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Federal Income Tax Forms 2011

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Federal Income Tax Forms 2011

Federal income tax forms 2011 1. Federal income tax forms 2011   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). Federal income tax forms 2011 These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). Federal income tax forms 2011 In addition, the following are subject to the tax on unrelated business income. Federal income tax forms 2011 Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). Federal income tax forms 2011 State and municipal colleges and universities. Federal income tax forms 2011 Qualified state tuition programs. Federal income tax forms 2011 Medical savings accounts (MSAs) described in section 220(d). Federal income tax forms 2011 Coverdell savings accounts described in section 530. Federal income tax forms 2011 U. Federal income tax forms 2011 S. Federal income tax forms 2011 instrumentalities. Federal income tax forms 2011   A corporation that is a U. Federal income tax forms 2011 S. Federal income tax forms 2011 instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. Federal income tax forms 2011 Colleges and universities. Federal income tax forms 2011   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. Federal income tax forms 2011 As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). Federal income tax forms 2011   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. Federal income tax forms 2011 It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. Federal income tax forms 2011 If the business activity is unrelated, the income in both instances will be subject to the tax. Federal income tax forms 2011 If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. Federal income tax forms 2011 Title-holding corporations. Federal income tax forms 2011   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. Federal income tax forms 2011   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. Federal income tax forms 2011 However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. Federal income tax forms 2011 Example. Federal income tax forms 2011 X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. Federal income tax forms 2011 During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. Federal income tax forms 2011 X also receives $100,000 from source N, which is not related to A's exempt function. Federal income tax forms 2011 X and A file a consolidated return for the tax year. Federal income tax forms 2011 X has unrelated business income of $100,000. Federal income tax forms 2011 Prev  Up  Next   Home   More Online Publications
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The Federal Income Tax Forms 2011

Federal income tax forms 2011 Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Federal income tax forms 2011 More information. Federal income tax forms 2011 Exception—Community Income. Federal income tax forms 2011 Exception—Qualified joint venture. Federal income tax forms 2011 More information. Federal income tax forms 2011 More information. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 Table 1 can help you learn what those responsibilities are. Federal income tax forms 2011 Ask yourself each question listed in the table, then see the related discussion to find the answer. Federal income tax forms 2011 In addition to knowing about federal taxes, you need to make some basic business decisions. Federal income tax forms 2011 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. Federal income tax forms 2011 For information on how to contact the SBA, see How to Get More Information, later. Federal income tax forms 2011 Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Federal income tax forms 2011 When beginning a business, you must decide which form of business to use. Federal income tax forms 2011 Legal and tax considerations enter into this decision. Federal income tax forms 2011 Only tax considerations are discussed in this publication. Federal income tax forms 2011 Your form of business determines which income tax return form you have to file. Federal income tax forms 2011 See Table 2 to find out which form you have to file. Federal income tax forms 2011 Sole proprietorships. Federal income tax forms 2011   A sole proprietorship is an unincorporated business that is owned by one individual. Federal income tax forms 2011 It is the simplest form of business organization to start and maintain. Federal income tax forms 2011 The business has no existence apart from you, the owner. Federal income tax forms 2011 Its liabilities are your personal liabilities. Federal income tax forms 2011 You undertake the risks of the business for all assets owned, whether or not used in the business. Federal income tax forms 2011 You include the income and expenses of the business on your personal tax return. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Federal income tax forms 2011 If you are a farmer, see Publication 225, Farmer's Tax Guide. Federal income tax forms 2011 Partnerships. Federal income tax forms 2011   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Federal income tax forms 2011 Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Federal income tax forms 2011   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Federal income tax forms 2011 , from its operations, but it does not pay income tax. Federal income tax forms 2011 Instead, it “passes through” any profits or losses to its partners. Federal income tax forms 2011 Each partner includes his or her share of the partnership's items on his or her tax return. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information on partnerships, see Publication 541, Partnerships. Federal income tax forms 2011 Husband and wife business. Federal income tax forms 2011   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. Federal income tax forms 2011 Do not use Schedule C or C-EZ. Federal income tax forms 2011 Instead, file Form 1065, U. Federal income tax forms 2011 S. Federal income tax forms 2011 Return of Partnership Income. Federal income tax forms 2011 For more information, see Publication 541, Partnerships. Federal income tax forms 2011 Exception—Community Income. Federal income tax forms 2011   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. Federal income tax forms 2011 S. Federal income tax forms 2011 possession, you can treat the business either as a sole proprietorship or a partnership. Federal income tax forms 2011 The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Federal income tax forms 2011 A change in your reporting position will be treated as a conversion of the entity. Federal income tax forms 2011 Exception—Qualified joint venture. Federal income tax forms 2011   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. Federal income tax forms 2011 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. Federal income tax forms 2011 For an explanation of "material participation," see the Instructions for Schedule C, line G. Federal income tax forms 2011   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. Federal income tax forms 2011 Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Federal income tax forms 2011 For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Federal income tax forms 2011 Corporations. Federal income tax forms 2011   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Federal income tax forms 2011 A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Federal income tax forms 2011 A corporation can also take special deductions. Federal income tax forms 2011   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Federal income tax forms 2011 However, shareholders cannot deduct any loss of the corporation. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information on corporations, see Publication 542, Corporations. Federal income tax forms 2011 S corporations. Federal income tax forms 2011   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. Federal income tax forms 2011 Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Federal income tax forms 2011 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. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Federal income tax forms 2011 S. Federal income tax forms 2011 Income Tax Return for an S Corporation. Federal income tax forms 2011 Limited liability company. Federal income tax forms 2011   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Federal income tax forms 2011 The members of an LLC are not personally liable for its debts. Federal income tax forms 2011 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. Federal income tax forms 2011 7701-3. Federal income tax forms 2011 For more information, see the instructions for Form 8832, Entity Classification Election. Federal income tax forms 2011 Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Federal income tax forms 2011 The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Federal income tax forms 2011 An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Federal income tax forms 2011 An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Federal income tax forms 2011 You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Federal income tax forms 2011 You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Federal income tax forms 2011 This includes returns or documents filed to report the following information. Federal income tax forms 2011 Interest, dividends, royalties, etc. Federal income tax forms 2011 , paid to you. Federal income tax forms 2011 Any amount paid to you as a dependent care provider. Federal income tax forms 2011 Certain other amounts paid to you that total $600 or more for the year. Federal income tax forms 2011 If you do not furnish your identification number as required, you may be subject to penalties. Federal income tax forms 2011 See Penalties, later. Federal income tax forms 2011 Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Federal income tax forms 2011 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. Federal income tax forms 2011 Applying for an EIN. Federal income tax forms 2011   You may apply for an EIN: Online—Click on the EIN link at www. Federal income tax forms 2011 irs. Federal income tax forms 2011 gov/businesses/small. Federal income tax forms 2011 The EIN is issued immediately once the application information is validated. Federal income tax forms 2011 By telephone at 1-800-829-4933. Federal income tax forms 2011 By mailing or faxing Form SS-4, Application for Employer Identification Number. Federal income tax forms 2011 When to apply. Federal income tax forms 2011   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. Federal income tax forms 2011 If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Federal income tax forms 2011 If you apply by telephone or through the IRS website, you can get an EIN immediately. Federal income tax forms 2011 If you apply by fax, you can get an EIN within 4 business days. Federal income tax forms 2011   If you do not receive your EIN by the time a return is due, file your return anyway. Federal income tax forms 2011 Write “Applied for” and the date you applied for the number in the space for the EIN. Federal income tax forms 2011 Do not use your social security number as a substitute for an EIN on your tax returns. Federal income tax forms 2011 More than one EIN. Federal income tax forms 2011   You should have only one EIN. Federal income tax forms 2011 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. Federal income tax forms 2011 Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Federal income tax forms 2011 The IRS will tell you which number to use. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information about EINs, see Publication 1635, Understanding Your EIN. Federal income tax forms 2011 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). Federal income tax forms 2011 The forms used to report these payments must include the payee's identification number. Federal income tax forms 2011 Employee. Federal income tax forms 2011   If you have employees, you must get an SSN from each of them. Federal income tax forms 2011 Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Federal income tax forms 2011 If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Federal income tax forms 2011 This may occur, for example, if the employee's name has changed due to marriage or divorce. Federal income tax forms 2011   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. Federal income tax forms 2011 This form is available at SSA offices or by calling 1-800-772-1213. Federal income tax forms 2011 It is also available from the SSA website at www. Federal income tax forms 2011 ssa. Federal income tax forms 2011 gov. Federal income tax forms 2011 Other payee. Federal income tax forms 2011   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. Federal income tax forms 2011 If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Federal income tax forms 2011   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Federal income tax forms 2011 This form is available from IRS offices or by calling 1-800-829-3676. Federal income tax forms 2011 It is also available from the IRS website at IRS. Federal income tax forms 2011 gov. Federal income tax forms 2011    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Federal income tax forms 2011 For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Federal income tax forms 2011 Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Federal income tax forms 2011 A tax year is usually 12 consecutive months. Federal income tax forms 2011 There are two kinds of tax years. Federal income tax forms 2011 Calendar tax year. Federal income tax forms 2011 A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Federal income tax forms 2011 Fiscal tax year. Federal income tax forms 2011 A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 You must use a calendar tax year if: You keep no books. Federal income tax forms 2011 You have no annual accounting period. Federal income tax forms 2011 Your present tax year does not qualify as a fiscal year. Federal income tax forms 2011 You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Federal income tax forms 2011 For more information, see Publication 538, Accounting Periods and Methods. Federal income tax forms 2011 First-time filer. Federal income tax forms 2011   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Federal income tax forms 2011 You adopt a tax year by filing your first income tax return using that tax year. Federal income tax forms 2011 You have not adopted a tax year if you merely did any of the following. Federal income tax forms 2011 Filed an application for an extension of time to file an income tax return. Federal income tax forms 2011 Filed an application for an employer identification number. Federal income tax forms 2011 Paid estimated taxes for that tax year. Federal income tax forms 2011 Changing your tax year. Federal income tax forms 2011   Once you have adopted your tax year, you may have to get IRS approval to change it. Federal income tax forms 2011 To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Federal income tax forms 2011 You may have to pay a fee. Federal income tax forms 2011 For more information, see Publication 538. Federal income tax forms 2011 Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Federal income tax forms 2011 You choose an accounting method for your business when you file your first income tax return. Federal income tax forms 2011 There are two basic accounting methods. Federal income tax forms 2011 Cash method. Federal income tax forms 2011 Under the cash method, you report income in the tax year you receive it. Federal income tax forms 2011 You usually deduct or capitalize expenses in the tax year you pay them. Federal income tax forms 2011 Accrual method. Federal income tax forms 2011 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. Federal income tax forms 2011 You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Federal income tax forms 2011 For other methods, see Publication 538. Federal income tax forms 2011 If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Federal income tax forms 2011 Inventories include goods held for sale in the normal course of business. Federal income tax forms 2011 They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Federal income tax forms 2011 Inventories are explained in Publication 538. Federal income tax forms 2011 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. Federal income tax forms 2011 For more information, see Publication 538. Federal income tax forms 2011 You must use the same accounting method to figure your taxable income and to keep your books. Federal income tax forms 2011 Also, you must use an accounting method that clearly shows your income. Federal income tax forms 2011 In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Federal income tax forms 2011 An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Federal income tax forms 2011 More than one business. Federal income tax forms 2011   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. Federal income tax forms 2011 You must keep a complete and separate set of books and records for each business. Federal income tax forms 2011 Changing your method of accounting. Federal income tax forms 2011   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Federal income tax forms 2011 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. Federal income tax forms 2011 For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Federal income tax forms 2011 Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Federal income tax forms 2011 The following are the four general kinds of business taxes. Federal income tax forms 2011 Income tax. Federal income tax forms 2011 Self-employment tax. Federal income tax forms 2011 Employment taxes. Federal income tax forms 2011 Excise taxes. Federal income tax forms 2011 See Table 2 for the forms you file to report these taxes. Federal income tax forms 2011 You may want to get Publication 509. Federal income tax forms 2011 It has tax calendars that tell you when to file returns and make tax payments. Federal income tax forms 2011 Income Tax All businesses except partnerships must file an annual income tax return. Federal income tax forms 2011 Partnerships file an information return. Federal income tax forms 2011 Which form you use depends on how your business is organized. Federal income tax forms 2011 See Table 2 to find out which return you have to file. Federal income tax forms 2011 The federal income tax is a pay-as-you-go tax. Federal income tax forms 2011 You must pay the tax as you earn or receive income during the year. Federal income tax forms 2011 An employee usually has income tax withheld from his or her pay. Federal income tax forms 2011 If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Federal income tax forms 2011 If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Federal income tax forms 2011 Table 2. Federal income tax forms 2011 Which Forms Must I File? IF you are a. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011   THEN you may be liable for. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011   Use Form. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011 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. Federal income tax forms 2011 2 Various other schedules may be needed. Federal income tax forms 2011 Estimated tax. Federal income tax forms 2011   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Federal income tax forms 2011 Sole proprietors, partners, and S corporation shareholders. Federal income tax forms 2011   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Federal income tax forms 2011 Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Federal income tax forms 2011 For more information, see Publication 505, Tax Withholding and Estimated Tax. Federal income tax forms 2011 Corporations. Federal income tax forms 2011   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. Federal income tax forms 2011 Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Federal income tax forms 2011 You must deposit the payments as explained later under Depositing Taxes. Federal income tax forms 2011 For more information, see Publication 542. Federal income tax forms 2011 Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Federal income tax forms 2011 Your payments of SE tax contribute to your coverage under the social security system. Federal income tax forms 2011 Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Federal income tax forms 2011 You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Federal income tax forms 2011 Your net earnings from self-employment were $400 or more. Federal income tax forms 2011 You had church employee income of $108. Federal income tax forms 2011 28 or more. Federal income tax forms 2011 Use Schedule SE (Form 1040) to figure your SE tax. Federal income tax forms 2011 For more information, see Publication 334, Tax Guide for Small Business. Federal income tax forms 2011 You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Federal income tax forms 2011 The Social Security Administration (SSA) time limit for posting self-employment income. Federal income tax forms 2011   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. Federal income tax forms 2011 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. Federal income tax forms 2011 The SSA will not change its records to increase your self-employment income. Federal income tax forms 2011 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. Federal income tax forms 2011 Employment taxes include the following. Federal income tax forms 2011 Social security and Medicare taxes. Federal income tax forms 2011 Federal income tax withholding. Federal income tax forms 2011 Federal unemployment (FUTA) tax. Federal income tax forms 2011 If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Federal income tax forms 2011 If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Federal income tax forms 2011 These publications explain your tax responsibilities as an employer. Federal income tax forms 2011 If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Federal income tax forms 2011 That publication has information to help you determine whether an individual is an employee or an independent contractor. Federal income tax forms 2011 If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Federal income tax forms 2011 An independent contractor is someone who is self-employed. Federal income tax forms 2011 Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Federal income tax forms 2011 Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Federal income tax forms 2011 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. Federal income tax forms 2011 Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Federal income tax forms 2011 Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Federal income tax forms 2011 Medicare tax pays for benefits under the hospital insurance part of FICA. Federal income tax forms 2011 You withhold part of these taxes from your employee's wages and you pay a part yourself. Federal income tax forms 2011 To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Federal income tax forms 2011 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. Federal income tax forms 2011 (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Federal income tax forms 2011 ) 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. Federal income tax forms 2011 You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Federal income tax forms 2011 You pay FUTA tax only from your own funds. Federal income tax forms 2011 Employees do not pay this tax or have it withheld from their pay. Federal income tax forms 2011 Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Federal income tax forms 2011 See Publication 15 to find out if you can use this form. Federal income tax forms 2011 Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Federal income tax forms 2011 Form I-9. Federal income tax forms 2011   You must verify that each new employee is legally eligible to work in the United States. Federal income tax forms 2011 Both you and the employee must complete the U. Federal income tax forms 2011 S. Federal income tax forms 2011 Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Federal income tax forms 2011 You can get the form from USCIS offices or from the USCIS website at www. Federal income tax forms 2011 uscis. Federal income tax forms 2011 gov. Federal income tax forms 2011 Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Federal income tax forms 2011 Form W-4. Federal income tax forms 2011   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Federal income tax forms 2011 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. Federal income tax forms 2011 For more information, see Publication 15. Federal income tax forms 2011 Employees claiming more than 10 withholding allowances. Federal income tax forms 2011   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Federal income tax forms 2011 See section 16 of Publication 15. Federal income tax forms 2011 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. Federal income tax forms 2011 You must also send copies to the Social Security Administration. Federal income tax forms 2011 See Information Returns, later, for more information on Form W-2. Federal income tax forms 2011 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. Federal income tax forms 2011 Manufacture or sell certain products. Federal income tax forms 2011 Operate certain kinds of businesses. Federal income tax forms 2011 Use various kinds of equipment, facilities, or products. Federal income tax forms 2011 Receive payment for certain services. Federal income tax forms 2011 For more information on excise taxes, see Publication 510, Excise Taxes. Federal income tax forms 2011 Form 720. Federal income tax forms 2011   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Federal income tax forms 2011 Environmental taxes. Federal income tax forms 2011 Communications and air transportation taxes. Federal income tax forms 2011 Fuel taxes. Federal income tax forms 2011 Tax on the first retail sale of heavy trucks, trailers, and tractors. Federal income tax forms 2011 Manufacturers taxes on the sale or use of a variety of different articles. Federal income tax forms 2011 Form 2290. Federal income tax forms 2011   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Federal income tax forms 2011 The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Federal income tax forms 2011 Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Federal income tax forms 2011 For more information, see the instructions for Form 2290. Federal income tax forms 2011 Form 730. Federal income tax forms 2011   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. Federal income tax forms 2011 Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Federal income tax forms 2011 Form 11-C. Federal income tax forms 2011   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. Federal income tax forms 2011 Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Federal income tax forms 2011 Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Federal income tax forms 2011 Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Federal income tax forms 2011 Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Federal income tax forms 2011 Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Federal income tax forms 2011 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. Federal income tax forms 2011 You must give a copy of each information return you are required to file to the recipient or payer. Federal income tax forms 2011 In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Federal income tax forms 2011 For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Federal income tax forms 2011 Form 1099-MISC. Federal income tax forms 2011   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Federal income tax forms 2011 These payments include the following items. Federal income tax forms 2011 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. Federal income tax forms 2011 Rent payments of $600 or more, other than rents paid to real estate agents. Federal income tax forms 2011 Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Federal income tax forms 2011 Royalty payments of $10 or more. Federal income tax forms 2011 Payments to certain crew members by operators of fishing boats. Federal income tax forms 2011 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. Federal income tax forms 2011 Form W-2. Federal income tax forms 2011   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. Federal income tax forms 2011 For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Federal income tax forms 2011 Form 8300. Federal income tax forms 2011   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. Federal income tax forms 2011 Cash includes U. Federal income tax forms 2011 S. Federal income tax forms 2011 and foreign coin and currency. Federal income tax forms 2011 It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Federal income tax forms 2011 For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Federal income tax forms 2011 Penalties The law provides penalties for not filing returns or paying taxes as required. Federal income tax forms 2011 Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Federal income tax forms 2011 Failure to file tax returns. Federal income tax forms 2011   If you do not file your tax return by the due date, you may have to pay a penalty. Federal income tax forms 2011 The penalty is based on the tax not paid by the due date. Federal income tax forms 2011 See your tax return instructions for more information about this penalty. Federal income tax forms 2011 Failure to pay tax. Federal income tax forms 2011   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. Federal income tax forms 2011 For more information, see your tax return instructions. Federal income tax forms 2011 Failure to withhold, deposit, or pay taxes. Federal income tax forms 2011   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. Federal income tax forms 2011 You may also be subject to penalties if you deposit the taxes late. Federal income tax forms 2011 For more information, see Publication 15. Federal income tax forms 2011 Failure to follow information reporting requirements. Federal income tax forms 2011   The following penalties apply if you are required to file information returns. Federal income tax forms 2011 For more information, see the General Instructions for Certain Information Returns. Federal income tax forms 2011 Failure to file information returns. Federal income tax forms 2011 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. Federal income tax forms 2011 Failure to furnish correct payee statements. Federal income tax forms 2011 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. Federal income tax forms 2011 Waiver of penalty. Federal income tax forms 2011   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Federal income tax forms 2011   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. Federal income tax forms 2011 (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. Federal income tax forms 2011 ) Failure to supply taxpayer identification number. Federal income tax forms 2011   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. Federal income tax forms 2011 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. Federal income tax forms 2011 Business Expenses You can deduct business expenses on your income tax return. Federal income tax forms 2011 These are the current operating costs of running your business. Federal income tax forms 2011 To be deductible, a business expense must be both ordinary and necessary. Federal income tax forms 2011 An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Federal income tax forms 2011 A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Federal income tax forms 2011 An expense does not have to be indispensable to be considered necessary. Federal income tax forms 2011 The following are brief explanations of some expenses that are of interest to people starting a business. Federal income tax forms 2011 There are many other expenses that you may be able to deduct. Federal income tax forms 2011 See your form instructions and Publication 535, Business Expenses. Federal income tax forms 2011 Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Federal income tax forms 2011 Your business start-up costs will depend on the type of business you are starting. Federal income tax forms 2011 They may include costs for advertising, travel, surveys, and training. Federal income tax forms 2011 These costs are generally capital expenses. Federal income tax forms 2011 You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Federal income tax forms 2011 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. Federal income tax forms 2011 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Federal income tax forms 2011 Any remaining cost must be amortized. Federal income tax forms 2011 For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Federal income tax forms 2011 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. Federal income tax forms 2011 You must spread the cost over more than one tax year and deduct part of it each year. Federal income tax forms 2011 This method of deducting the cost of business property is called depreciation. Federal income tax forms 2011 Business property you must depreciate includes the following items. Federal income tax forms 2011 Office furniture. Federal income tax forms 2011 Buildings. Federal income tax forms 2011 Machinery and equipment. Federal income tax forms 2011 You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Federal income tax forms 2011 This deduction is known as the “section 179 deduction. Federal income tax forms 2011 ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Federal income tax forms 2011 Depreciation must be taken in the year it is allowable. Federal income tax forms 2011 Allowable depreciation not taken in a prior year cannot be taken in the current year. Federal income tax forms 2011 If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Federal income tax forms 2011 S. Federal income tax forms 2011 Individual Income Tax Return, or by changing your accounting method. Federal income tax forms 2011 For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Federal income tax forms 2011 Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Federal income tax forms 2011 Even then, your deduction may be limited. Federal income tax forms 2011 To qualify to claim expenses for business use of your home, you must meet both the following tests. Federal income tax forms 2011 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. Federal income tax forms 2011 Exclusive use. Federal income tax forms 2011   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Federal income tax forms 2011 The area used for business can be a room or other separately identifiable space. Federal income tax forms 2011 The space does not need to be marked off by a permanent partition. Federal income tax forms 2011   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. Federal income tax forms 2011 Exceptions to exclusive use. Federal income tax forms 2011   You do not have to meet the exclusive use test if either of the following applies. Federal income tax forms 2011 You use part of your home for the storage of inventory or product samples. Federal income tax forms 2011 You use part of your home as a daycare facility. Federal income tax forms 2011 For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Federal income tax forms 2011 Principal place of business. Federal income tax forms 2011   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Federal income tax forms 2011 You use it exclusively and regularly for administrative or management activities of your trade or business. Federal income tax forms 2011 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Federal income tax forms 2011   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. Federal income tax forms 2011 The relative importance of the activities performed at each location. Federal income tax forms 2011 If the relative importance factor does not determine your principal place of business, the time spent at each location. Federal income tax forms 2011    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Federal income tax forms 2011 However, for other ways to qualify to deduct home office expenses, see Publication 587. Federal income tax forms 2011 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. Federal income tax forms 2011 If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Federal income tax forms 2011 More information. Federal income tax forms 2011   For more information about business use of your home, see Publication 587. Federal income tax forms 2011 Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Federal income tax forms 2011 You generally can deduct either your actual expenses or the standard mileage rate. Federal income tax forms 2011 Actual expenses. Federal income tax forms 2011   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. Federal income tax forms 2011 You can divide your expenses based on the miles driven for each purpose. Federal income tax forms 2011 Example. Federal income tax forms 2011 You are the sole proprietor of a flower shop. Federal income tax forms 2011 You drove your van 20,000 miles during the year. Federal income tax forms 2011 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Federal income tax forms 2011 You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Federal income tax forms 2011 Standard mileage rate. Federal income tax forms 2011   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. Federal income tax forms 2011 You can use the standard mileage rate for a vehicle you own or lease. Federal income tax forms 2011 The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Federal income tax forms 2011 It is announced annually by the IRS. Federal income tax forms 2011 To figure your deduction, multiply your business miles by the standard mileage rate for the year. Federal income tax forms 2011    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Federal income tax forms 2011 However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Federal income tax forms 2011 Choosing the standard mileage rate. Federal income tax forms 2011   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. Federal income tax forms 2011 In later years, you can choose to use either the standard mileage rate or actual expenses. Federal income tax forms 2011   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). Federal income tax forms 2011 Additional information. Federal income tax forms 2011   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Federal income tax forms 2011 Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Federal income tax forms 2011 It also explains how long you must keep your records for federal tax purposes. Federal income tax forms 2011 A sample recordkeeping system is illustrated at the end of this part. Federal income tax forms 2011 Why Keep Records? Everyone in business must keep records. Federal income tax forms 2011 Good records will help you do the following. Federal income tax forms 2011 Monitor the progress of your business. Federal income tax forms 2011   You need good records to monitor the progress of your business. Federal income tax forms 2011 Records can show whether your business is improving, which items are selling, or what changes you need to make. Federal income tax forms 2011 Good records can increase the likelihood of business success. Federal income tax forms 2011 Prepare your financial statements. Federal income tax forms 2011   You need good records to prepare accurate financial statements. Federal income tax forms 2011 These include income (profit and loss) statements and balance sheets. Federal income tax forms 2011 These statements can help you in dealing with your bank or creditors and help you manage your business. Federal income tax forms 2011 An income statement shows the income and expenses of the business for a given period of time. Federal income tax forms 2011 A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Federal income tax forms 2011 Identify source of receipts. Federal income tax forms 2011   You will receive money or property from many sources. Federal income tax forms 2011 Your records can identify the source of your receipts. Federal income tax forms 2011 You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Federal income tax forms 2011 Keep track of deductible expenses. Federal income tax forms 2011   You may forget expenses when you prepare your tax return unless you record them when they occur. Federal income tax forms 2011 Prepare your tax returns. Federal income tax forms 2011   You need good records to prepare your tax returns. Federal income tax forms 2011 These records must support the income, expenses, and credits you report. Federal income tax forms 2011 Generally, these are the same records you use to monitor your business and prepare your financial statements. Federal income tax forms 2011 Support items reported on tax returns. Federal income tax forms 2011   You must keep your business records available at all times for inspection by the IRS. Federal income tax forms 2011 If the IRS examines any of your tax returns, you may be asked to explain the items reported. Federal income tax forms 2011 A complete set of records will speed up the examination. Federal income tax forms 2011 Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Federal income tax forms 2011 You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Federal income tax forms 2011 The business you are in affects the type of records you need to keep for federal tax purposes. Federal income tax forms 2011 You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Federal income tax forms 2011 See Accounting Method, earlier. Federal income tax forms 2011 If you are in more than one business, you should keep a complete and separate set of records for each business. Federal income tax forms 2011 A corporation should keep minutes of board of directors' meetings. Federal income tax forms 2011 Your recordkeeping system should include a summary of your business transactions. Federal income tax forms 2011 This summary is ordinarily made in your books (for example, accounting journals and ledgers). Federal income tax forms 2011 Your books must show your gross income, as well as your deductions and credits. Federal income tax forms 2011 For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Federal income tax forms 2011 In addition, you must keep supporting documents, explained later. Federal income tax forms 2011 Electronic records. Federal income tax forms 2011   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Federal income tax forms 2011 All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Federal income tax forms 2011 Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Federal income tax forms 2011   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. Federal income tax forms 2011 You still have the responsibility of retaining any other books and records that are required to be retained. Federal income tax forms 2011   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Federal income tax forms 2011 This test is not considered an examination and the results must be shared with you. Federal income tax forms 2011 If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Federal income tax forms 2011 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. Federal income tax forms 2011 For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Federal income tax forms 2011 Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Federal income tax forms 2011 Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Federal income tax forms 2011 These documents contain information you need to record in your books. Federal income tax forms 2011 It is important to keep these documents because they support the entries in your books and on your tax return. Federal income tax forms 2011 Keep them in an orderly fashion and in a safe place. Federal income tax forms 2011 For instance, organize them by year and type of income or expense. Federal income tax forms 2011 Gross receipts. Federal income tax forms 2011   Gross receipts are the income you receive from your business. Federal income tax forms 2011 You should keep supporting documents that show the amounts and sources of your gross receipts. Federal income tax forms 2011 Documents that show gross receipts include the following. Federal income tax forms 2011 Cash register tapes. Federal income tax forms 2011 Bank deposit slips. Federal income tax forms 2011 Receipt books. Federal income tax forms 2011 Invoices. Federal income tax forms 2011 Credit card charge slips. Federal income tax forms 2011 Forms 1099-MISC. Federal income tax forms 2011 Purchases. Federal income tax forms 2011   Purchases are the items you buy and resell to customers. Federal income tax forms 2011 If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Federal income tax forms 2011 Your supporting documents should show the amount paid and that the amount was for purchases. Federal income tax forms 2011 Documents for purchases include the following. Federal income tax forms 2011 Canceled checks. Federal income tax forms 2011 Cash register tape receipts. Federal income tax forms 2011 Credit card sales slips. Federal income tax forms 2011 Invoices. Federal income tax forms 2011 These records will help you determine the value of your inventory at the end of the year. Federal income tax forms 2011 See Publication 538 for information on methods for valuing inventory. Federal income tax forms 2011 Expenses. Federal income tax forms 2011   Expenses are the costs you incur (other than purchases) to carry on your business. Federal income tax forms 2011 Your supporting documents should show the amount paid and that the amount was for a business expense. Federal income tax forms 2011 Documents for expenses include the following. Federal income tax forms 2011 Canceled checks. Federal income tax forms 2011 Cash register tapes. Federal income tax forms 2011 Account statements. Federal income tax forms 2011 Credit card sales slips. Federal income tax forms 2011 Invoices. Federal income tax forms 2011 Petty cash slips for small cash payments. Federal income tax forms 2011    A petty cash fund allows you to make small payments without having to write checks for small amounts. Federal income tax forms 2011 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. Federal income tax forms 2011 Travel, transportation, entertainment, and gift expenses. Federal income tax forms 2011   Specific recordkeeping rules apply to these expenses. Federal income tax forms 2011 For more information, see Publication 463. Federal income tax forms 2011 Employment taxes. Federal income tax forms 2011   There are specific employment tax records you must keep. Federal income tax forms 2011 For a list, see Publication 15. Federal income tax forms 2011 Assets. Federal income tax forms 2011   Assets are the property, such as machinery and furniture you own and use in your business. Federal income tax forms 2011 You must keep records to verify certain information about your business assets. Federal income tax forms 2011 You need records to figure the annual depreciation and the gain or loss when you sell the assets. Federal income tax forms 2011 Your records should show the following information. Federal income tax forms 2011 When and how you acquired the asset. Federal income tax forms 2011 Purchase price. Federal income tax forms 2011 Cost of any improvements. Federal income tax forms 2011 Section 179 deduction taken. Federal income tax forms 2011 Deductions taken for depreciation. Federal income tax forms 2011 Deductions taken for casualty losses, such as losses resulting from fires or storms. Federal income tax forms 2011 How you used the asset. Federal income tax forms 2011 When and how you disposed of the asset. Federal income tax forms 2011 Selling price. Federal income tax forms 2011 Expenses of sale. Federal income tax forms 2011   The following documents may show this information. Federal income tax forms 2011 Purchase and sales invoices. Federal income tax forms 2011 Real estate closing statements. Federal income tax forms 2011 Canceled checks. Federal income tax forms 2011 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. Federal income tax forms 2011 These include account statements prepared for the financial institution by a third party. Federal income tax forms 2011 These account statements must be highly legible. Federal income tax forms 2011 The following table lists acceptable account statements. Federal income tax forms 2011  IF payment is by. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011 THEN the statement must show the. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011 Check Check number. Federal income tax forms 2011 Amount. Federal income tax forms 2011 Payee's name. Federal income tax forms 2011 Date the check amount was posted to the account by the financial institution. Federal income tax forms 2011 Electronic funds transfer Amount transferred. Federal income tax forms 2011 Payee's name. Federal income tax forms 2011 Date the transfer was posted to the account by the financial institution. Federal income tax forms 2011 Credit card Amount charged. Federal income tax forms 2011 Payee's name. Federal income tax forms 2011 Transaction date. Federal income tax forms 2011    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Federal income tax forms 2011 You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Federal income tax forms 2011 Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Federal income tax forms 2011 (Your business transactions are shown on the supporting documents just discussed. Federal income tax forms 2011 ) Business transactions are ordinarily summarized in books called journals and ledgers. Federal income tax forms 2011 You can buy them at your local stationery or office supply store. Federal income tax forms 2011 A journal is a book where you record each business transaction shown on your supporting documents. Federal income tax forms 2011 You may have to keep separate journals for transactions that occur frequently. Federal income tax forms 2011 A ledger is a book that contains the totals from all of your journals. Federal income tax forms 2011 It is organized into different accounts. Federal income tax forms 2011 Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Federal income tax forms 2011 For example, a recordkeeping system for a small business might include the following items. Federal income tax forms 2011 Business checkbook. Federal income tax forms 2011 Daily summary of cash receipts. Federal income tax forms 2011 Monthly summary of cash receipts. Federal income tax forms 2011 Check disbursements journal. Federal income tax forms 2011 Depreciation worksheet. Federal income tax forms 2011 Employee compensation record. Federal income tax forms 2011 The business checkbook is explained next. Federal income tax forms 2011 The other items are illustrated later under Sample Record System. Federal income tax forms 2011 The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Federal income tax forms 2011 For example, record expenses when they occur, and identify the source of recorded receipts. Federal income tax forms 2011 Generally, it is best to record transactions on a daily basis. Federal income tax forms 2011 Business checkbook. Federal income tax forms 2011   One of the first things you should do when you start a business is open a business checking account. Federal income tax forms 2011 You should keep your business account separate from your personal checking account. Federal income tax forms 2011   The business checkbook is your basic source of information for recording your business expenses. Federal income tax forms 2011 You should deposit all daily receipts in your business checking account. Federal income tax forms 2011 You should check your account for errors by reconciling it. Federal income tax forms 2011 See Reconciling the checking account, later. Federal income tax forms 2011   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Federal income tax forms 2011 You should also note on the deposit slip the source of the deposit and keep copies of all slips. Federal income tax forms 2011   You should make all payments by check to document business expenses. Federal income tax forms 2011 Write checks payable to yourself only when making withdrawals from your business for personal use. Federal income tax forms 2011 Avoid writing checks payable to cash. Federal income tax forms 2011 If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Federal income tax forms 2011 If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Federal income tax forms 2011    Use the business account for business purposes only. Federal income tax forms 2011 Indicate the source of deposits and the type of expense in the checkbook. Federal income tax forms 2011 Reconciling the checking account. Federal income tax forms 2011   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Federal income tax forms 2011 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. Federal income tax forms 2011   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. Federal income tax forms 2011    You should reconcile your checking account each month. Federal income tax forms 2011     Before you reconcile your monthly bank statement, check your own figures. Federal income tax forms 2011 Begin with the balance shown in your checkbook at the end of the previous month. Federal income tax forms 2011 To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Federal income tax forms 2011   After checking your figures, the result should agree with your checkbook balance at the end of the month. Federal income tax forms 2011 If the result does not agree, you may have made an error in recording a check or deposit. Federal income tax forms 2011 You can find the error by doing the following. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 Adding the deposit amounts in your checkbook. Federal income tax forms 2011 Compare that total with the monthly total in your cash receipt book, if you have one. Federal income tax forms 2011 If the totals do not agree, check the individual amounts to find any errors. Federal income tax forms 2011   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Federal income tax forms 2011   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Federal income tax forms 2011 Many banks print a reconciliation worksheet on the back of the statement. Federal income tax forms 2011   To reconcile your account, follow these steps. Federal income tax forms 2011 Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Federal income tax forms 2011 Note all differences in the dollar amounts. Federal income tax forms 2011 Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Federal income tax forms 2011 Note all differences in the dollar amounts. Federal income tax forms 2011 Mark the check number in the checkbook as having cleared the bank. Federal income tax forms 2011 After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Federal income tax forms 2011 Prepare a bank reconciliation. Federal income tax forms 2011 One is illustrated later under Sample Record System. Federal income tax forms 2011 Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Federal income tax forms 2011 At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Federal income tax forms 2011 If you still have differences, check the previous steps to find the errors. Federal income tax forms 2011   Table 3. Federal income tax forms 2011 Period of Limitations IF you. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011   THEN the period is. Federal income tax forms 2011 . Federal income tax forms 2011 . Federal income tax forms 2011 1. Federal income tax forms 2011 Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Federal income tax forms 2011 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. Federal income tax forms 2011 File a fraudulent return   Not limited 4. Federal income tax forms 2011 Do not file a return   Not limited 5. Federal income tax forms 2011 File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Federal income tax forms 2011 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. Federal income tax forms 2011 The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Federal income tax forms 2011 You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Federal income tax forms 2011 Single-entry. Federal income tax forms 2011   A single-entry system is based on the income statement (profit or loss statement). Federal income tax forms 2011 It can be a simple and practical system if you are starting a small business. Federal income tax forms 2011 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. Federal income tax forms 2011 Double-entry. Federal income tax forms 2011   A double-entry bookkeeping system uses journals and ledgers. Federal income tax forms 2011 Transactions are first entered in a journal and then posted to ledger accounts. Federal income tax forms 2011 These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Federal income tax forms 2011 You close income and expense accounts at the end of each tax year. Federal income tax forms 2011 You keep asset, liability, and net worth accounts open on a permanent basis. Federal income tax forms 2011   In the double-entry system, each account has a left side for debits and a right side for credits. Federal income tax forms 2011 It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Federal income tax forms 2011   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Federal income tax forms 2011 If the amounts do not balance, you have made an error and you must find and correct it. Federal income tax forms 2011   An example of a journal entry exhibiting a payment of rent in October is shown next. Federal income tax forms 2011 General Journal Date Description of Entry Debit  Credit Oct. Federal income tax forms 2011 5 Rent expense 780. Federal income tax forms 2011 00     Cash   780. Federal income tax forms 2011 00                 Computerized System There are computer software packages you can use for recordkeeping. Federal income tax forms 2011 They can be purchased in many retail stores. Federal income tax forms 2011 These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Federal income tax forms 2011 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. Federal income tax forms 2011 To meet this qualification, the machine-sensible records must reconcile with your books and return. Federal income tax forms 2011 These records must provide enough detail to identify the underlying source documents. Federal income tax forms 2011 You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Federal income tax forms 2011 This documentation must be sufficiently detailed to show all of the following items. Federal income tax forms 2011 Functions being performed as the data flows through the system. Federal income tax forms 2011 Controls used to ensure accurate and reliable processing. Federal income tax forms 2011 Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Federal income tax forms 2011 Charts of accounts and detailed account descriptions. Federal income tax forms 2011 See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 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. Federal income tax forms 2011 Table 3 contains the periods of limitations that apply to income tax returns. Federal income tax forms 2011 Unless otherwise stated, the years refer to the period after the return was filed. Federal income tax forms 2011 Returns filed before the due date are treated as filed on the due date. Federal income tax forms 2011 Keep copies of your filed tax returns. Federal income tax forms 2011 They help in preparing future tax returns and making computations if you file an amended return. Federal income tax forms 2011 Employment taxes. Federal income tax forms 2011   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. Federal income tax forms 2011 For more information about recordkeeping for employment taxes, see Publication 15. Federal income tax forms 2011 Assets. Federal income tax forms 2011   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. Federal income tax forms 2011 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. Federal income tax forms 2011   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. Federal income tax forms 2011 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. Federal income tax forms 2011 Records for nontax purposes. Federal income tax forms 2011   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. Federal income tax forms 2011 For example, your insurance company or creditors may require you to keep them longer than the IRS does. Federal income tax forms 2011 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. Federal income tax forms 2011 Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Federal income tax forms 2011 These sample records should not be viewed as a recommendation of how to keep your records. Federal income tax forms 2011 They are intended only to show how one business keeps its records. Federal income tax forms 2011 1. Federal income tax forms 2011 Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Federal income tax forms 2011 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. Federal income tax forms 2011 Henry takes the cash sales entry from his cash register tape. Federal income tax forms 2011 If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Federal income tax forms 2011 He carries the total receipts shown in this summary for January 3 ($267. Federal income tax forms 2011 80), including cash sales ($263. Federal income tax forms 2011 60) and sales tax ($4. Federal income tax forms 2011 20), to the Monthly Summary of Cash Receipts. Federal income tax forms 2011 Petty cash fund. Federal income tax forms 2011   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Federal income tax forms 2011 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. Federal income tax forms 2011 He sets up a fixed amount ($50) in his petty cash fund. Federal income tax forms 2011 The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Federal income tax forms 2011 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. Federal income tax forms 2011 (See the Check Disbursements Journal entry for check number 92. Federal income tax forms 2011 ) This restores the fund to its fixed amount of $50. Federal income tax forms 2011 He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Federal income tax forms 2011 2. Federal income tax forms 2011 Monthly Summary of Cash Receipts This shows the income activity for the month. Federal income tax forms 2011 Henry carries the total monthly net sales shown in this summary for January ($4,865. Federal income tax forms 2011 05) to his Annual Summary. Federal income tax forms 2011 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. Federal income tax forms 2011 He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Federal income tax forms 2011 He does not include the tax in his income. Federal income tax forms 2011 3. Federal income tax forms 2011 Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Federal income tax forms 2011 All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Federal income tax forms 2011 Frequent expenses have their own headings across the sheet. Federal income tax forms 2011 He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Federal income tax forms 2011 Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Federal income tax forms 2011 Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Federal income tax forms 2011 If he did, he would record them in the journal, even though he could not deduct them as business expenses. Federal income tax forms 2011 Henry carries the January total of expenses for materials ($1,083. Federal income tax forms 2011 50) to the Annual Summary. Federal income tax forms 2011 Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Federal income tax forms 2011 , in the appropriate columns of that summary. Federal income tax forms 2011 4. Federal income tax forms 2011 Employee Compensation Record This record shows the following information. Federal income tax forms 2011 The number of hours Henry's employee worked in a pay period. Federal income tax forms 2011 The employee's total pay for the period. Federal income tax forms 2011 The deductions Henry withheld in figuring the employee's net pay. Federal income tax forms 2011 The monthly gross payroll. Federal income tax forms 2011 Henry carries the January gross payroll ($520) to the Annual Summary. Federal income tax forms 2011 5. Federal income tax forms 2011 Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Federal income tax forms 2011 He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Federal income tax forms 2011 He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Federal income tax forms 2011 As in the journal, he keeps each major expense in a separate column. Federal income tax forms 2011 Henry carries the cash receipts total shown in the annual summary ($47,440. Federal income tax forms 2011 9