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Amended Tax Form

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Amended Tax Form

Amended tax form 2. Amended tax form   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. Amended tax form Recognizing Losses on Investments Distributions After Owner's Death What's New for 2013 Roth IRA contribution limit. Amended tax form  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. Amended tax form 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. Amended tax form However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Amended tax form For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter. Amended tax form Modified AGI limit for Roth IRA contributions increased. Amended tax form  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Amended tax form Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Amended tax form 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. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Amended tax form 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-. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Amended tax form See Can You Contribute to a Roth IRA? in this chapter. Amended tax form Net Investment Income Tax. Amended tax form  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). Amended tax form However, these distributions are taken into account when determining the modified adjusted gross income threshold. Amended tax form Distributions from a nonqualified retirement plan are included in net investment income. Amended tax form See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Amended tax form What's New for 2014 Modified AGI limit for Roth IRA contributions increased. Amended tax form  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. Amended tax form Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. Amended tax form 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. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. Amended tax form 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-. Amended tax form You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Amended tax form Reminders Deemed IRAs. Amended tax form  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. Amended tax form If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. Amended tax form An employee's account can be treated as a traditional IRA or a Roth IRA. Amended tax form 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. Amended tax form Designated Roth accounts. Amended tax form  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. Amended tax form These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Amended tax form Designated Roth accounts are not IRAs and should not be confused with Roth IRAs. Amended tax form Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. Amended tax form A contribution to one does not impact your eligibility to contribute to the other. Amended tax form See Publication 575, for more information on designated Roth accounts. Amended tax form Introduction Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Amended tax form Contributions not reported. Amended tax form   You do not report Roth IRA contributions on your return. Amended tax form 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). Amended tax form It can be either an account or an annuity. Amended tax form Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. Amended tax form To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. Amended tax form A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Amended tax form Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. Amended tax form But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Amended tax form 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. Amended tax form Traditional IRA. Amended tax form   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Amended tax form Traditional IRAs are discussed in chapter 1. Amended tax form When Can a Roth IRA Be Opened? You can open a Roth IRA at any time. Amended tax form However, the time for making contributions for any year is limited. Amended tax form See When Can You Make Contributions , later under Can You Contribute to a Roth IRA. Amended tax form 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. Amended tax form You may be able to claim a credit for contributions to your Roth IRA. Amended tax form For more information, see chapter 4. Amended tax form Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age. Amended tax form 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. Amended tax form Compensation. Amended tax form   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. Amended tax form It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. Amended tax form For more information, see What Is Compensation? under Who Can Open a Traditional IRA? in chapter 1. Amended tax form Modified AGI. Amended tax form   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. Amended tax form Use Worksheet 2-1 , later, to determine your modified AGI. Amended tax form    Do not subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Amended tax form Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. Amended tax form 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. Amended tax form Worksheet 2-1. Amended tax form Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. Amended tax form 1. Amended tax form Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1. Amended tax form   2. Amended tax form 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. Amended tax form   3. Amended tax form Subtract line 2 from line 1 3. Amended tax form   4. Amended tax form Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4. Amended tax form   5. Amended tax form Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5. Amended tax form   6. Amended tax form Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 6. Amended tax form   7. Amended tax form Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 7. Amended tax form   8. Amended tax form Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8. Amended tax form   9. Amended tax form Enter any foreign housing deduction from Form 2555, line 50 9. Amended tax form   10. Amended tax form Enter any excludable qualified savings bond interest from Form 8815, line 14 10. Amended tax form   11. Amended tax form Enter any excluded employer-provided adoption benefits from Form 8839, line 28 11. Amended tax form   12. Amended tax form Add the amounts on lines 3 through 11 12. Amended tax form   13. Amended tax form 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. Amended tax form   Is the amount on line 12 more than the amount on line 13? If yes, see the note below. Amended tax form  If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes. Amended tax form       Note. Amended tax form 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. Amended tax form (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI. Amended tax form ) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. Amended tax form 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. Amended tax form Roth IRAs only. Amended tax form   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. Amended tax form   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced . Amended tax form Roth IRAs and traditional IRAs. Amended tax form   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. Amended tax form Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. Amended tax form   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. Amended tax form   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained below under Contribution limit reduced . Amended tax form   Simplified employee pensions (SEPs) are discussed in Publication 560. Amended tax form Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3. Amended tax form Repayment of reservist distributions. Amended tax form   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. Amended tax form However, the total repayments cannot be more than the amount of your distribution. Amended tax form Note. Amended tax form 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. Amended tax form For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. Amended tax form Contribution limit reduced. Amended tax form   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Amended tax form Use Table 2-1, later, to determine if this reduction applies to you. Amended tax form Table 2-1. Amended tax form 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). Amended tax form IF you have taxable compensation and your filing status is . Amended tax form . Amended tax form . Amended tax form AND your modified AGI is . Amended tax form . Amended tax form . Amended tax form THEN . Amended tax form . Amended tax form . Amended tax form 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 . Amended tax form at least $178,000 but less than $188,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Amended tax form $188,000 or more you cannot contribute to a Roth IRA. Amended tax form 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 . Amended tax form more than zero (-0-) but less than $10,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Amended tax form $10,000 or more you cannot contribute to a Roth IRA. Amended tax form 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 . Amended tax form at least $112,000 but less than $127,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Amended tax form $127,000 or more you cannot contribute to a Roth IRA. Amended tax form Figuring the reduction. Amended tax form   If the amount you can contribute must be reduced, use Worksheet 2-2, later, to figure your reduced contribution limit. Amended tax form Worksheet 2-2. Amended tax form 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. Amended tax form If it is, use this worksheet to determine how much it is reduced. Amended tax form 1. Amended tax form Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Amended tax form   2. Amended tax form 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. Amended tax form   3. Amended tax form Subtract line 2 from line 1 3. Amended tax form   4. Amended tax form 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. Amended tax form   5. Amended tax form Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Amended tax form If the result is 1. Amended tax form 000 or more, enter 1. Amended tax form 000 5. Amended tax form   6. Amended tax form Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Amended tax form   7. Amended tax form Multiply line 5 by line 6 7. Amended tax form   8. Amended tax form Subtract line 7 from line 6. Amended tax form Round the result up to the nearest $10. Amended tax form If the result is less than $200, enter $200 8. Amended tax form   9. Amended tax form Enter contributions for the year to other IRAs 9. Amended tax form   10. Amended tax form Subtract line 9 from line 6 10. Amended tax form   11. Amended tax form Enter the lesser of line 8 or line 10. Amended tax form This is your reduced Roth IRA contribution limit 11. Amended tax form      Round your reduced contribution limit up to the nearest $10. Amended tax form If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. Amended tax form Example. Amended tax form You are a 45-year-old, single individual with taxable compensation of $113,000. Amended tax form You want to make the maximum allowable contribution to your Roth IRA for 2013. Amended tax form Your modified AGI for 2013 is $113,000. Amended tax form You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,500. Amended tax form You figure your reduced Roth IRA contribution of $5,140 as shown on Worksheet 2-2. Amended tax form Example—Illustrated, later. Amended tax form   Worksheet 2-2. Amended tax form Example—Illustrated Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Amended tax form If it is, use this worksheet to determine how much it is reduced. Amended tax form 1. Amended tax form Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Amended tax form 113,000 2. Amended tax form 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. Amended tax form 112,000 3. Amended tax form Subtract line 2 from line 1 3. Amended tax form 1,000 4. Amended tax form 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. Amended tax form 15,000 5. Amended tax form Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Amended tax form If the result is 1. Amended tax form 000 or more, enter 1. Amended tax form 000 5. Amended tax form . Amended tax form 067 6. Amended tax form Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Amended tax form 5,500 7. Amended tax form Multiply line 5 by line 6 7. Amended tax form 369 8. Amended tax form Subtract line 7 from line 6. Amended tax form Round the result up to the nearest $10. Amended tax form If the result is less than $200, enter $200 8. Amended tax form 5,140 9. Amended tax form Enter contributions for the year to other IRAs 9. Amended tax form 0 10. Amended tax form Subtract line 9 from line 6 10. Amended tax form 5,500 11. Amended tax form Enter the lesser of line 8 or line 10. Amended tax form This is your reduced Roth IRA contribution limit 11. Amended tax form 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). Amended tax form You can make contributions for 2013 by the due date (not including extensions) for filing your 2013 tax return. Amended tax form This means that most people can make contributions for 2013 by April 15, 2014. Amended tax form What if You Contribute Too Much? A 6% excise tax applies to any excess contribution to a Roth IRA. Amended tax form Excess contributions. Amended tax form   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. Amended tax form Withdrawal of excess contributions. Amended tax form   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. Amended tax form This treatment only applies if any earnings on the contributions are also withdrawn. Amended tax form The earnings are considered earned and received in the year the excess contribution was made. Amended tax form   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. Amended tax form If you do, file an amended return with “Filed pursuant to section 301. Amended tax form 9100-2” written at the top. Amended tax form Report any related earnings on the amended return and include an explanation of the withdrawal. Amended tax form Make any other necessary changes on the amended return. Amended tax form Applying excess contributions. Amended tax form    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. Amended tax form 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. Amended tax form You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. Amended tax form You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. Amended tax form You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. Amended tax form Conversions You can convert a traditional IRA to a Roth IRA. Amended tax form The conversion is treated as a rollover, regardless of the conversion method used. Amended tax form Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Amended tax form However, the 1-year waiting period does not apply. Amended tax form Conversion methods. Amended tax form   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways. Amended tax form Rollover. Amended tax form 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. Amended tax form Trustee-to-trustee transfer. Amended tax form You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA. Amended tax form Same trustee transfer. Amended tax form 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. Amended tax form Same trustee. Amended tax form   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. Amended tax form Income. Amended tax form   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. Amended tax form 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. Amended tax form If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Amended tax form See Publication 505, Tax Withholding and Estimated Tax. Amended tax form More information. Amended tax form   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Amended tax form 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). Amended tax form Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. Amended tax form See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Amended tax form Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. Amended tax form Rollover methods. Amended tax form   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways. Amended tax form Rollover. Amended tax form 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. Amended tax form Since the distribution is paid directly to you, the payer generally must withhold 20% of it. Amended tax form Direct rollover option. Amended tax form 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. Amended tax form Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA. Amended tax form Rollover by nonspouse beneficiary. Amended tax form   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. Amended tax form You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. Amended tax form   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. Amended tax form For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Publication 575. Amended tax form Income. Amended tax form   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. Amended tax form 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. Amended tax form 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. Amended tax form If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Amended tax form See Publication 505, Tax Withholding and Estimated Tax. Amended tax form 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. Amended tax form 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. Amended tax form The contribution is treated as a qualified rollover contribution. Amended tax form 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. Amended tax form Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. Amended tax form The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. Amended tax form 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. Amended tax form 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. Amended tax form Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Amended tax form However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. Amended tax form A rollover from a Roth IRA to an employer retirement plan is not allowed. Amended tax form A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. Amended tax form 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. Amended tax form The 5-year period begins with the first taxable year for which the contribution was made to the initial Roth IRA. Amended tax form See What are Qualified Distributions , later. Amended tax form 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. Amended tax form 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. Amended tax form 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. Amended tax form For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1. Amended tax form 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. Amended tax form The contribution must be made within 180 days from the date you received the payment. Amended tax form The contribution will be treated as a qualified rollover contribution. Amended tax form 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. Amended tax form 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. Amended tax form Qualified airline employee. Amended tax form    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. Amended tax form These provisions also apply to surviving spouses of qualified airline employees. Amended tax form Airline payment. Amended tax form    An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. Amended tax form 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. Amended tax form 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. Amended tax form Also, an airline payment shall not include any amount payable on the basis of the airline carrier’s future earnings or profits. Amended tax form 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). Amended tax form You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. Amended tax form You may have to include part of other distributions in your income. Amended tax form See Ordering Rules for Distributions , later. Amended tax form Basis of distributed property. Amended tax form   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. Amended tax form Withdrawals of contributions by due date. Amended tax form   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. Amended tax form If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. Amended tax form 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. Amended tax form What Are Qualified Distributions? A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. Amended tax form 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). Amended tax form 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. Amended tax form Distributions of conversion and certain rollover contributions within 5-year period. Amended tax form   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. Amended tax form 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). Amended tax form A separate 5-year period applies to each conversion and rollover. Amended tax form See Ordering Rules for Distributions , later, to determine the recapture amount, if any. Amended tax form   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. Amended tax form See What Are Qualified Distributions , earlier. Amended tax form   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. Amended tax form   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. Amended tax form   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. Amended tax form You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions. Amended tax form Other early distributions. Amended tax form   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. Amended tax form Exceptions. Amended tax form   You may not have to pay the 10% additional tax in the following situations. Amended tax form You have reached age 59½. Amended tax form You are totally and permanently disabled. Amended tax form You are the beneficiary of a deceased IRA owner. Amended tax form You use the distribution to buy, build, or rebuild a first home. Amended tax form The distributions are part of a series of substantially equal payments. Amended tax form You have unreimbursed medical expenses that are more than 10% (or 7. Amended tax form 5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year. Amended tax form You are paying medical insurance premiums during a period of unemployment. Amended tax form The distributions are not more than your qualified higher education expenses. Amended tax form The distribution is due to an IRS levy of the qualified plan. Amended tax form The distribution is a qualified reservist distribution. Amended tax form Most of these exceptions are discussed earlier in chapter 1 under Early Distributions . Amended tax form Please click here for the text description of the image. Amended tax form 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. Amended tax form 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. Amended tax form For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much ). Amended tax form Order the distributions as follows. Amended tax form Regular contributions. Amended tax form Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). Amended tax form See Aggregation (grouping and adding) rules, later. Amended tax form 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. Amended tax form Earnings on contributions. Amended tax form Disregard rollover contributions from other Roth IRAs for this purpose. Amended tax form Aggregation (grouping and adding) rules. Amended tax form   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows. Amended tax form Add all distributions from all your Roth IRAs during the year together. Amended tax form 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. Amended tax form Add this total to the total undistributed regular contributions made in prior years. Amended tax form Add all conversion and rollover contributions made during the year together. Amended tax form 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. Amended tax form 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. Amended tax form   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. Amended tax form Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose. Amended tax form Example. Amended tax form On October 15, 2009, Justin converted all $80,000 in his traditional IRA to his Roth IRA. Amended tax form His Forms 8606 from prior years show that $20,000 of the amount converted is his basis. Amended tax form Justin included $60,000 ($80,000 − $20,000) in his gross income. Amended tax form On February 23, 2013, Justin made a regular contribution of $5,000 to a Roth IRA. Amended tax form On November 8, 2013, at age 60, Justin took a $7,000 distribution from his Roth IRA. Amended tax form The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income. Amended tax form The next $2,000 of the distribution is not includible in income because it was included previously. Amended tax form Figuring your recapture amount. Amended tax form   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. Amended tax form 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. Amended tax form   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). Amended tax form The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Amended tax form Note. Amended tax form Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Amended tax form See the Example , earlier. Amended tax form 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. Amended tax form  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Amended tax form Amount to include on Form 5329, line 1. Amended tax form   Include on line 1 of your 2013 Form 5329 the following four amounts from the Recapture Amount—Allocation Chart that you filled out. Amended tax form The amount you allocated to line 20 of your 2013 Form 8606. Amended tax form The amount(s) allocated to your 2009 through 2013 Forms 8606, line 18, and your 2010 Form 8606, line 23. Amended tax form The amount(s) allocated to your 2009, 2011, 2012, and 2013 Forms 1040, line 16b; Forms 1040A, line 12b; and Forms 1040NR, line 17b. Amended tax form The amount from your 2013 Form 8606, line 25. Amended tax form   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. Amended tax form Example. Amended tax form Ishmael, age 32, opened a Roth IRA in 2000. Amended tax form He made the maximum contributions to it every year. Amended tax form In addition, he made the following transactions into his Roth IRA. Amended tax form In 2005, he converted $10,000 from his traditional IRA into his Roth IRA. Amended tax form He filled out a 2005 Form 8606 and attached it with his 2005 Form 1040. Amended tax form 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. Amended tax form He entered $10,000 on line 18 of Form 8606. Amended tax form In 2011, he rolled over the entire balance of his qualified retirement plan, $20,000, into a Roth IRA when he changed jobs. Amended tax form He used a 2011 Form 1040 to file his taxes. Amended tax form 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. Amended tax form Box 5 of his 2011 Form 1099-R reported $0 since he did not make any after-tax contributions to the qualified retirement plan. Amended tax form He entered $20,000 on line 16b of Form 1040 since that is the taxable amount that was rolled over in 2011. Amended tax form 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). Amended tax form He has not taken any early distribution from his Roth IRA before 2013. Amended tax form In 2013, he made the maximum contribution of $5,500 to his Roth IRA. Amended tax form 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. Amended tax form See his filled out Illustrated Recapture Amount—Allocation Chart, later, to see how he allocated the amounts from the above transactions. Amended tax form 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). Amended tax form 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. Amended tax form 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. Amended tax form   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). Amended tax form The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Amended tax form Note. Amended tax form Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Amended tax form See the Example , earlier. Amended tax form 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. Amended tax form  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Amended tax form 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. Amended tax form Must You Withdraw or Use Assets? You are not required to take distributions from your Roth IRA at any age. Amended tax form The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. Amended tax form 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 . Amended tax form Minimum distributions. Amended tax form   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Amended tax form Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. Amended tax form See Distributions to beneficiaries , later. Amended tax form 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. Amended tax form Your basis is the total amount of contributions in your Roth IRAs. Amended tax form 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). Amended tax form Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax. Amended tax form 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. Amended tax form See When Can You Withdraw or Use Assets? in chapter 1. Amended tax form Distributions to beneficiaries. Amended tax form   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. Amended tax form (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. Amended tax form )   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. Amended tax form Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent. Amended tax form   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. Amended tax form Combining with other Roth IRAs. Amended tax form   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. Amended tax form Distributions that are not qualified distributions. Amended tax form   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. Amended tax form   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. Amended tax form See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable. Amended tax form Example. Amended tax form When Ms. Amended tax form 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. Amended tax form No distributions had been made from her IRA. Amended tax form She had no basis in the conversion contribution in 2009. Amended tax form When she established this Roth IRA (her first) in 2009, she named each of her four children as equal beneficiaries. Amended tax form Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. Amended tax form 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. Amended tax form 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. Amended tax form 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. Amended tax form 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. Amended tax form 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. Amended tax form If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion. Amended tax form Prev  Up  Next   Home   More Online Publications
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The Amended Tax Form

Amended tax form Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Amended tax form More information. Amended tax form Exception—Community Income. Amended tax form Exception—Qualified joint venture. Amended tax form More information. Amended tax form More information. Amended tax form Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Amended tax form Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Amended tax form Table 1 can help you learn what those responsibilities are. Amended tax form Ask yourself each question listed in the table, then see the related discussion to find the answer. Amended tax form In addition to knowing about federal taxes, you need to make some basic business decisions. Amended tax form Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Amended tax form For information on how to contact the SBA, see How to Get More Information, later. Amended tax form Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Amended tax form When beginning a business, you must decide which form of business to use. Amended tax form Legal and tax considerations enter into this decision. Amended tax form Only tax considerations are discussed in this publication. Amended tax form Your form of business determines which income tax return form you have to file. Amended tax form See Table 2 to find out which form you have to file. Amended tax form Sole proprietorships. Amended tax form   A sole proprietorship is an unincorporated business that is owned by one individual. Amended tax form It is the simplest form of business organization to start and maintain. Amended tax form The business has no existence apart from you, the owner. Amended tax form Its liabilities are your personal liabilities. Amended tax form You undertake the risks of the business for all assets owned, whether or not used in the business. Amended tax form You include the income and expenses of the business on your personal tax return. Amended tax form More information. Amended tax form   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Amended tax form If you are a farmer, see Publication 225, Farmer's Tax Guide. Amended tax form Partnerships. Amended tax form   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Amended tax form Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Amended tax form   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Amended tax form , from its operations, but it does not pay income tax. Amended tax form Instead, it “passes through” any profits or losses to its partners. Amended tax form Each partner includes his or her share of the partnership's items on his or her tax return. Amended tax form More information. Amended tax form   For more information on partnerships, see Publication 541, Partnerships. Amended tax form Husband and wife business. Amended tax form   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Amended tax form Do not use Schedule C or C-EZ. Amended tax form Instead, file Form 1065, U. Amended tax form S. Amended tax form Return of Partnership Income. Amended tax form For more information, see Publication 541, Partnerships. Amended tax form Exception—Community Income. Amended tax form   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Amended tax form S. Amended tax form possession, you can treat the business either as a sole proprietorship or a partnership. Amended tax form The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Amended tax form A change in your reporting position will be treated as a conversion of the entity. Amended tax form Exception—Qualified joint venture. Amended tax form   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Amended tax form Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Amended tax form For an explanation of "material participation," see the Instructions for Schedule C, line G. Amended tax form   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Amended tax form Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Amended tax form For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Amended tax form Corporations. Amended tax form   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Amended tax form A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Amended tax form A corporation can also take special deductions. Amended tax form   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Amended tax form However, shareholders cannot deduct any loss of the corporation. Amended tax form More information. Amended tax form   For more information on corporations, see Publication 542, Corporations. Amended tax form S corporations. Amended tax form   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Amended tax form Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Amended tax form On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Amended tax form More information. Amended tax form   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Amended tax form S. Amended tax form Income Tax Return for an S Corporation. Amended tax form Limited liability company. Amended tax form   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Amended tax form The members of an LLC are not personally liable for its debts. Amended tax form An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Amended tax form 7701-3. Amended tax form For more information, see the instructions for Form 8832, Entity Classification Election. Amended tax form Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Amended tax form The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Amended tax form An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Amended tax form An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Amended tax form You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Amended tax form You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Amended tax form This includes returns or documents filed to report the following information. Amended tax form Interest, dividends, royalties, etc. Amended tax form , paid to you. Amended tax form Any amount paid to you as a dependent care provider. Amended tax form Certain other amounts paid to you that total $600 or more for the year. Amended tax form If you do not furnish your identification number as required, you may be subject to penalties. Amended tax form See Penalties, later. Amended tax form Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Amended tax form If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Amended tax form Applying for an EIN. Amended tax form   You may apply for an EIN: Online—Click on the EIN link at www. Amended tax form irs. Amended tax form gov/businesses/small. Amended tax form The EIN is issued immediately once the application information is validated. Amended tax form By telephone at 1-800-829-4933. Amended tax form By mailing or faxing Form SS-4, Application for Employer Identification Number. Amended tax form When to apply. Amended tax form   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Amended tax form If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Amended tax form If you apply by telephone or through the IRS website, you can get an EIN immediately. Amended tax form If you apply by fax, you can get an EIN within 4 business days. Amended tax form   If you do not receive your EIN by the time a return is due, file your return anyway. Amended tax form Write “Applied for” and the date you applied for the number in the space for the EIN. Amended tax form Do not use your social security number as a substitute for an EIN on your tax returns. Amended tax form More than one EIN. Amended tax form   You should have only one EIN. Amended tax form If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Amended tax form Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Amended tax form The IRS will tell you which number to use. Amended tax form More information. Amended tax form   For more information about EINs, see Publication 1635, Understanding Your EIN. Amended tax form Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Amended tax form The forms used to report these payments must include the payee's identification number. Amended tax form Employee. Amended tax form   If you have employees, you must get an SSN from each of them. Amended tax form Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Amended tax form If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Amended tax form This may occur, for example, if the employee's name has changed due to marriage or divorce. Amended tax form   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Amended tax form This form is available at SSA offices or by calling 1-800-772-1213. Amended tax form It is also available from the SSA website at www. Amended tax form ssa. Amended tax form gov. Amended tax form Other payee. Amended tax form   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. Amended tax form If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Amended tax form   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Amended tax form This form is available from IRS offices or by calling 1-800-829-3676. Amended tax form It is also available from the IRS website at IRS. Amended tax form gov. Amended tax form    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Amended tax form For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Amended tax form Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Amended tax form A tax year is usually 12 consecutive months. Amended tax form There are two kinds of tax years. Amended tax form Calendar tax year. Amended tax form A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Amended tax form Fiscal tax year. Amended tax form A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Amended tax form A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Amended tax form If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Amended tax form You must use a calendar tax year if: You keep no books. Amended tax form You have no annual accounting period. Amended tax form Your present tax year does not qualify as a fiscal year. Amended tax form You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Amended tax form For more information, see Publication 538, Accounting Periods and Methods. Amended tax form First-time filer. Amended tax form   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Amended tax form You adopt a tax year by filing your first income tax return using that tax year. Amended tax form You have not adopted a tax year if you merely did any of the following. Amended tax form Filed an application for an extension of time to file an income tax return. Amended tax form Filed an application for an employer identification number. Amended tax form Paid estimated taxes for that tax year. Amended tax form Changing your tax year. Amended tax form   Once you have adopted your tax year, you may have to get IRS approval to change it. Amended tax form To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Amended tax form You may have to pay a fee. Amended tax form For more information, see Publication 538. Amended tax form Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Amended tax form You choose an accounting method for your business when you file your first income tax return. Amended tax form There are two basic accounting methods. Amended tax form Cash method. Amended tax form Under the cash method, you report income in the tax year you receive it. Amended tax form You usually deduct or capitalize expenses in the tax year you pay them. Amended tax form Accrual method. Amended tax form Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Amended tax form You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Amended tax form For other methods, see Publication 538. Amended tax form If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Amended tax form Inventories include goods held for sale in the normal course of business. Amended tax form They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Amended tax form Inventories are explained in Publication 538. Amended tax form Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Amended tax form For more information, see Publication 538. Amended tax form You must use the same accounting method to figure your taxable income and to keep your books. Amended tax form Also, you must use an accounting method that clearly shows your income. Amended tax form In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Amended tax form An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Amended tax form More than one business. Amended tax form   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Amended tax form You must keep a complete and separate set of books and records for each business. Amended tax form Changing your method of accounting. Amended tax form   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Amended tax form A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Amended tax form For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Amended tax form Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Amended tax form The following are the four general kinds of business taxes. Amended tax form Income tax. Amended tax form Self-employment tax. Amended tax form Employment taxes. Amended tax form Excise taxes. Amended tax form See Table 2 for the forms you file to report these taxes. Amended tax form You may want to get Publication 509. Amended tax form It has tax calendars that tell you when to file returns and make tax payments. Amended tax form Income Tax All businesses except partnerships must file an annual income tax return. Amended tax form Partnerships file an information return. Amended tax form Which form you use depends on how your business is organized. Amended tax form See Table 2 to find out which return you have to file. Amended tax form The federal income tax is a pay-as-you-go tax. Amended tax form You must pay the tax as you earn or receive income during the year. Amended tax form An employee usually has income tax withheld from his or her pay. Amended tax form If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Amended tax form If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Amended tax form Table 2. Amended tax form Which Forms Must I File? IF you are a. Amended tax form . Amended tax form . Amended tax form   THEN you may be liable for. Amended tax form . Amended tax form . Amended tax form   Use Form. Amended tax form . Amended tax form . Amended tax form Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Amended tax form 2 Various other schedules may be needed. Amended tax form Estimated tax. Amended tax form   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Amended tax form Sole proprietors, partners, and S corporation shareholders. Amended tax form   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Amended tax form Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Amended tax form For more information, see Publication 505, Tax Withholding and Estimated Tax. Amended tax form Corporations. Amended tax form   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Amended tax form Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Amended tax form You must deposit the payments as explained later under Depositing Taxes. Amended tax form For more information, see Publication 542. Amended tax form Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Amended tax form Your payments of SE tax contribute to your coverage under the social security system. Amended tax form Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Amended tax form You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Amended tax form Your net earnings from self-employment were $400 or more. Amended tax form You had church employee income of $108. Amended tax form 28 or more. Amended tax form Use Schedule SE (Form 1040) to figure your SE tax. Amended tax form For more information, see Publication 334, Tax Guide for Small Business. Amended tax form You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Amended tax form The Social Security Administration (SSA) time limit for posting self-employment income. Amended tax form   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. Amended tax form 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. Amended tax form The SSA will not change its records to increase your self-employment income. Amended tax form Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Amended tax form Employment taxes include the following. Amended tax form Social security and Medicare taxes. Amended tax form Federal income tax withholding. Amended tax form Federal unemployment (FUTA) tax. Amended tax form If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Amended tax form If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Amended tax form These publications explain your tax responsibilities as an employer. Amended tax form If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Amended tax form That publication has information to help you determine whether an individual is an employee or an independent contractor. Amended tax form If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Amended tax form An independent contractor is someone who is self-employed. Amended tax form Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Amended tax form Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Amended tax form To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Amended tax form Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Amended tax form Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Amended tax form Medicare tax pays for benefits under the hospital insurance part of FICA. Amended tax form You withhold part of these taxes from your employee's wages and you pay a part yourself. Amended tax form To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Amended tax form Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Amended tax form (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Amended tax form ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Amended tax form You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Amended tax form You pay FUTA tax only from your own funds. Amended tax form Employees do not pay this tax or have it withheld from their pay. Amended tax form Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Amended tax form See Publication 15 to find out if you can use this form. Amended tax form Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Amended tax form Form I-9. Amended tax form   You must verify that each new employee is legally eligible to work in the United States. Amended tax form Both you and the employee must complete the U. Amended tax form S. Amended tax form Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Amended tax form You can get the form from USCIS offices or from the USCIS website at www. Amended tax form uscis. Amended tax form gov. Amended tax form Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Amended tax form Form W-4. Amended tax form   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Amended tax form You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Amended tax form For more information, see Publication 15. Amended tax form Employees claiming more than 10 withholding allowances. Amended tax form   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Amended tax form See section 16 of Publication 15. Amended tax form Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Amended tax form You must also send copies to the Social Security Administration. Amended tax form See Information Returns, later, for more information on Form W-2. Amended tax form Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Amended tax form Manufacture or sell certain products. Amended tax form Operate certain kinds of businesses. Amended tax form Use various kinds of equipment, facilities, or products. Amended tax form Receive payment for certain services. Amended tax form For more information on excise taxes, see Publication 510, Excise Taxes. Amended tax form Form 720. Amended tax form   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Amended tax form Environmental taxes. Amended tax form Communications and air transportation taxes. Amended tax form Fuel taxes. Amended tax form Tax on the first retail sale of heavy trucks, trailers, and tractors. Amended tax form Manufacturers taxes on the sale or use of a variety of different articles. Amended tax form Form 2290. Amended tax form   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Amended tax form The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Amended tax form Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Amended tax form For more information, see the instructions for Form 2290. Amended tax form Form 730. Amended tax form   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Amended tax form Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Amended tax form Form 11-C. Amended tax form   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Amended tax form Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Amended tax form Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Amended tax form Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Amended tax form Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Amended tax form Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Amended tax form 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. Amended tax form You must give a copy of each information return you are required to file to the recipient or payer. Amended tax form In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Amended tax form For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Amended tax form Form 1099-MISC. Amended tax form   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Amended tax form These payments include the following items. Amended tax form Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Amended tax form Rent payments of $600 or more, other than rents paid to real estate agents. Amended tax form Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Amended tax form Royalty payments of $10 or more. Amended tax form Payments to certain crew members by operators of fishing boats. Amended tax form 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. Amended tax form Form W-2. Amended tax form   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. Amended tax form For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Amended tax form Form 8300. Amended tax form   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. Amended tax form Cash includes U. Amended tax form S. Amended tax form and foreign coin and currency. Amended tax form It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Amended tax form For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Amended tax form Penalties The law provides penalties for not filing returns or paying taxes as required. Amended tax form Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Amended tax form Failure to file tax returns. Amended tax form   If you do not file your tax return by the due date, you may have to pay a penalty. Amended tax form The penalty is based on the tax not paid by the due date. Amended tax form See your tax return instructions for more information about this penalty. Amended tax form Failure to pay tax. Amended tax form   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Amended tax form For more information, see your tax return instructions. Amended tax form Failure to withhold, deposit, or pay taxes. Amended tax form   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Amended tax form You may also be subject to penalties if you deposit the taxes late. Amended tax form For more information, see Publication 15. Amended tax form Failure to follow information reporting requirements. Amended tax form   The following penalties apply if you are required to file information returns. Amended tax form For more information, see the General Instructions for Certain Information Returns. Amended tax form Failure to file information returns. Amended tax form A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Amended tax form Failure to furnish correct payee statements. Amended tax form A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Amended tax form Waiver of penalty. Amended tax form   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Amended tax form   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Amended tax form (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Amended tax form ) Failure to supply taxpayer identification number. Amended tax form   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Amended tax form You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Amended tax form Business Expenses You can deduct business expenses on your income tax return. Amended tax form These are the current operating costs of running your business. Amended tax form To be deductible, a business expense must be both ordinary and necessary. Amended tax form An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Amended tax form A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Amended tax form An expense does not have to be indispensable to be considered necessary. Amended tax form The following are brief explanations of some expenses that are of interest to people starting a business. Amended tax form There are many other expenses that you may be able to deduct. Amended tax form See your form instructions and Publication 535, Business Expenses. Amended tax form Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Amended tax form Your business start-up costs will depend on the type of business you are starting. Amended tax form They may include costs for advertising, travel, surveys, and training. Amended tax form These costs are generally capital expenses. Amended tax form You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Amended tax form You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Amended tax form The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amended tax form Any remaining cost must be amortized. Amended tax form For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Amended tax form Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Amended tax form You must spread the cost over more than one tax year and deduct part of it each year. Amended tax form This method of deducting the cost of business property is called depreciation. Amended tax form Business property you must depreciate includes the following items. Amended tax form Office furniture. Amended tax form Buildings. Amended tax form Machinery and equipment. Amended tax form You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Amended tax form This deduction is known as the “section 179 deduction. Amended tax form ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Amended tax form Depreciation must be taken in the year it is allowable. Amended tax form Allowable depreciation not taken in a prior year cannot be taken in the current year. Amended tax form If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Amended tax form S. Amended tax form Individual Income Tax Return, or by changing your accounting method. Amended tax form For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Amended tax form Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Amended tax form Even then, your deduction may be limited. Amended tax form To qualify to claim expenses for business use of your home, you must meet both the following tests. Amended tax form Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Amended tax form Exclusive use. Amended tax form   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Amended tax form The area used for business can be a room or other separately identifiable space. Amended tax form The space does not need to be marked off by a permanent partition. Amended tax form   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Amended tax form Exceptions to exclusive use. Amended tax form   You do not have to meet the exclusive use test if either of the following applies. Amended tax form You use part of your home for the storage of inventory or product samples. Amended tax form You use part of your home as a daycare facility. Amended tax form For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Amended tax form Principal place of business. Amended tax form   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Amended tax form You use it exclusively and regularly for administrative or management activities of your trade or business. Amended tax form You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amended tax form   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Amended tax form The relative importance of the activities performed at each location. Amended tax form If the relative importance factor does not determine your principal place of business, the time spent at each location. Amended tax form    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Amended tax form However, for other ways to qualify to deduct home office expenses, see Publication 587. Amended tax form Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Amended tax form If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Amended tax form More information. Amended tax form   For more information about business use of your home, see Publication 587. Amended tax form Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Amended tax form You generally can deduct either your actual expenses or the standard mileage rate. Amended tax form Actual expenses. Amended tax form   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Amended tax form You can divide your expenses based on the miles driven for each purpose. Amended tax form Example. Amended tax form You are the sole proprietor of a flower shop. Amended tax form You drove your van 20,000 miles during the year. Amended tax form 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Amended tax form You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Amended tax form Standard mileage rate. Amended tax form   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Amended tax form You can use the standard mileage rate for a vehicle you own or lease. Amended tax form The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Amended tax form It is announced annually by the IRS. Amended tax form To figure your deduction, multiply your business miles by the standard mileage rate for the year. Amended tax form    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Amended tax form However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Amended tax form Choosing the standard mileage rate. Amended tax form   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Amended tax form In later years, you can choose to use either the standard mileage rate or actual expenses. Amended tax form   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Amended tax form Additional information. Amended tax form   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Amended tax form Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Amended tax form It also explains how long you must keep your records for federal tax purposes. Amended tax form A sample recordkeeping system is illustrated at the end of this part. Amended tax form Why Keep Records? Everyone in business must keep records. Amended tax form Good records will help you do the following. Amended tax form Monitor the progress of your business. Amended tax form   You need good records to monitor the progress of your business. Amended tax form Records can show whether your business is improving, which items are selling, or what changes you need to make. Amended tax form Good records can increase the likelihood of business success. Amended tax form Prepare your financial statements. Amended tax form   You need good records to prepare accurate financial statements. Amended tax form These include income (profit and loss) statements and balance sheets. Amended tax form These statements can help you in dealing with your bank or creditors and help you manage your business. Amended tax form An income statement shows the income and expenses of the business for a given period of time. Amended tax form A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Amended tax form Identify source of receipts. Amended tax form   You will receive money or property from many sources. Amended tax form Your records can identify the source of your receipts. Amended tax form You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Amended tax form Keep track of deductible expenses. Amended tax form   You may forget expenses when you prepare your tax return unless you record them when they occur. Amended tax form Prepare your tax returns. Amended tax form   You need good records to prepare your tax returns. Amended tax form These records must support the income, expenses, and credits you report. Amended tax form Generally, these are the same records you use to monitor your business and prepare your financial statements. Amended tax form Support items reported on tax returns. Amended tax form   You must keep your business records available at all times for inspection by the IRS. Amended tax form If the IRS examines any of your tax returns, you may be asked to explain the items reported. Amended tax form A complete set of records will speed up the examination. Amended tax form Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Amended tax form You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Amended tax form The business you are in affects the type of records you need to keep for federal tax purposes. Amended tax form You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Amended tax form See Accounting Method, earlier. Amended tax form If you are in more than one business, you should keep a complete and separate set of records for each business. Amended tax form A corporation should keep minutes of board of directors' meetings. Amended tax form Your recordkeeping system should include a summary of your business transactions. Amended tax form This summary is ordinarily made in your books (for example, accounting journals and ledgers). Amended tax form Your books must show your gross income, as well as your deductions and credits. Amended tax form For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Amended tax form In addition, you must keep supporting documents, explained later. Amended tax form Electronic records. Amended tax form   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Amended tax form When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Amended tax form An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Amended tax form The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Amended tax form All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Amended tax form Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Amended tax form   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Amended tax form You still have the responsibility of retaining any other books and records that are required to be retained. Amended tax form   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Amended tax form This test is not considered an examination and the results must be shared with you. Amended tax form If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Amended tax form If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Amended tax form For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Amended tax form Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Amended tax form Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Amended tax form These documents contain information you need to record in your books. Amended tax form It is important to keep these documents because they support the entries in your books and on your tax return. Amended tax form Keep them in an orderly fashion and in a safe place. Amended tax form For instance, organize them by year and type of income or expense. Amended tax form Gross receipts. Amended tax form   Gross receipts are the income you receive from your business. Amended tax form You should keep supporting documents that show the amounts and sources of your gross receipts. Amended tax form Documents that show gross receipts include the following. Amended tax form Cash register tapes. Amended tax form Bank deposit slips. Amended tax form Receipt books. Amended tax form Invoices. Amended tax form Credit card charge slips. Amended tax form Forms 1099-MISC. Amended tax form Purchases. Amended tax form   Purchases are the items you buy and resell to customers. Amended tax form If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Amended tax form Your supporting documents should show the amount paid and that the amount was for purchases. Amended tax form Documents for purchases include the following. Amended tax form Canceled checks. Amended tax form Cash register tape receipts. Amended tax form Credit card sales slips. Amended tax form Invoices. Amended tax form These records will help you determine the value of your inventory at the end of the year. Amended tax form See Publication 538 for information on methods for valuing inventory. Amended tax form Expenses. Amended tax form   Expenses are the costs you incur (other than purchases) to carry on your business. Amended tax form Your supporting documents should show the amount paid and that the amount was for a business expense. Amended tax form Documents for expenses include the following. Amended tax form Canceled checks. Amended tax form Cash register tapes. Amended tax form Account statements. Amended tax form Credit card sales slips. Amended tax form Invoices. Amended tax form Petty cash slips for small cash payments. Amended tax form    A petty cash fund allows you to make small payments without having to write checks for small amounts. Amended tax form Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Amended tax form Travel, transportation, entertainment, and gift expenses. Amended tax form   Specific recordkeeping rules apply to these expenses. Amended tax form For more information, see Publication 463. Amended tax form Employment taxes. Amended tax form   There are specific employment tax records you must keep. Amended tax form For a list, see Publication 15. Amended tax form Assets. Amended tax form   Assets are the property, such as machinery and furniture you own and use in your business. Amended tax form You must keep records to verify certain information about your business assets. Amended tax form You need records to figure the annual depreciation and the gain or loss when you sell the assets. Amended tax form Your records should show the following information. Amended tax form When and how you acquired the asset. Amended tax form Purchase price. Amended tax form Cost of any improvements. Amended tax form Section 179 deduction taken. Amended tax form Deductions taken for depreciation. Amended tax form Deductions taken for casualty losses, such as losses resulting from fires or storms. Amended tax form How you used the asset. Amended tax form When and how you disposed of the asset. Amended tax form Selling price. Amended tax form Expenses of sale. Amended tax form   The following documents may show this information. Amended tax form Purchase and sales invoices. Amended tax form Real estate closing statements. Amended tax form Canceled checks. Amended tax form What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Amended tax form These include account statements prepared for the financial institution by a third party. Amended tax form These account statements must be highly legible. Amended tax form The following table lists acceptable account statements. Amended tax form  IF payment is by. Amended tax form . Amended tax form . Amended tax form THEN the statement must show the. Amended tax form . Amended tax form . Amended tax form Check Check number. Amended tax form Amount. Amended tax form Payee's name. Amended tax form Date the check amount was posted to the account by the financial institution. Amended tax form Electronic funds transfer Amount transferred. Amended tax form Payee's name. Amended tax form Date the transfer was posted to the account by the financial institution. Amended tax form Credit card Amount charged. Amended tax form Payee's name. Amended tax form Transaction date. Amended tax form    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Amended tax form You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Amended tax form Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Amended tax form (Your business transactions are shown on the supporting documents just discussed. Amended tax form ) Business transactions are ordinarily summarized in books called journals and ledgers. Amended tax form You can buy them at your local stationery or office supply store. Amended tax form A journal is a book where you record each business transaction shown on your supporting documents. Amended tax form You may have to keep separate journals for transactions that occur frequently. Amended tax form A ledger is a book that contains the totals from all of your journals. Amended tax form It is organized into different accounts. Amended tax form Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Amended tax form For example, a recordkeeping system for a small business might include the following items. Amended tax form Business checkbook. Amended tax form Daily summary of cash receipts. Amended tax form Monthly summary of cash receipts. Amended tax form Check disbursements journal. Amended tax form Depreciation worksheet. Amended tax form Employee compensation record. Amended tax form The business checkbook is explained next. Amended tax form The other items are illustrated later under Sample Record System. Amended tax form The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Amended tax form For example, record expenses when they occur, and identify the source of recorded receipts. Amended tax form Generally, it is best to record transactions on a daily basis. Amended tax form Business checkbook. Amended tax form   One of the first things you should do when you start a business is open a business checking account. Amended tax form You should keep your business account separate from your personal checking account. Amended tax form   The business checkbook is your basic source of information for recording your business expenses. Amended tax form You should deposit all daily receipts in your business checking account. Amended tax form You should check your account for errors by reconciling it. Amended tax form See Reconciling the checking account, later. Amended tax form   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Amended tax form You should also note on the deposit slip the source of the deposit and keep copies of all slips. Amended tax form   You should make all payments by check to document business expenses. Amended tax form Write checks payable to yourself only when making withdrawals from your business for personal use. Amended tax form Avoid writing checks payable to cash. Amended tax form If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Amended tax form If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Amended tax form    Use the business account for business purposes only. Amended tax form Indicate the source of deposits and the type of expense in the checkbook. Amended tax form Reconciling the checking account. Amended tax form   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Amended tax form The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Amended tax form   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Amended tax form    You should reconcile your checking account each month. Amended tax form     Before you reconcile your monthly bank statement, check your own figures. Amended tax form Begin with the balance shown in your checkbook at the end of the previous month. Amended tax form To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Amended tax form   After checking your figures, the result should agree with your checkbook balance at the end of the month. Amended tax form If the result does not agree, you may have made an error in recording a check or deposit. Amended tax form You can find the error by doing the following. Amended tax form Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Amended tax form If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Amended tax form Adding the deposit amounts in your checkbook. Amended tax form Compare that total with the monthly total in your cash receipt book, if you have one. Amended tax form If the totals do not agree, check the individual amounts to find any errors. Amended tax form   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Amended tax form   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Amended tax form Many banks print a reconciliation worksheet on the back of the statement. Amended tax form   To reconcile your account, follow these steps. Amended tax form Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Amended tax form Note all differences in the dollar amounts. Amended tax form Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Amended tax form Note all differences in the dollar amounts. Amended tax form Mark the check number in the checkbook as having cleared the bank. Amended tax form After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Amended tax form Prepare a bank reconciliation. Amended tax form One is illustrated later under Sample Record System. Amended tax form Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Amended tax form At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Amended tax form If you still have differences, check the previous steps to find the errors. Amended tax form   Table 3. Amended tax form Period of Limitations IF you. Amended tax form . Amended tax form . Amended tax form   THEN the period is. Amended tax form . Amended tax form . Amended tax form 1. Amended tax form Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Amended tax form Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Amended tax form File a fraudulent return   Not limited 4. Amended tax form Do not file a return   Not limited 5. Amended tax form File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Amended tax form File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Amended tax form The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Amended tax form You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Amended tax form Single-entry. Amended tax form   A single-entry system is based on the income statement (profit or loss statement). Amended tax form It can be a simple and practical system if you are starting a small business. Amended tax form The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Amended tax form Double-entry. Amended tax form   A double-entry bookkeeping system uses journals and ledgers. Amended tax form Transactions are first entered in a journal and then posted to ledger accounts. Amended tax form These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Amended tax form You close income and expense accounts at the end of each tax year. Amended tax form You keep asset, liability, and net worth accounts open on a permanent basis. Amended tax form   In the double-entry system, each account has a left side for debits and a right side for credits. Amended tax form It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Amended tax form   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Amended tax form If the amounts do not balance, you have made an error and you must find and correct it. Amended tax form   An example of a journal entry exhibiting a payment of rent in October is shown next. Amended tax form General Journal Date Description of Entry Debit  Credit Oct. Amended tax form 5 Rent expense 780. Amended tax form 00     Cash   780. Amended tax form 00                 Computerized System There are computer software packages you can use for recordkeeping. Amended tax form They can be purchased in many retail stores. Amended tax form These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Amended tax form If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Amended tax form To meet this qualification, the machine-sensible records must reconcile with your books and return. Amended tax form These records must provide enough detail to identify the underlying source documents. Amended tax form You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Amended tax form This documentation must be sufficiently detailed to show all of the following items. Amended tax form Functions being performed as the data flows through the system. Amended tax form Controls used to ensure accurate and reliable processing. Amended tax form Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Amended tax form Charts of accounts and detailed account descriptions. Amended tax form See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Amended tax form How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Amended tax form Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Amended tax form The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Amended tax form Table 3 contains the periods of limitations that apply to income tax returns. Amended tax form Unless otherwise stated, the years refer to the period after the return was filed. Amended tax form Returns filed before the due date are treated as filed on the due date. Amended tax form Keep copies of your filed tax returns. Amended tax form They help in preparing future tax returns and making computations if you file an amended return. Amended tax form Employment taxes. Amended tax form   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Amended tax form For more information about recordkeeping for employment taxes, see Publication 15. Amended tax form Assets. Amended tax form   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Amended tax form You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Amended tax form   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Amended tax form You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Amended tax form Records for nontax purposes. Amended tax form   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Amended tax form For example, your insurance company or creditors may require you to keep them longer than the IRS does. Amended tax form Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Amended tax form Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Amended tax form These sample records should not be viewed as a recommendation of how to keep your records. Amended tax form They are intended only to show how one business keeps its records. Amended tax form 1. Amended tax form Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Amended tax form It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Amended tax form Henry takes the cash sales entry from his cash register tape. Amended tax form If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Amended tax form He carries the total receipts shown in this summary for January 3 ($267. Amended tax form 80), including cash sales ($263. Amended tax form 60) and sales tax ($4. Amended tax form 20), to the Monthly Summary of Cash Receipts. Amended tax form Petty cash fund. Amended tax form   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Amended tax form Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Amended tax form He sets up a fixed amount ($50) in his petty cash fund. Amended tax form The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Amended tax form When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Amended tax form (See the Check Disbursements Journal entry for check number 92. Amended tax form ) This restores the fund to its fixed amount of $50. Amended tax form He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Amended tax form 2. Amended tax form Monthly Summary of Cash Receipts This shows the income activity for the month. Amended tax form Henry carries the total monthly net sales shown in this summary for January ($4,865. Amended tax form 05) to his Annual Summary. Amended tax form To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Amended tax form He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Amended tax form He does not include the tax in his income. Amended tax form 3. Amended tax form Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Amended tax form All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Amended tax form Frequent expenses have their own headings across the sheet. Amended tax form He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Amended tax form Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Amended tax form Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Amended tax form If he did, he would record them in the journal, even though he could not deduct them as business expenses. Amended tax form Henry carries the January total of expenses for materials ($1,083. Amended tax form 50) to the Annual Summary. Amended tax form Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Amended tax form , in the appropriate columns of that summary. Amended tax form 4. Amended tax form Employee Compensation Record This record shows the following information. Amended tax form The number of hours Henry's employee worked in a pay period. Amended tax form The employee's total pay for the period. Amended tax form The deductions Henry withheld in figuring the employee's net pay. Amended tax form The monthly gross payroll. Amended tax form Henry carries the January gross payroll ($520) to the Annual Summary. Amended tax form 5. Amended tax form Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Amended tax form He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Amended tax form He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Amended tax form As in the journal, he keeps each major expense in a separate column. Amended tax form Henry carries the cash receipts total shown in the annual summary ($47,440. Amended tax form 9