   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. 1040 ez instructions Market price is the current price at the nearest market in the quantities you usually sell. 1040 ez instructions Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. 1040 ez instructions If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. 1040 ez instructions Unit-livestock-price method. 1040 ez instructions   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. 1040 ez instructions You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. 1040 ez instructions The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. 1040 ez instructions Unit prices and classifications are subject to approval by the IRS on examination of your return. 1040 ez instructions You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. 1040 ez instructions IRS approval is not required for these adjustments. 1040 ez instructions Any other changes in unit prices or classifications do require IRS approval. 1040 ez instructions   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. 1040 ez instructions This method accounts only for the increase in cost of raising an animal to maturity. 1040 ez instructions It does not provide for any decrease in the animal's market value after it reaches maturity. 1040 ez instructions Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. 1040 ez instructions   Do not include sold or lost animals in the year-end inventory. 1040 ez instructions If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. 1040 ez instructions The animals on hand at the end of the year are considered those most recently acquired. 1040 ez instructions   You must include in inventory all livestock purchased primarily for sale. 1040 ez instructions You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. 1040 ez instructions However, you must be consistent from year to year, regardless of the method you have chosen. 1040 ez instructions You cannot change your method without obtaining approval from the IRS. 1040 ez instructions   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. 1040 ez instructions If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. 1040 ez instructions However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. 1040 ez instructions This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. 1040 ez instructions It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. 1040 ez instructions Uniform capitalization rules. 1040 ez instructions   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. 1040 ez instructions This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. 1040 ez instructions Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. 1040 ez instructions Example 1. 1040 ez instructions You are a farmer who uses an accrual method of accounting. 1040 ez instructions You keep your books on the calendar year basis. 1040 ez instructions You sell grain in December 2013 but you are not paid until January 2014. 1040 ez instructions Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. 1040 ez instructions Example 2. 1040 ez instructions Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. 1040 ez instructions Under this method, you include the sales proceeds in income for 2014, the year you receive payment. 1040 ez instructions Deduct the costs of producing the grain in the year you pay for them. 1040 ez instructions Special Methods of Accounting There are special methods of accounting for certain items of income and expense. 1040 ez instructions Crop method. 1040 ez instructions   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. 1040 ez instructions You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. 1040 ez instructions Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. 1040 ez instructions    See chapter 4 for details on deducting the costs of operating a farm. 1040 ez instructions Also see Regulations section 1. 1040 ez instructions 162-12. 1040 ez instructions Other special methods. 1040 ez instructions   Other special methods of accounting apply to the following items. 1040 ez instructions Amortization, see chapter 7. 1040 ez instructions Casualties, see chapter 11. 1040 ez instructions Condemnations, see chapter 11. 1040 ez instructions Depletion, see chapter 7. 1040 ez instructions Depreciation, see chapter 7. 1040 ez instructions Farm business expenses, see chapter 4. 1040 ez instructions Farm income, see chapter 3. 1040 ez instructions Installment sales, see chapter 10. 1040 ez instructions Soil and water conservation expenses, see chapter 5. 1040 ez instructions Thefts, see chapter 11. 1040 ez instructions Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. 1040 ez instructions However, the following restrictions apply. 1040 ez instructions If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. 1040 ez instructions If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 1040 ez instructions Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). 1040 ez instructions Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. 1040 ez instructions You may also have to pay a fee. 1040 ez instructions To obtain approval, you must generally file Form 3115. 1040 ez instructions There are instances when you can obtain automatic consent to change certain methods of accounting. 1040 ez instructions See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. 1040 ez instructions For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. 1040 ez instructions Also see Publication 538. 1040 ez instructions Prev  Up  Next   Home   More Online Publications