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Federal Tax Ez Form 2011

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Federal Tax Ez Form 2011

Federal tax ez form 2011 3. Federal tax ez form 2011   Personal Exemptions and Dependents Table of Contents What's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. Federal tax ez form 2011 Taxpayer identification numbers for aliens. Federal tax ez form 2011 Taxpayer identification numbers for adoptees. Federal tax ez form 2011 What's New Exemption amount. Federal tax ez form 2011  The amount you can deduct for each exemption has increased. Federal tax ez form 2011 It was $3,800 for 2012. Federal tax ez form 2011 It is $3,900 for 2013. Federal tax ez form 2011 Exemption phaseout. Federal tax ez form 2011  You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. Federal tax ez form 2011 For 2013, this amount is $150,000 for a married individual filing a separate return; $250,000 for a single individual; $275,000 for a head of household; and $300,000 for married individuals filing jointly or a qualifying widow(er). Federal tax ez form 2011 See Phaseout of Exemptions , later. Federal tax ez form 2011 Introduction This chapter discusses the following topics. Federal tax ez form 2011 Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse. Federal tax ez form 2011 Exemptions for dependents — You generally can take an exemption for each of your dependents. Federal tax ez form 2011 A dependent is your qualifying child or qualifying relative. Federal tax ez form 2011 If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. Federal tax ez form 2011 Phaseout of exemptions — Your deduction is reduced if your adjusted gross income is more than a certain amount. Federal tax ez form 2011 Social security number (SSN) requirement for dependents — You must list the SSN of any dependent for whom you claim an exemption. Federal tax ez form 2011 Deduction. Federal tax ez form 2011   Exemptions reduce your taxable income. Federal tax ez form 2011 You can deduct $3,900 for each exemption you claim in 2013. Federal tax ez form 2011 But you may lose at least part of the dollar amount of your exemptions if your adjusted gross income is more than a certain amount. Federal tax ez form 2011 See Phaseout of Exemptions , later. Federal tax ez form 2011 How to claim exemptions. Federal tax ez form 2011    How you claim an exemption on your tax return depends on which form you file. Federal tax ez form 2011    If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5. Federal tax ez form 2011    If you file Form 1040A, complete lines 6a through 6d. Federal tax ez form 2011 The total number of exemptions you can claim is the total in the box on line 6d. Federal tax ez form 2011 Also complete line 26. Federal tax ez form 2011   If you file Form 1040, complete lines 6a through 6d. Federal tax ez form 2011 The total number of exemptions you can claim is the total in the box on line 6d. Federal tax ez form 2011 Also complete line 42. Federal tax ez form 2011 Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information Form (and Instructions) 2120 Multiple Support Declaration 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent Exemptions There are two types of exemptions you may be able to take: Personal exemptions for yourself and your spouse, and Exemptions for dependents (dependency exemptions). Federal tax ez form 2011 While each is worth the same amount ($3,900 for 2013), different rules apply to each type. Federal tax ez form 2011 Personal Exemptions You are generally allowed one exemption for yourself. Federal tax ez form 2011 If you are married, you may be allowed one exemption for your spouse. Federal tax ez form 2011 These are called personal exemptions. Federal tax ez form 2011 Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. Federal tax ez form 2011 If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent. Federal tax ez form 2011 Your Spouse's Exemption Your spouse is never considered your dependent. Federal tax ez form 2011 Joint return. Federal tax ez form 2011   On a joint return you can claim one exemption for yourself and one for your spouse. Federal tax ez form 2011 Separate return. Federal tax ez form 2011   If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. Federal tax ez form 2011 This is true even if the other taxpayer does not actually claim your spouse as a dependent. Federal tax ez form 2011 You can claim an exemption for your spouse even if he or she is a nonresident alien; in that case, your spouse must have no gross income for U. Federal tax ez form 2011 S. Federal tax ez form 2011 tax purposes, must not be filing a return, and must not be the dependent of another taxpayer. Federal tax ez form 2011 Death of spouse. Federal tax ez form 2011   If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption under the rules just explained in Joint return . Federal tax ez form 2011 If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return . Federal tax ez form 2011   If you remarried during the year, you cannot take an exemption for your deceased spouse. Federal tax ez form 2011   If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. Federal tax ez form 2011 If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. Federal tax ez form 2011 Divorced or separated spouse. Federal tax ez form 2011   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. Federal tax ez form 2011 This rule applies even if you provided all of your former spouse's support. Federal tax ez form 2011 Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. Federal tax ez form 2011 You can claim an exemption for a dependent even if your dependent files a return. Federal tax ez form 2011 The term “dependent” means: A qualifying child, or A qualifying relative. Federal tax ez form 2011 The terms “ qualifying child ” and “ qualifying relative ” are defined later. Federal tax ez form 2011 You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. Federal tax ez form 2011 Dependent taxpayer test. Federal tax ez form 2011 Joint return test. Federal tax ez form 2011 Citizen or resident test. Federal tax ez form 2011 These three tests are explained in detail later. Federal tax ez form 2011 All the requirements for claiming an exemption for a dependent are summarized in Table 3-1. Federal tax ez form 2011 Table 3-1. Federal tax ez form 2011 Overview of the Rules for Claiming an Exemption for a Dependent Caution. Federal tax ez form 2011 This table is only an overview of the rules. Federal tax ez form 2011 For details, see the rest of this chapter. Federal tax ez form 2011 You cannot claim any dependents if you (or your spouse, if filing jointly) could be claimed as a dependent by another taxpayer. Federal tax ez form 2011   You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid. Federal tax ez form 2011   You cannot claim a person as a dependent unless that person is a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen, U. Federal tax ez form 2011 S. Federal tax ez form 2011 resident alien, U. Federal tax ez form 2011 S. Federal tax ez form 2011 national, or a resident of Canada or Mexico. Federal tax ez form 2011 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. Federal tax ez form 2011   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Federal tax ez form 2011   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled. Federal tax ez form 2011   The child must have lived with you for more than half of the year. Federal tax ez form 2011 2  The child must not have provided more than half of his or her own support for the year. Federal tax ez form 2011   The child is not filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid). Federal tax ez form 2011  If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. Federal tax ez form 2011 See the Special Rule for Qualifying Child of More Than One Person to find out which person is the person entitled to claim the child as a qualifying child. Federal tax ez form 2011   The person cannot be your qualifying child or the qualifying child of any other taxpayer. Federal tax ez form 2011   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you , or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law). Federal tax ez form 2011   The person's gross income for the year must be less than $3,900. Federal tax ez form 2011 3  You must provide more than half of the person's total support for the year. Federal tax ez form 2011 4  1There is an exception for certain adopted children. Federal tax ez form 2011 2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. Federal tax ez form 2011 3There is an exception if the person is disabled and has income from a sheltered workshop. Federal tax ez form 2011 4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. Federal tax ez form 2011 Dependent not allowed a personal exemption. Federal tax ez form 2011 If you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. Federal tax ez form 2011 This is true even if you do not claim the dependent's exemption on your return. Federal tax ez form 2011 It is also true if the dependent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. Federal tax ez form 2011 Housekeepers, maids, or servants. Federal tax ez form 2011   If these people work for you, you cannot claim exemptions for them. Federal tax ez form 2011 Child tax credit. Federal tax ez form 2011   You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. Federal tax ez form 2011 For more information, see chapter 34. Federal tax ez form 2011 Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Federal tax ez form 2011 Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. Federal tax ez form 2011 If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return. Federal tax ez form 2011 Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. Federal tax ez form 2011 Exception. Federal tax ez form 2011   You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid. Federal tax ez form 2011 Example 1—child files joint return. Federal tax ez form 2011 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Federal tax ez form 2011 He earned $25,000 for the year. Federal tax ez form 2011 The couple files a joint return. Federal tax ez form 2011 You cannot take an exemption for your daughter. Federal tax ez form 2011 Example 2—child files joint return only as claim for refund of withheld tax. Federal tax ez form 2011 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Federal tax ez form 2011 Neither is required to file a tax return. Federal tax ez form 2011 They do not have a child. Federal tax ez form 2011 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. Federal tax ez form 2011 The exception to the joint return test applies, so you are not disqualified from claiming an exemption for each of them just because they file a joint return. Federal tax ez form 2011 You can claim exemptions for each of them if all the other tests to do so are met. Federal tax ez form 2011 Example 3—child files joint return to claim American opportunity credit. Federal tax ez form 2011 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Federal tax ez form 2011 He and his wife are not required to file a tax return. Federal tax ez form 2011 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Federal tax ez form 2011 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Federal tax ez form 2011 The exception to the joint return test does not apply, so you cannot claim an exemption for either of them. Federal tax ez form 2011 Citizen or Resident Test You cannot claim a person as a dependent unless that person is a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen, U. Federal tax ez form 2011 S. Federal tax ez form 2011 resident alien, U. Federal tax ez form 2011 S. Federal tax ez form 2011 national, or a resident of Canada or Mexico. Federal tax ez form 2011 However, there is an exception for certain adopted children, as explained next. Federal tax ez form 2011 Exception for adopted child. Federal tax ez form 2011   If you are a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen or U. Federal tax ez form 2011 S. Federal tax ez form 2011 national who has legally adopted a child who is not a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen, U. Federal tax ez form 2011 S. Federal tax ez form 2011 resident alien, or U. Federal tax ez form 2011 S. Federal tax ez form 2011 national, this test is met if the child lived with you as a member of your household all year. Federal tax ez form 2011 This exception also applies if the child was lawfully placed with you for legal adoption. Federal tax ez form 2011 Child's place of residence. Federal tax ez form 2011   Children usually are citizens or residents of the country of their parents. Federal tax ez form 2011   If you were a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen when your child was born, the child may be a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country. Federal tax ez form 2011 Foreign students' place of residence. Federal tax ez form 2011   Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. Federal tax ez form 2011 S. Federal tax ez form 2011 residents and do not meet this test. Federal tax ez form 2011 You cannot claim an exemption for them. Federal tax ez form 2011 However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. Federal tax ez form 2011 See Expenses Paid for Student Living With You in chapter 24. Federal tax ez form 2011 U. Federal tax ez form 2011 S. Federal tax ez form 2011 national. Federal tax ez form 2011   A U. Federal tax ez form 2011 S. Federal tax ez form 2011 national is an individual who, although not a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen, owes his or her allegiance to the United States. Federal tax ez form 2011 U. Federal tax ez form 2011 S. Federal tax ez form 2011 nationals include American Samoans and Northern Mariana Islanders who chose to become U. Federal tax ez form 2011 S. Federal tax ez form 2011 nationals instead of U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizens. Federal tax ez form 2011 Qualifying Child Five tests must be met for a child to be your qualifying child. Federal tax ez form 2011 The five tests are: Relationship, Age, Residency, Support, and Joint return. Federal tax ez form 2011 These tests are explained next. Federal tax ez form 2011 If a child meets the five tests to be the qualifying child of more than one person, a special rule applies to determine which person can actually treat the child as a qualifying child. Federal tax ez form 2011 See Special Rule for Qualifying Child of More Than One Person, later. Federal tax ez form 2011 Relationship Test To meet this test, a child must be: Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them. Federal tax ez form 2011 Adopted child. Federal tax ez form 2011   An adopted child is always treated as your own child. Federal tax ez form 2011 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Federal tax ez form 2011 Foster child. Federal tax ez form 2011   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Federal tax ez form 2011 Age Test To meet this test, a child must be: Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), A student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during the year, regardless of age. Federal tax ez form 2011 Example. Federal tax ez form 2011 Your son turned 19 on December 10. Federal tax ez form 2011 Unless he was permanently and totally disabled or a student, he does not meet the age test because, at the end of the year, he was not under age 19. Federal tax ez form 2011 Child must be younger than you or spouse. Federal tax ez form 2011   To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. Federal tax ez form 2011 However, if you are married filing jointly, the child must be younger than you or your spouse but does not have to be younger than both of you. Federal tax ez form 2011 Example 1—child not younger than you or spouse. Federal tax ez form 2011 Your 23-year-old brother, who is a student and unmarried, lives with you and your spouse. Federal tax ez form 2011 He is not disabled. Federal tax ez form 2011 Both you and your spouse are 21 years old, and you file a joint return. Federal tax ez form 2011 Your brother is not your qualifying child because he is not younger than you or your spouse. Federal tax ez form 2011 Example 2—child younger than your spouse but not younger than you. Federal tax ez form 2011 The facts are the same as in Example 1 except your spouse is 25 years old. Federal tax ez form 2011 Because your brother is younger than your spouse, and you and your spouse are filing a joint return, your brother is your qualifying child, even though he is not younger than you. Federal tax ez form 2011 Student defined. Federal tax ez form 2011   To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. Federal tax ez form 2011 The 5 calendar months do not have to be consecutive. Federal tax ez form 2011 Full-time student. Federal tax ez form 2011   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Federal tax ez form 2011 School defined. Federal tax ez form 2011   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Federal tax ez form 2011 However, an on-the-job training course, correspondence school, or school offering courses only through the Internet does not count as a school. Federal tax ez form 2011 Vocational high school students. Federal tax ez form 2011   Students who work on “co-op” jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Federal tax ez form 2011 Permanently and totally disabled. Federal tax ez form 2011   Your child is permanently and totally disabled if both of the following apply. Federal tax ez form 2011 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Federal tax ez form 2011 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Federal tax ez form 2011 Residency Test To meet this test, your child must have lived with you for more than half the year. Federal tax ez form 2011 There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. Federal tax ez form 2011 Temporary absences. Federal tax ez form 2011   Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. Federal tax ez form 2011 Your child is also considered to have lived with you during any required hospital stay following birth, as long as the child would have lived with you during that time but for the hospitalization. Federal tax ez form 2011 Death or birth of child. Federal tax ez form 2011   A child who was born or died during the year is treated as having lived with you more than half of the year if your home was the child's home more than half of the time he or she was alive during the year. Federal tax ez form 2011 Child born alive. Federal tax ez form 2011   You may be able to claim an exemption for a child born alive during the year, even if the child lived only for a moment. Federal tax ez form 2011 State or local law must treat the child as having been born alive. Federal tax ez form 2011 There must be proof of a live birth shown by an official document, such as a birth certificate. Federal tax ez form 2011 The child must be your qualifying child or qualifying relative, and all the other tests to claim an exemption for a dependent must be met. Federal tax ez form 2011 Stillborn child. Federal tax ez form 2011   You cannot claim an exemption for a stillborn child. Federal tax ez form 2011 Kidnapped child. Federal tax ez form 2011   You may be able to treat your child as meeting the residency test even if the child has been kidnapped. Federal tax ez form 2011 See Publication 501 for details. Federal tax ez form 2011 Children of divorced or separated parents (or parents who live apart). Federal tax ez form 2011   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. Federal tax ez form 2011 However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true. Federal tax ez form 2011 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. Federal tax ez form 2011 The child received over half of his or her support for the year from the parents. Federal tax ez form 2011 The child is in the custody of one or both parents for more than half of the year. Federal tax ez form 2011 Either of the following statements is true. Federal tax ez form 2011 The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. Federal tax ez form 2011 (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later. Federal tax ez form 2011 If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later. Federal tax ez form 2011 ) A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during the year. Federal tax ez form 2011 Custodial parent and noncustodial parent. Federal tax ez form 2011   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. Federal tax ez form 2011 The other parent is the noncustodial parent. Federal tax ez form 2011   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. Federal tax ez form 2011   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). Federal tax ez form 2011 Equal number of nights. Federal tax ez form 2011   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income (AGI). Federal tax ez form 2011 December 31. Federal tax ez form 2011   The night of December 31 is treated as part of the year in which it begins. Federal tax ez form 2011 For example, December 31, 2013, is treated as part of 2013. Federal tax ez form 2011 Emancipated child. Federal tax ez form 2011   If a child is emancipated under state law, the child is treated as not living with either parent. Federal tax ez form 2011 See Examples 5 and 6. Federal tax ez form 2011 Absences. Federal tax ez form 2011   If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. Federal tax ez form 2011 But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. Federal tax ez form 2011 Parent works at night. Federal tax ez form 2011   If, due to a parent's nighttime work schedule, a child lives for a greater number of days, but not nights, with the parent who works at night, that parent is treated as the custodial parent. Federal tax ez form 2011 On a school day, the child is treated as living at the primary residence registered with the school. Federal tax ez form 2011 Example 1—child lived with one parent for a greater number of nights. Federal tax ez form 2011 You and your child’s other parent are divorced. Federal tax ez form 2011 In 2013, your child lived with you 210 nights and with the other parent 155 nights. Federal tax ez form 2011 You are the custodial parent. Federal tax ez form 2011 Example 2—child is away at camp. Federal tax ez form 2011 In 2013, your daughter lives with each parent for alternate weeks. Federal tax ez form 2011 In the summer, she spends 6 weeks at summer camp. Federal tax ez form 2011 During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. Federal tax ez form 2011 Example 3—child lived same number of nights with each parent. Federal tax ez form 2011 Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. Federal tax ez form 2011 Your AGI is $40,000. Federal tax ez form 2011 Your ex-spouse's AGI is $25,000. Federal tax ez form 2011 You are treated as your son's custodial parent because you have the higher AGI. Federal tax ez form 2011 Example 4—child is at parent’s home but with other parent. Federal tax ez form 2011 Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. Federal tax ez form 2011 You become ill and are hospitalized. Federal tax ez form 2011 The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. Federal tax ez form 2011 Your son is treated as living with you during this 10-day period because he was living in your home. Federal tax ez form 2011 Example 5—child emancipated in May. Federal tax ez form 2011 When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. Federal tax ez form 2011 As a result, he is not considered in the custody of his parents for more than half of the year. Federal tax ez form 2011 The special rule for children of divorced or separated parents does not apply. Federal tax ez form 2011 Example 6—child emancipated in August. Federal tax ez form 2011 Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. Federal tax ez form 2011 She turns 18 and is emancipated under state law on August 1, 2013. Federal tax ez form 2011 Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. Federal tax ez form 2011 You are the custodial parent. Federal tax ez form 2011 Written declaration. Federal tax ez form 2011    The custodial parent may use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. Federal tax ez form 2011 The noncustodial parent must attach a copy of the form or statement to his or her tax return. Federal tax ez form 2011   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. Federal tax ez form 2011 Post-1984 and pre-2009 divorce decree or separation agreement. Federal tax ez form 2011   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Federal tax ez form 2011 The decree or agreement must state all three of the following. Federal tax ez form 2011 The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. Federal tax ez form 2011 The custodial parent will not claim the child as a dependent for the year. Federal tax ez form 2011 The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. Federal tax ez form 2011   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her tax return. Federal tax ez form 2011 The cover page (write the other parent's social security number on this page). Federal tax ez form 2011 The pages that include all of the information identified in items (1) through (3) above. Federal tax ez form 2011 The signature page with the other parent's signature and the date of the agreement. Federal tax ez form 2011 Post-2008 divorce decree or separation agreement. Federal tax ez form 2011   The noncustodial parent cannot attach pages from the decree or agreement instead of Form 8332 if the decree or agreement went into effect after 2008. Federal tax ez form 2011 The custodial parent must sign either Form 8332 or a similar statement whose only purpose is to release the custodial parent's claim to an exemption for a child, and the noncustodial parent must attach a copy to his or her return. Federal tax ez form 2011 The form or statement must release the custodial parent's claim to the child without any conditions. Federal tax ez form 2011 For example, the release must not depend on the noncustodial parent paying support. Federal tax ez form 2011    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. Federal tax ez form 2011 Revocation of release of claim to an exemption. Federal tax ez form 2011   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 (or a similar statement). Federal tax ez form 2011 For the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. Federal tax ez form 2011 The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. Federal tax ez form 2011 Remarried parent. Federal tax ez form 2011   If you remarry, the support provided by your new spouse is treated as provided by you. Federal tax ez form 2011 Parents who never married. Federal tax ez form 2011   This special rule for divorced or separated parents also applies to parents who never married, and who lived apart at all times during the last 6 months of the year. Federal tax ez form 2011 Support Test (To Be a Qualifying Child) To meet this test, the child cannot have provided more than half of his or her own support for the year. Federal tax ez form 2011 This test is different from the support test to be a qualifying relative, which is described later. Federal tax ez form 2011 However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. Federal tax ez form 2011 If you are not sure whether a child provided more than half of his or her own support, you may find Worksheet 3-1 helpful. Federal tax ez form 2011 Worksheet 3-1. Federal tax ez form 2011 Worksheet for Determining Support Funds Belonging to the Person You Supported       1. Federal tax ez form 2011 Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year. Federal tax ez form 2011 Do not include funds provided by the state; include those amounts on line 23 instead 1. Federal tax ez form 2011     2. Federal tax ez form 2011 Enter the amount on line 1 that was used for the person's support 2. Federal tax ez form 2011     3. Federal tax ez form 2011 Enter the amount on line 1 that was used for other purposes 3. Federal tax ez form 2011     4. Federal tax ez form 2011 Enter the total amount in the person's savings and other accounts at the end of the year 4. Federal tax ez form 2011     5. Federal tax ez form 2011 Add lines 2 through 4. Federal tax ez form 2011 (This amount should equal line 1. Federal tax ez form 2011 ) 5. Federal tax ez form 2011     Expenses for Entire Household (where the person you supported lived)       6. Federal tax ez form 2011 Lodging (complete line 6a or 6b):         a. Federal tax ez form 2011 Enter the total rent paid 6a. Federal tax ez form 2011       b. Federal tax ez form 2011 Enter the fair rental value of the home. Federal tax ez form 2011 If the person you supported owned the home,  also include this amount in line 21 6b. Federal tax ez form 2011     7. Federal tax ez form 2011 Enter the total food expenses 7. Federal tax ez form 2011     8. Federal tax ez form 2011 Enter the total amount of utilities (heat, light, water, etc. Federal tax ez form 2011 not included in line 6a or 6b) 8. Federal tax ez form 2011     9. Federal tax ez form 2011 Enter the total amount of repairs (not included in line 6a or 6b) 9. Federal tax ez form 2011     10. Federal tax ez form 2011 Enter the total of other expenses. Federal tax ez form 2011 Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance 10. Federal tax ez form 2011     11. Federal tax ez form 2011 Add lines 6a through 10. Federal tax ez form 2011 These are the total household expenses 11. Federal tax ez form 2011     12. Federal tax ez form 2011 Enter total number of persons who lived in the household 12. Federal tax ez form 2011     Expenses for the Person You Supported       13. Federal tax ez form 2011 Divide line 11 by line 12. Federal tax ez form 2011 This is the person's share of the household expenses 13. Federal tax ez form 2011     14. Federal tax ez form 2011 Enter the person's total clothing expenses 14. Federal tax ez form 2011     15. Federal tax ez form 2011 Enter the person's total education expenses 15. Federal tax ez form 2011     16. Federal tax ez form 2011 Enter the person's total medical and dental expenses not paid for or reimbursed by insurance 16. Federal tax ez form 2011     17. Federal tax ez form 2011 Enter the person's total travel and recreation expenses 17. Federal tax ez form 2011     18. Federal tax ez form 2011 Enter the total of the person's other expenses 18. Federal tax ez form 2011     19. Federal tax ez form 2011 Add lines 13 through 18. Federal tax ez form 2011 This is the total cost of the person's support for the year 19. Federal tax ez form 2011     Did the Person Provide More Than Half of His or Her Own Support?       20. Federal tax ez form 2011 Multiply line 19 by 50% (. Federal tax ez form 2011 50) 20. Federal tax ez form 2011     21. Federal tax ez form 2011 Enter the amount from line 2, plus the amount from line 6b if the person you supported owned  the home. Federal tax ez form 2011 This is the amount the person provided for his or her own support 21. Federal tax ez form 2011     22. Federal tax ez form 2011 Is line 21 more than line 20?   No. Federal tax ez form 2011 You meet the support test for this person to be your qualifying child. Federal tax ez form 2011 If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. Federal tax ez form 2011 Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. Federal tax ez form 2011    Yes. Federal tax ez form 2011 You do not meet the support test for this person to be either your qualifying child or your qualifying relative. Federal tax ez form 2011 Stop here. Federal tax ez form 2011        Did You Provide More Than Half?       23. Federal tax ez form 2011 Enter the amount others provided for the person's support. Federal tax ez form 2011 Include amounts provided by state, local, and other welfare societies or agencies. Federal tax ez form 2011 Do not include any amounts included on line 1 23. Federal tax ez form 2011     24. Federal tax ez form 2011 Add lines 21 and 23 24. Federal tax ez form 2011     25. Federal tax ez form 2011 Subtract line 24 from line 19. Federal tax ez form 2011 This is the amount you provided for the person's support 25. Federal tax ez form 2011     26. Federal tax ez form 2011 Is line 25 more than line 20?   Yes. Federal tax ez form 2011 You meet the support test for this person to be your qualifying relative. Federal tax ez form 2011    No. Federal tax ez form 2011 You do not meet the support test for this person to be your qualifying relative. Federal tax ez form 2011 You cannot claim an exemption for this person unless you can do so under a multiple support agreement, the support test for children of divorced or separated parents, or the special rule for kidnapped children. Federal tax ez form 2011 See Multiple Support Agreement or Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) , or Kidnapped child under Qualifying Relative. Federal tax ez form 2011   Example. Federal tax ez form 2011 You provided $4,000 toward your 16-year-old son's support for the year. Federal tax ez form 2011 He has a part-time job and provided $6,000 to his own support. Federal tax ez form 2011 He provided more than half of his own support for the year. Federal tax ez form 2011 He is not your qualifying child. Federal tax ez form 2011 Foster care payments and expenses. Federal tax ez form 2011   Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. Federal tax ez form 2011 Similarly, payments you receive for the support of a foster child from a state or county are considered support provided by the state or county. Federal tax ez form 2011   If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided. Federal tax ez form 2011 For more information about the deduction for charitable contributions, see chapter 24. Federal tax ez form 2011 If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided. Federal tax ez form 2011   If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 Lauren, a foster child, lived with Mr. Federal tax ez form 2011 and Mrs. Federal tax ez form 2011 Smith for the last 3 months of the year. Federal tax ez form 2011 The Smiths cared for Lauren because they wanted to adopt her (although she had not been placed with them for adoption). Federal tax ez form 2011 They did not care for her as a trade or business or to benefit the agency that placed her in their home. Federal tax ez form 2011 The Smiths' unreimbursed expenses are not deductible as charitable contributions but are considered support they provided for Lauren. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 You provided $3,000 toward your 10-year-old foster child's support for the year. Federal tax ez form 2011 The state government provided $4,000, which is considered support provided by the state, not by the child. Federal tax ez form 2011 See Support provided by the state (welfare, food stamps, housing, etc. Federal tax ez form 2011 ) , later. Federal tax ez form 2011 Your foster child did not provide more than half of her own support for the year. Federal tax ez form 2011 Scholarships. Federal tax ez form 2011   A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support. Federal tax ez form 2011 Joint Return Test (To Be a Qualifying Child) To meet this test, the child cannot file a joint return for the year. Federal tax ez form 2011 Exception. Federal tax ez form 2011   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Federal tax ez form 2011 Example 1—child files joint return. Federal tax ez form 2011 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Federal tax ez form 2011 He earned $25,000 for the year. Federal tax ez form 2011 The couple files a joint return. Federal tax ez form 2011 Because your daughter and her husband file a joint return, she is not your qualifying child. Federal tax ez form 2011 Example 2—child files joint return only as a claim for refund of withheld tax. Federal tax ez form 2011 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Federal tax ez form 2011 Neither is required to file a tax return. Federal tax ez form 2011 They do not have a child. Federal tax ez form 2011 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. Federal tax ez form 2011 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Federal tax ez form 2011 Example 3—child files joint return to claim American opportunity credit. Federal tax ez form 2011 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Federal tax ez form 2011 He and his wife were not required to file a tax return. Federal tax ez form 2011 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Federal tax ez form 2011 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Federal tax ez form 2011 The exception to the joint return test does not apply, so your son is not your qualifying child. Federal tax ez form 2011 Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. Federal tax ez form 2011 This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. Federal tax ez form 2011 If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents (or parents who live apart) described earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. Federal tax ez form 2011 Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Federal tax ez form 2011 Although the child is a qualifying child of each of these persons, only one person can actually treat the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Federal tax ez form 2011 The exemption for the child. Federal tax ez form 2011 The child tax credit. Federal tax ez form 2011 Head of household filing status. Federal tax ez form 2011 The credit for child and dependent care expenses. Federal tax ez form 2011 The exclusion from income for dependent care benefits. Federal tax ez form 2011 The earned income credit. Federal tax ez form 2011 The other person cannot take any of these benefits based on this qualifying child. Federal tax ez form 2011 In other words, you and the other person cannot agree to divide these benefits between you. Federal tax ez form 2011 The other person cannot take any of these tax benefits for a child unless he or she has a different qualifying child. Federal tax ez form 2011 Tiebreaker rules. Federal tax ez form 2011   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. Federal tax ez form 2011 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Federal tax ez form 2011 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Federal tax ez form 2011 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Federal tax ez form 2011 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Federal tax ez form 2011 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Federal tax ez form 2011 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Federal tax ez form 2011 If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents. Federal tax ez form 2011 See Example 6 . Federal tax ez form 2011   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Federal tax ez form 2011 Example 1—child lived with parent and grandparent. Federal tax ez form 2011 You and your 3-year-old daughter Jane lived with your mother all year. Federal tax ez form 2011 You are 25 years old, unmarried, and your AGI is $9,000. Federal tax ez form 2011 Your mother's AGI is $15,000. Federal tax ez form 2011 Jane's father did not live with you or your daughter. Federal tax ez form 2011 You have not signed Form 8332 (or a similar statement) to release the child's exemption to the noncustodial parent. Federal tax ez form 2011 Jane is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. Federal tax ez form 2011 However, only one of you can claim her. Federal tax ez form 2011 Jane is not a qualifying child of anyone else, including her father. Federal tax ez form 2011 You agree to let your mother claim Jane. Federal tax ez form 2011 This means your mother can claim Jane as a qualifying child for all of the six tax benefits listed earlier, if she qualifies (and if you do not claim Jane as a qualifying child for any of those tax benefits). Federal tax ez form 2011 Example 2—parent has higher AGI than grandparent. Federal tax ez form 2011 The facts are the same as in Example 1 except your AGI is $18,000. Federal tax ez form 2011 Because your mother's AGI is not higher than yours, she cannot claim Jane. Federal tax ez form 2011 Only you can claim Jane. Federal tax ez form 2011 Example 3—two persons claim same child. Federal tax ez form 2011 The facts are the same as in Example 1 except that you and your mother both claim Jane as a qualifying child. Federal tax ez form 2011 In this case, you, as the child's parent, will be the only one allowed to claim Jane as a qualifying child. Federal tax ez form 2011 The IRS will disallow your mother's claim to the six tax benefits listed earlier unless she has another qualifying child. Federal tax ez form 2011 Example 4—qualifying children split between two persons. Federal tax ez form 2011 The facts are the same as in Example 1 except you also have two other young children who are qualifying children of both you and your mother. Federal tax ez form 2011 Only one of you can claim each child. Federal tax ez form 2011 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Federal tax ez form 2011 For example, if you claim one child, your mother can claim the other two. Federal tax ez form 2011 Example 5—taxpayer who is a qualifying child. Federal tax ez form 2011 The facts are the same as in Example 1 except you are only 18 years old and did not provide more than half of your own support for the year. Federal tax ez form 2011 This means you are your mother's qualifying child. Federal tax ez form 2011 If she can claim you as a dependent, then you cannot claim your daughter as a dependent because of the Dependent Taxpayer Test explained earlier. Federal tax ez form 2011 Example 6—child lived with both parents and grandparent. Federal tax ez form 2011 The facts are the same as in Example 1 except you are married to your daughter's father. Federal tax ez form 2011 The two of you live together with your daughter and your mother, and have an AGI of $20,000 on a joint return. Federal tax ez form 2011 If you and your husband do not claim your daughter as a qualifying child, your mother can claim her instead. Federal tax ez form 2011 Even though the AGI on your joint return, $20,000, is more than your mother's AGI of $15,000, for this purpose each parent's AGI can be treated as $10,000, so your mother's $15,000 AGI is treated as higher than the highest AGI of any of the child's parents who can claim the child. Federal tax ez form 2011 Example 7—separated parents. Federal tax ez form 2011 You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. Federal tax ez form 2011 In August and September, your son lived with you. Federal tax ez form 2011 For the rest of the year, your son lived with your husband, the boy's father. Federal tax ez form 2011 Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. Federal tax ez form 2011 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the rule for children of divorced or separated parents (or parents who live apart) does not apply. Federal tax ez form 2011 You and your husband will file separate returns. Federal tax ez form 2011 Your husband agrees to let you treat your son as a qualifying child. Federal tax ez form 2011 This means, if your husband does not claim your son as a qualifying child, you can claim your son as a qualifying child for the dependency exemption, child tax credit, and exclusion for dependent care benefits (if you qualify for each of those tax benefits). Federal tax ez form 2011 However, you cannot claim head of household filing status because you and your husband did not live apart for the last 6 months of the year. Federal tax ez form 2011 As a result, your filing status is married filing separately, so you cannot claim the earned income credit or the credit for child and dependent care expenses. Federal tax ez form 2011 Example 8—separated parents claim same child. Federal tax ez form 2011 The facts are the same as in Example 7 except that you and your husband both claim your son as a qualifying child. Federal tax ez form 2011 In this case, only your husband will be allowed to treat your son as a qualifying child. Federal tax ez form 2011 This is because, during 2013, the boy lived with him longer than with you. Federal tax ez form 2011 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. Federal tax ez form 2011 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. Federal tax ez form 2011 In addition, because you and your husband did not live apart for the last 6 months of the year, your husband cannot claim head of household filing status. Federal tax ez form 2011 As a result, his filing status is married filing separately, so he cannot claim the earned income credit or the credit for child and dependent care expenses. Federal tax ez form 2011 Example 9—unmarried parents. Federal tax ez form 2011 You, your 5-year-old son, and your son's father lived together all year. Federal tax ez form 2011 You and your son's father are not married. Federal tax ez form 2011 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. Federal tax ez form 2011 Your AGI is $12,000 and your son's father's AGI is $14,000. Federal tax ez form 2011 Your son's father agrees to let you claim the child as a qualifying child. Federal tax ez form 2011 This means you can claim him as a qualifying child for the dependency exemption, child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father does not, in fact, claim your son as a qualifying child for any of those tax benefits). Federal tax ez form 2011 Example 10—unmarried parents claim same child. Federal tax ez form 2011 The facts are the same as in Example 9 except that you and your son's father both claim your son as a qualifying child. Federal tax ez form 2011 In this case, only your son's father will be allowed to treat your son as a qualifying child. Federal tax ez form 2011 This is because his AGI, $14,000, is more than your AGI, $12,000. Federal tax ez form 2011 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. Federal tax ez form 2011 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the earned income credit, head of household filing status, the credit for child and dependent care expenses, and the exclusion for dependent care benefits. Federal tax ez form 2011 Example 11—child did not live with a parent. Federal tax ez form 2011 You and your 7-year-old niece, your sister's child, lived with your mother all year. Federal tax ez form 2011 You are 25 years old, and your AGI is $9,300. Federal tax ez form 2011 Your mother's AGI is $15,000. Federal tax ez form 2011 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Federal tax ez form 2011 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. Federal tax ez form 2011 However, only your mother can treat her as a qualifying child. Federal tax ez form 2011 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Federal tax ez form 2011 Applying this special rule to divorced or separated parents (or parents who live apart). Federal tax ez form 2011   If a child is treated as the qualifying child of the noncustodial parent under the rules described earlier for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Federal tax ez form 2011 However, the custodial parent, if eligible, or other eligible person can claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Federal tax ez form 2011 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules just explained determine which person can treat the child as a qualifying child. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Federal tax ez form 2011 Your AGI is $10,000. Federal tax ez form 2011 Your mother's AGI is $25,000. Federal tax ez form 2011 Your son's father did not live with you or your son. Federal tax ez form 2011 Under the rules explained earlier for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for him. Federal tax ez form 2011 Because of this, you cannot claim an exemption or the child tax credit for your son. Federal tax ez form 2011 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. Federal tax ez form 2011 You and your mother did not have any child care expenses or dependent care benefits, so neither of you can claim the credit for child and dependent care expenses or the exclusion for dependent care benefits. Federal tax ez form 2011 But the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. Federal tax ez form 2011 (Note: The support test does not apply for the earned income credit. Federal tax ez form 2011 ) However, you agree to let your mother claim your son. Federal tax ez form 2011 This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. Federal tax ez form 2011 (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. Federal tax ez form 2011 ) Example 2. Federal tax ez form 2011 The facts are the same as in Example 1 except your AGI is $25,000 and your mother's AGI is $21,000. Federal tax ez form 2011 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Federal tax ez form 2011 Example 3. Federal tax ez form 2011 The facts are the same as in Example 1 except you and your mother both claim your son as a qualifying child for the earned income credit. Federal tax ez form 2011 Your mother also claims him as a qualifying child for head of household filing status. Federal tax ez form 2011 You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. Federal tax ez form 2011 The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. Federal tax ez form 2011 Qualifying Relative Four tests must be met for a person to be your qualifying relative. Federal tax ez form 2011 The four tests are: Not a qualifying child test, Member of household or relationship test, Gross income test, and Support test. Federal tax ez form 2011 Age. Federal tax ez form 2011   Unlike a qualifying child, a qualifying relative can be any age. Federal tax ez form 2011 There is no age test for a qualifying relative. Federal tax ez form 2011 Kidnapped child. Federal tax ez form 2011   You may be able to treat a child as your qualifying relative even if the child has been kidnapped. Federal tax ez form 2011 See Publication 501 for details. Federal tax ez form 2011 Not a Qualifying Child Test A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 Your 22-year-old daughter, who is a student, lives with you and meets all the tests to be your qualifying child. Federal tax ez form 2011 She is not your qualifying relative. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 Your 2-year-old son lives with your parents and meets all the tests to be their qualifying child. Federal tax ez form 2011 He is not your qualifying relative. Federal tax ez form 2011 Example 3. Federal tax ez form 2011 Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. Federal tax ez form 2011 He may be your qualifying relative if the gross income test and the support test are met. Federal tax ez form 2011 Example 4. Federal tax ez form 2011 Your 13-year-old grandson lived with his mother for 3 months, with his uncle for 4 months, and with you for 5 months during the year. Federal tax ez form 2011 He is not your qualifying child because he does not meet the residency test. Federal tax ez form 2011 He may be your qualifying relative if the gross income test and the support test are met. Federal tax ez form 2011 Child of person not required to file a return. Federal tax ez form 2011   A child is not the qualifying child of any other taxpayer and so may qualify as your qualifying relative if the child's parent (or other person for whom the child is defined as a qualifying child) is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Federal tax ez form 2011 Example 1—return not required. Federal tax ez form 2011 You support an unrelated friend and her 3-year-old child, who lived with you all year in your home. Federal tax ez form 2011 Your friend has no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Federal tax ez form 2011 Both your friend and her child are your qualifying relatives if the support test is met. Federal tax ez form 2011 Example 2—return filed to claim refund. Federal tax ez form 2011 The facts are the same as in Example 1 except your friend had wages of $1,500 during the year and had income tax withheld from her wages. Federal tax ez form 2011 She files a return only to get a refund of the income tax withheld and does not claim the earned income credit or any other tax credits or deductions. Federal tax ez form 2011 Both your friend and her child are your qualifying relatives if the support test is met. Federal tax ez form 2011 Example 3—earned income credit claimed. Federal tax ez form 2011 The facts are the same as in Example 2 except your friend had wages of $8,000 during the year and claimed the earned income credit on her return. Federal tax ez form 2011 Your friend's child is the qualifying child of another taxpayer (your friend), so you cannot claim your friend's child as your qualifying relative. Federal tax ez form 2011 Child in Canada or Mexico. Federal tax ez form 2011   You may be able to claim your child as a dependent even if the child lives in Canada or Mexico. Federal tax ez form 2011 If the child does not live with you, the child does not meet the residency test to be your qualifying child. Federal tax ez form 2011 However, the child may still be your qualifying relative. Federal tax ez form 2011 If the persons the child does live with are not U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizens and have no U. Federal tax ez form 2011 S. Federal tax ez form 2011 gross income, those persons are not “taxpayers,” so the child is not the qualifying child of any other taxpayer. Federal tax ez form 2011 If the child is not the qualifying child of any other taxpayer, the child is your qualifying relative as long as the gross income test and the support test are met. Federal tax ez form 2011   You cannot claim as a dependent a child who lives in a foreign country other than Canada or Mexico, unless the child is a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen, U. Federal tax ez form 2011 S. Federal tax ez form 2011 resident alien, or U. Federal tax ez form 2011 S. Federal tax ez form 2011 national. Federal tax ez form 2011 There is an exception for certain adopted children who lived with you all year. Federal tax ez form 2011 See Citizen or Resident Test , earlier. Federal tax ez form 2011 Example. Federal tax ez form 2011 You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. Federal tax ez form 2011 You are single and live in the United States. Federal tax ez form 2011 Your mother is not a U. Federal tax ez form 2011 S. Federal tax ez form 2011 citizen and has no U. Federal tax ez form 2011 S. Federal tax ez form 2011 income, so she is not a “taxpayer. Federal tax ez form 2011 ” Your children are not your qualifying children because they do not meet the residency test. Federal tax ez form 2011 But since they are not the qualifying children of any other taxpayer, they are your qualifying relatives and you can claim them as dependents. Federal tax ez form 2011 You may also be able to claim your mother as a dependent if the gross income and support tests are met. Federal tax ez form 2011 Member of Household or Relationship Test To meet this test, a person must either: Live with you all year as a member of your household, or Be related to you in one of the ways listed under Relatives who do not have to live with you . Federal tax ez form 2011 If at any time during the year the person was your spouse, that person cannot be your qualifying relative. Federal tax ez form 2011 However, see Personal Exemptions , earlier. Federal tax ez form 2011 Relatives who do not have to live with you. Federal tax ez form 2011   A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test. Federal tax ez form 2011 Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). Federal tax ez form 2011 (A legally adopted child is considered your child. Federal tax ez form 2011 ) Your brother, sister, half brother, half sister, stepbrother, or stepsister. Federal tax ez form 2011 Your father, mother, grandparent, or other direct ancestor, but not foster parent. Federal tax ez form 2011 Your stepfather or stepmother. Federal tax ez form 2011 A son or daughter of your brother or sister. Federal tax ez form 2011 A son or daughter of your half brother or half sister. Federal tax ez form 2011 A brother or sister of your father or mother. Federal tax ez form 2011 Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Federal tax ez form 2011 Any of these relationships that were established by marriage are not ended by death or divorce. Federal tax ez form 2011 Example. Federal tax ez form 2011 You and your wife began supporting your wife's father, a widower, in 2006. Federal tax ez form 2011 Your wife died in 2012. Federal tax ez form 2011 Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. Federal tax ez form 2011 You can claim him as a dependent if all other tests are met, including the gross income test and support test. Federal tax ez form 2011 Foster child. Federal tax ez form 2011   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Federal tax ez form 2011 Joint return. Federal tax ez form 2011   If you file a joint return, the person can be related to either you or your spouse. Federal tax ez form 2011 Also, the person does not need to be related to the spouse who provides support. Federal tax ez form 2011   For example, your spouse's uncle who receives more than half of his support from you may be your qualifying relative, even though he does not live with you. Federal tax ez form 2011 However, if you and your spouse file separate returns, your spouse's uncle can be your qualifying relative only if he lives with you all year as a member of your household. Federal tax ez form 2011 Temporary absences. Federal tax ez form 2011   A person is considered to live with you as a member of your household during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. Federal tax ez form 2011   If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence may be considered temporary. Federal tax ez form 2011 Death or birth. Federal tax ez form 2011   A person who died during the year, but lived with you as a member of your household until death, will meet this test. Federal tax ez form 2011 The same is true for a child who was born during the year and lived with you as a member of your household for the rest of the year. Federal tax ez form 2011 The test is also met if a child lived with you as a member of your household except for any required hospital stay following birth. Federal tax ez form 2011   If your dependent died during the year and you otherwise qualify to claim an exemption for the dependent, you can still claim the exemption. Federal tax ez form 2011 Example. Federal tax ez form 2011 Your dependent mother died on January 15. Federal tax ez form 2011 She met the tests to be your qualifying relative. Federal tax ez form 2011 The other tests to claim an exemption for a dependent were also met. Federal tax ez form 2011 You can claim an exemption for her on your return. Federal tax ez form 2011 Local law violated. Federal tax ez form 2011   A person does not meet this test if at any time during the year the relationship between you and that person violates local law. Federal tax ez form 2011 Example. Federal tax ez form 2011 Your girlfriend lived with you as a member of your household all year. Federal tax ez form 2011 However, your relationship with her violated the laws of the state where you live, because she was married to someone else. Federal tax ez form 2011 Therefore, she does not meet this test and you cannot claim her as a dependent. Federal tax ez form 2011 Adopted child. Federal tax ez form 2011   An adopted child is always treated as your own child. Federal tax ez form 2011 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Federal tax ez form 2011 Cousin. Federal tax ez form 2011   Your cousin meets this test only if he or she lives with you all year as a member of your household. Federal tax ez form 2011 A cousin is a descendant of a brother or sister of your father or mother. Federal tax ez form 2011 Gross Income Test To meet this test, a person's gross income for the year must be less than $3,900. Federal tax ez form 2011 Gross income defined. Federal tax ez form 2011   Gross income is all income in the form of money, property, and services that is not exempt from tax. Federal tax ez form 2011   In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business. Federal tax ez form 2011   Gross receipts from rental property are gross income. Federal tax ez form 2011 Do not deduct taxes, repairs, or other expenses, to determine the gross income from rental property. Federal tax ez form 2011   Gross income includes a partner's share of the gross (not a share of the net) partnership income. Federal tax ez form 2011    Gross income also includes all taxable unemployment compensation and certain scholarship and fellowship grants. Federal tax ez form 2011 Scholarships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses generally are not included in gross income. Federal tax ez form 2011 For more information about scholarships, see chapter 12. Federal tax ez form 2011   Tax-exempt income, such as certain social security benefits, is not included in gross income. Federal tax ez form 2011 Disabled dependent working at sheltered workshop. Federal tax ez form 2011   For purposes of the gross income test, the gross income of an individual who is permanently and totally disabled at any time during the year does not include income for services the individual performs at a sheltered workshop. Federal tax ez form 2011 The availability of medical care at the workshop must be the main reason for the individual's presence there. Federal tax ez form 2011 Also, the income must come solely from activities at the workshop that are incident to this medical care. Federal tax ez form 2011   A “sheltered workshop” is a school that: Provides special instruction or training designed to alleviate the disability of the individual, and Is operated by certain tax-exempt organizations, or by a state, a U. Federal tax ez form 2011 S. Federal tax ez form 2011 possession, a political subdivision of a state or possession, the United States, or the District of Columbia. Federal tax ez form 2011 “Permanently and totally disabled” has the same meaning here as under Qualifying Child, earlier. Federal tax ez form 2011 Support Test (To Be a Qualifying Relative) To meet this test, you generally must provide more than half of a person's total support during the calendar year. Federal tax ez form 2011 However, if two or more persons provide support, but no one person provides more than half of a person's total support, see Multiple Support Agreement , later. Federal tax ez form 2011 How to determine if support test is met. Federal tax ez form 2011   You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. Federal tax ez form 2011 This includes support the person provided from his or her own funds. Federal tax ez form 2011   You may find Worksheet 3-1 helpful in figuring whether you provided more than half of a person's support. Federal tax ez form 2011 Person's own funds not used for support. Federal tax ez form 2011   A person's own funds are not support unless they are actually spent for support. Federal tax ez form 2011 Example. Federal tax ez form 2011 Your mother received $2,400 in social security benefits and $300 in interest. Federal tax ez form 2011 She paid $2,000 for lodging and $400 for recreation. Federal tax ez form 2011 She put $300 in a savings account. Federal tax ez form 2011 Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. Federal tax ez form 2011 If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support. Federal tax ez form 2011 Child's wages used for own support. Federal tax ez form 2011   You cannot include in your contribution to your child's support any support paid for by the child with the child's own wages, even if you paid the wages. Federal tax ez form 2011 Year support is provided. Federal tax ez form 2011   The year you provide the support is the year you pay for it, even if you do so with borrowed money that you repay in a later year. Federal tax ez form 2011   If you use a fiscal year to report your income, you must provide more than half of the dependent's support for the calendar year in which your fiscal year begins. Federal tax ez form 2011 Armed Forces dependency allotments. Federal tax ez form 2011   The part of the allotment contributed by the government and the part taken out of your military pay are both considered provided by you in figuring whether you provide more than half of the support. Federal tax ez form 2011 If your allotment is used to support persons other than those you name, you can take the exemptions for them if they otherwise qualify. Federal tax ez form 2011 Example. Federal tax ez form 2011 You are in the Armed Forces. Federal tax ez form 2011 You authorize an allotment for your widowed mother that she uses to support herself and her sister. Federal tax ez form 2011 If the allotment provides more than half of each person's support, you can take an exemption for each of them, if they otherwise qualify, even though you authorize the allotment only for your mother. Federal tax ez form 2011 Tax-exempt military quarters allowances. Federal tax ez form 2011   These allowances are treated the same way as dependency allotments in figuring support. Federal tax ez form 2011 The allotment of pay and the tax-exempt basic allowance for quarters are both considered as provided by you for support. Federal tax ez form 2011 Tax-exempt income. Federal tax ez form 2011   In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. Federal tax ez form 2011 Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 You provide $4,000 toward your mother's support during the year. Federal tax ez form 2011 She has earned income of $600, nontaxable social security benefits of $4,800, and tax-exempt interest of $200. Federal tax ez form 2011 She uses all these for her support. Federal tax ez form 2011 You cannot claim an exemption for your mother because the $4,000 you provide is not more than half of her total support of $9,600 ($4,000 + $600 + $4,800 + $200). Federal tax ez form 2011 Example 2. Federal tax ez form 2011 Your niece takes out a student loan of $2,500 a
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The Federal Tax Ez Form 2011

Federal tax ez form 2011 Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Federal tax ez form 2011 Hybrid method. Federal tax ez form 2011 Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Federal tax ez form 2011 Accounting Periods You must use a tax year to figure your taxable income. Federal tax ez form 2011 A tax year is an annual accounting period for keeping records and reporting income and expenses. Federal tax ez form 2011 An annual accounting period does not include a short tax year (discussed later). Federal tax ez form 2011 You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Federal tax ez form 2011 Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Federal tax ez form 2011 A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Federal tax ez form 2011 You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Federal tax ez form 2011 This section discusses: A calendar year. Federal tax ez form 2011 A fiscal year (including a period of 52 or 53 weeks). Federal tax ez form 2011 A short tax year. Federal tax ez form 2011 An improper tax year. Federal tax ez form 2011 A change in tax year. Federal tax ez form 2011 Special situations that apply to individuals. Federal tax ez form 2011 Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Federal tax ez form 2011 Special situations that apply to corporations. Federal tax ez form 2011 Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Federal tax ez form 2011 If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Federal tax ez form 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 obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Federal tax ez form 2011 See Change in Tax Year, later. Federal tax ez form 2011 Generally, anyone can adopt the calendar year. Federal tax ez form 2011 However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Federal tax ez form 2011 Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Federal tax ez form 2011 If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Federal tax ez form 2011 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Federal tax ez form 2011 If you make this election, your 52-53-week tax year must always end on the same day of the week. Federal tax ez form 2011 Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Federal tax ez form 2011 For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Federal tax ez form 2011 Election. Federal tax ez form 2011   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Federal tax ez form 2011 The month in which the new 52-53-week tax year ends. Federal tax ez form 2011 The day of the week on which the tax year always ends. Federal tax ez form 2011 The date the tax year ends. Federal tax ez form 2011 It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Federal tax ez form 2011   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Federal tax ez form 2011   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Federal tax ez form 2011 Example. Federal tax ez form 2011 Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Federal tax ez form 2011 For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Federal tax ez form 2011 Short Tax Year A short tax year is a tax year of less than 12 months. Federal tax ez form 2011 A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Federal tax ez form 2011 Tax on a short period tax return is figured differently for each situation. Federal tax ez form 2011 Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Federal tax ez form 2011 Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 XYZ Corporation was organized on July 1, 2012. Federal tax ez form 2011 It elected the calendar year as its tax year. Federal tax ez form 2011 Therefore, its first tax return was due March 15, 2013. Federal tax ez form 2011 This short period return will cover the period from July 1, 2012, through December 31, 2012. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 A calendar year corporation dissolved on July 23, 2012. Federal tax ez form 2011 Its final return is due by October 15, 2012. Federal tax ez form 2011 It will cover the short period from January 1, 2012, through July 23, 2012. Federal tax ez form 2011 Death of individual. Federal tax ez form 2011   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Federal tax ez form 2011 The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Federal tax ez form 2011 In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Federal tax ez form 2011 Example. Federal tax ez form 2011   Agnes Green was a single, calendar year taxpayer. Federal tax ez form 2011 She died on March 6, 2012. Federal tax ez form 2011 Her final income tax return must be filed by April 15, 2013. Federal tax ez form 2011 It will cover the short period from January 1, 2012, to March 6, 2012. Federal tax ez form 2011 Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Federal tax ez form 2011 The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Federal tax ez form 2011 Figure tax for a short year under the general rule, explained below. Federal tax ez form 2011 You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Federal tax ez form 2011 General rule. Federal tax ez form 2011   Income tax for a short tax year must be annualized. Federal tax ez form 2011 However, self-employment tax is figured on the actual self-employment income for the short period. Federal tax ez form 2011 Individuals. Federal tax ez form 2011   An individual must figure income tax for the short tax year as follows. Federal tax ez form 2011 Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Federal tax ez form 2011 You must itemize deductions when you file a short period tax return. Federal tax ez form 2011 Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Federal tax ez form 2011 Subtract the amount in (2) from the amount in (1). Federal tax ez form 2011 The result is your modified taxable income. Federal tax ez form 2011 Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Federal tax ez form 2011 The result is your annualized income. Federal tax ez form 2011 Figure the total tax on your annualized income using the appropriate tax rate schedule. Federal tax ez form 2011 Multiply the total tax by the number of months in the short tax year and divide the result by 12. Federal tax ez form 2011 The result is your tax for the short tax year. Federal tax ez form 2011 Relief procedure. Federal tax ez form 2011   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Federal tax ez form 2011 It may result in less tax. Federal tax ez form 2011 Under this procedure, the tax is figured by two separate methods. Federal tax ez form 2011 If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Federal tax ez form 2011 For more information, see section 443(b)(2) of the Internal Revenue Code. Federal tax ez form 2011 Alternative minimum tax. Federal tax ez form 2011   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Federal tax ez form 2011 Multiply the AMTI by 12. Federal tax ez form 2011 Divide the result by the number of months in the short tax year. Federal tax ez form 2011 Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Federal tax ez form 2011 The result is the annualized AMT. Federal tax ez form 2011 Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Federal tax ez form 2011   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Federal tax ez form 2011 For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Federal tax ez form 2011 Tax withheld from wages. Federal tax ez form 2011   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Federal tax ez form 2011 Federal income tax is withheld on a calendar year basis. Federal tax ez form 2011 The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Federal tax ez form 2011 Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Federal tax ez form 2011 For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Federal tax ez form 2011 See Accounting Periods, earlier, for a description of permissible tax years. Federal tax ez form 2011 To change to a proper tax year, you must do one of the following. Federal tax ez form 2011 If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Federal tax ez form 2011 Attach a completed Form 1128 to the amended tax return. Federal tax ez form 2011 Write “FILED UNDER REV. Federal tax ez form 2011 PROC. Federal tax ez form 2011 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Federal tax ez form 2011 If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Federal tax ez form 2011 Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Federal tax ez form 2011 See the Instructions for Form 1128 for exceptions. Federal tax ez form 2011 If you qualify for an automatic approval request, a user fee is not required. Federal tax ez form 2011 Individuals Generally, individuals must adopt the calendar year as their tax year. Federal tax ez form 2011 An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Federal tax ez form 2011 Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Federal tax ez form 2011 A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Federal tax ez form 2011 The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Federal tax ez form 2011 The following discussions provide the rules for partnerships, S corporations, and PSCs. Federal tax ez form 2011 Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Federal tax ez form 2011 The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Federal tax ez form 2011 The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Federal tax ez form 2011 The partnership can establish a business purpose for a different tax year. Federal tax ez form 2011 The rules for the required tax year for partnerships are as follows. Federal tax ez form 2011 If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Federal tax ez form 2011 If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Federal tax ez form 2011 A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Federal tax ez form 2011 If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Federal tax ez form 2011 If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Federal tax ez form 2011 Least aggregate deferral of income. Federal tax ez form 2011   The tax year that results in the least aggregate deferral of income is determined as follows. Federal tax ez form 2011 Figure the number of months of deferral for each partner using one partner's tax year. Federal tax ez form 2011 Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Federal tax ez form 2011 Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Federal tax ez form 2011 Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Federal tax ez form 2011 Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Federal tax ez form 2011   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Federal tax ez form 2011 If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Federal tax ez form 2011 However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Federal tax ez form 2011 Example. Federal tax ez form 2011 A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Federal tax ez form 2011 A uses the calendar year and B uses a fiscal year ending November 30. Federal tax ez form 2011 P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Federal tax ez form 2011 Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Federal tax ez form 2011 5 -0- -0- B 11/30 0. Federal tax ez form 2011 5 11 5. Federal tax ez form 2011 5 Total Deferral 5. Federal tax ez form 2011 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Federal tax ez form 2011 5 1 0. Federal tax ez form 2011 5 B 11/30 0. Federal tax ez form 2011 5 -0- -0- Total Deferral 0. Federal tax ez form 2011 5 When determination is made. Federal tax ez form 2011   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Federal tax ez form 2011 However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Federal tax ez form 2011 This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Federal tax ez form 2011 Short period return. Federal tax ez form 2011   When a partnership changes its tax year, a short period return must be filed. Federal tax ez form 2011 The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Federal tax ez form 2011   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Federal tax ez form 2011 The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Federal tax ez form 2011 706-1. Federal tax ez form 2011 ” More information. Federal tax ez form 2011   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Federal tax ez form 2011 S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Federal tax ez form 2011 A permitted tax year is any of the following. Federal tax ez form 2011 The calendar year. Federal tax ez form 2011 A tax year elected under section 444 of the Internal Revenue Code. Federal tax ez form 2011 See Section 444 Election, below for details. Federal tax ez form 2011 A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Federal tax ez form 2011 Any other tax year for which the corporation establishes a business purpose. Federal tax ez form 2011 If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Federal tax ez form 2011 For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Federal tax ez form 2011 Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Federal tax ez form 2011 The corporation makes an election under section 444 of the Internal Revenue Code. Federal tax ez form 2011 See Section 444 Election, below for details. Federal tax ez form 2011 The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Federal tax ez form 2011 The corporation establishes a business purpose for a fiscal year. Federal tax ez form 2011 See the Instructions for Form 1120 for general information about PSCs. Federal tax ez form 2011 For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Federal tax ez form 2011 Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Federal tax ez form 2011 Certain restrictions apply to the election. Federal tax ez form 2011 A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Federal tax ez form 2011 The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Federal tax ez form 2011 A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Federal tax ez form 2011 It is not a member of a tiered structure (defined in section 1. Federal tax ez form 2011 444-2T of the regulations). Federal tax ez form 2011 It has not previously had a section 444 election in effect. Federal tax ez form 2011 It elects a year that meets the deferral period requirement. Federal tax ez form 2011 Deferral period. Federal tax ez form 2011   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Federal tax ez form 2011 Retaining tax year. Federal tax ez form 2011   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Federal tax ez form 2011 This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Federal tax ez form 2011 Adopting or changing tax year. Federal tax ez form 2011   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Federal tax ez form 2011 The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Federal tax ez form 2011 This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Federal tax ez form 2011 If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 BD Partnership uses a calendar year, which is also its required tax year. Federal tax ez form 2011 BD cannot make a section 444 election because the deferral period is zero. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 E, a newly formed partnership, began operations on December 1. Federal tax ez form 2011 E is owned by calendar year partners. Federal tax ez form 2011 E wants to make a section 444 election to adopt a September 30 tax year. Federal tax ez form 2011 E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Federal tax ez form 2011 Making the election. Federal tax ez form 2011   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Federal tax ez form 2011 Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Federal tax ez form 2011 For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Federal tax ez form 2011 Note. Federal tax ez form 2011 If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Federal tax ez form 2011   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Federal tax ez form 2011 AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Federal tax ez form 2011 AB must file Form 8716 by March 17, 2013. Federal tax ez form 2011 Example 3. Federal tax ez form 2011 B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Federal tax ez form 2011 B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Federal tax ez form 2011 B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Federal tax ez form 2011 Note. Federal tax ez form 2011 The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Federal tax ez form 2011 Extension of time for filing. Federal tax ez form 2011   There is an automatic extension of 12 months to make this election. Federal tax ez form 2011 See the Form 8716 instructions for more information. Federal tax ez form 2011 Terminating the election. Federal tax ez form 2011   The section 444 election remains in effect until it is terminated. Federal tax ez form 2011 If the election is terminated, another section 444 election cannot be made for any tax year. Federal tax ez form 2011   The election ends when any of the following applies to the partnership, S corporation, or PSC. Federal tax ez form 2011 The entity changes to its required tax year. Federal tax ez form 2011 The entity liquidates. Federal tax ez form 2011 The entity becomes a member of a tiered structure. Federal tax ez form 2011 The IRS determines that the entity willfully failed to comply with the required payments or distributions. Federal tax ez form 2011   The election will also end if either of the following events occur. Federal tax ez form 2011 An S corporation's S election is terminated. Federal tax ez form 2011 However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Federal tax ez form 2011 A PSC ceases to be a PSC. Federal tax ez form 2011 If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Federal tax ez form 2011 Required payment for partnership or S corporation. Federal tax ez form 2011   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Federal tax ez form 2011 The required payment for that year (or any preceding tax year) is more than $500. Federal tax ez form 2011    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Federal tax ez form 2011   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Federal tax ez form 2011 If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Federal tax ez form 2011 If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Federal tax ez form 2011 Applicable election year. Federal tax ez form 2011   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Federal tax ez form 2011 Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Federal tax ez form 2011 Required distribution for PSC. Federal tax ez form 2011   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Federal tax ez form 2011 If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Federal tax ez form 2011 The amount deferred is treated as paid or incurred in the following tax year. Federal tax ez form 2011   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Federal tax ez form 2011 Back-up election. Federal tax ez form 2011   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Federal tax ez form 2011 If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Federal tax ez form 2011 Making back-up election. Federal tax ez form 2011   The general rules for making a section 444 election, as discussed earlier, apply. Federal tax ez form 2011 When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Federal tax ez form 2011 However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Federal tax ez form 2011 Activating election. Federal tax ez form 2011   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Federal tax ez form 2011 The due date for filing Form 8752 and making the payment is the later of the following dates. Federal tax ez form 2011 May 15 of the calendar year following the calendar year in which the applicable election year begins. Federal tax ez form 2011 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Federal tax ez form 2011   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Federal tax ez form 2011 ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Federal tax ez form 2011 A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Federal tax ez form 2011 However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Federal tax ez form 2011 Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Federal tax ez form 2011 See the Instructions for Form 1128 for details. Federal tax ez form 2011 Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Federal tax ez form 2011 A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Federal tax ez form 2011 An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Federal tax ez form 2011 Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Federal tax ez form 2011 See the Instructions for Form 1128 for details. Federal tax ez form 2011 Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Federal tax ez form 2011 Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Federal tax ez form 2011 You choose an accounting method when you file your first tax return. Federal tax ez form 2011 If you later want to change your accounting method, you must get IRS approval. Federal tax ez form 2011 See Change in Accounting Method, later. Federal tax ez form 2011 No single accounting method is required of all taxpayers. Federal tax ez form 2011 You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Federal tax ez form 2011 In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Federal tax ez form 2011 You must use the same accounting method from year to year. Federal tax ez form 2011 An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Federal tax ez form 2011 If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Federal tax ez form 2011 Methods you can use. Federal tax ez form 2011   In general, you can compute your taxable income under any of the following accounting methods. Federal tax ez form 2011 Cash method. Federal tax ez form 2011 Accrual method. Federal tax ez form 2011 Special methods of accounting for certain items of income and expenses. Federal tax ez form 2011 A hybrid method which combines elements of two or more of the above accounting methods. Federal tax ez form 2011 The cash and accrual methods of accounting are explained later. Federal tax ez form 2011 Special methods. Federal tax ez form 2011   This publication does not discuss special methods of accounting for certain items of income or expenses. Federal tax ez form 2011 For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Federal tax ez form 2011 The following publications also discuss special methods of reporting income or expenses. Federal tax ez form 2011 Publication 225, Farmer's Tax Guide. Federal tax ez form 2011 Publication 535, Business Expenses. Federal tax ez form 2011 Publication 537, Installment Sales. Federal tax ez form 2011 Publication 946, How To Depreciate Property. Federal tax ez form 2011 Hybrid method. Federal tax ez form 2011   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Federal tax ez form 2011 However, the following restrictions apply. Federal tax ez form 2011 If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Federal tax ez form 2011 See Exceptions under Inventories, later. Federal tax ez form 2011 Generally, you can use the cash method for all other items of income and expenses. Federal tax ez form 2011 See Inventories, later. Federal tax ez form 2011 If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Federal tax ez form 2011 If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Federal tax ez form 2011 Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Federal tax ez form 2011 Business and personal items. Federal tax ez form 2011   You can account for business and personal items using different accounting methods. Federal tax ez form 2011 For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Federal tax ez form 2011 Two or more businesses. Federal tax ez form 2011   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Federal tax ez form 2011 No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Federal tax ez form 2011 Note. Federal tax ez form 2011 If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Federal tax ez form 2011 Cash Method Most individuals and many small businesses use the cash method of accounting. Federal tax ez form 2011 Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Federal tax ez form 2011 See Inventories, later, for exceptions to this rule. Federal tax ez form 2011 Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Federal tax ez form 2011 If you receive property and services, you must include their fair market value (FMV) in income. Federal tax ez form 2011 Constructive receipt. Federal tax ez form 2011   Income is constructively received when an amount is credited to your account or made available to you without restriction. Federal tax ez form 2011 You need not have possession of it. Federal tax ez form 2011 If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Federal tax ez form 2011 Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Federal tax ez form 2011 Example. Federal tax ez form 2011 You are a calendar year taxpayer. Federal tax ez form 2011 Your bank credited, and made available, interest to your bank account in December 2012. Federal tax ez form 2011 You did not withdraw it or enter it into your books until 2013. Federal tax ez form 2011 You must include the amount in gross income for 2012, the year you constructively received it. Federal tax ez form 2011 You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Federal tax ez form 2011 You must report the income in the year the property is received or made available to you without restriction. Federal tax ez form 2011 Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Federal tax ez form 2011 This includes business expenses for which you contest liability. Federal tax ez form 2011 However, you may not be able to deduct an expense paid in advance. Federal tax ez form 2011 Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Federal tax ez form 2011 Expense paid in advance. Federal tax ez form 2011   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Federal tax ez form 2011   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Federal tax ez form 2011 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Federal tax ez form 2011   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Federal tax ez form 2011 See Change in Accounting Method, later. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Federal tax ez form 2011 The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Federal tax ez form 2011 Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Federal tax ez form 2011 The 12-month rule applies. Federal tax ez form 2011 Therefore, the full $10,000 is deductible in 2012. Federal tax ez form 2011 Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Federal tax ez form 2011 (See Special rules for farming businesses, later. Federal tax ez form 2011 ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Federal tax ez form 2011 See Gross receipts test, below. Federal tax ez form 2011 A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Federal tax ez form 2011 See Gross receipts test, below. Federal tax ez form 2011 A tax shelter. Federal tax ez form 2011 Exceptions The following entities are not prohibited from using the cash method of accounting. Federal tax ez form 2011 Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Federal tax ez form 2011 A qualified personal service corporation (PSC). Federal tax ez form 2011 Gross receipts test. Federal tax ez form 2011   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Federal tax ez form 2011 A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Federal tax ez form 2011    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Federal tax ez form 2011 See Gross receipts test for qualifying taxpayers, for more information. Federal tax ez form 2011 Generally, a partnership applies the test at the partnership level. Federal tax ez form 2011 Gross receipts for a short tax year are annualized. Federal tax ez form 2011 Aggregation rules. Federal tax ez form 2011   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Federal tax ez form 2011 Change to accrual method. Federal tax ez form 2011   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Federal tax ez form 2011 Special rules for farming businesses. Federal tax ez form 2011   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Federal tax ez form 2011 However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Federal tax ez form 2011 For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Federal tax ez form 2011   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Federal tax ez form 2011 For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Federal tax ez form 2011 See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Federal tax ez form 2011 Qualified PSC. Federal tax ez form 2011   A PSC that meets the following function and ownership tests can use the cash method. Federal tax ez form 2011 Function test. Federal tax ez form 2011   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Federal tax ez form 2011 Ownership test. Federal tax ez form 2011   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Federal tax ez form 2011 Employees performing services for the corporation in a field qualifying under the function test. Federal tax ez form 2011 Retired employees who had performed services in those fields. Federal tax ez form 2011 The estate of an employee described in (1) or (2). Federal tax ez form 2011 Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Federal tax ez form 2011   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Federal tax ez form 2011 Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Federal tax ez form 2011 Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Federal tax ez form 2011   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Federal tax ez form 2011 Change to accrual method. Federal tax ez form 2011   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Federal tax ez form 2011 A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Federal tax ez form 2011 Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Federal tax ez form 2011 The purpose of an accrual method of accounting is to match income and expenses in the correct year. Federal tax ez form 2011 Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Federal tax ez form 2011 Under this rule, you report an amount in your gross income on the earliest of the following dates. Federal tax ez form 2011 When you receive payment. Federal tax ez form 2011 When the income amount is due to you. Federal tax ez form 2011 When you earn the income. Federal tax ez form 2011 When title has passed. Federal tax ez form 2011 Estimated income. Federal tax ez form 2011   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Federal tax ez form 2011 Change in payment schedule. Federal tax ez form 2011   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Federal tax ez form 2011 Continue this procedure until you complete the services, then account for the difference. Federal tax ez form 2011 Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Federal tax ez form 2011 However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Federal tax ez form 2011 However, you cannot postpone including any payment beyond that tax year. Federal tax ez form 2011 Service agreement. Federal tax ez form 2011   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Federal tax ez form 2011 This includes an agreement providing for incidental replacement of parts or materials. Federal tax ez form 2011 However, this applies only if you offer the property without a service agreement in the normal course of business. Federal tax ez form 2011 Postponement not allowed. Federal tax ez form 2011   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Federal tax ez form 2011 You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Federal tax ez form 2011 You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Federal tax ez form 2011 Examples. Federal tax ez form 2011   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 You manufacture, sell, and service computers. Federal tax ez form 2011 You received payment in 2012 for a one-year contingent service contract on a computer you sold. Federal tax ez form 2011 You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 You are in the television repair business. Federal tax ez form 2011 You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Federal tax ez form 2011 You include the payments in gross income as you earn them. Federal tax ez form 2011 Example 3. Federal tax ez form 2011 You own a dance studio. Federal tax ez form 2011 On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Federal tax ez form 2011 You give eight lessons in 2012. Federal tax ez form 2011 Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Federal tax ez form 2011 Example 4. Federal tax ez form 2011 Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Federal tax ez form 2011 You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Federal tax ez form 2011 Guarantee or warranty. Federal tax ez form 2011   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Federal tax ez form 2011 Prepaid rent. Federal tax ez form 2011   You cannot postpone reporting income from prepaid rent. Federal tax ez form 2011 Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Federal tax ez form 2011 You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Federal tax ez form 2011 Books and records. Federal tax ez form 2011   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Federal tax ez form 2011 Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Federal tax ez form 2011 IRS approval. Federal tax ez form 2011   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Federal tax ez form 2011 Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Federal tax ez form 2011 However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Federal tax ez form 2011 An agreement includes a gift certificate that can be redeemed for goods. Federal tax ez form 2011 Amounts due and payable are considered received. Federal tax ez form 2011 How to report payments. Federal tax ez form 2011   Generally, include an advance payment in income in the year in which you receive it. Federal tax ez form 2011 However, you can use the alternative method, discussed next. Federal tax ez form 2011 Alternative method of reporting. Federal tax ez form 2011   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Federal tax ez form 2011 Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Federal tax ez form 2011 Example 1. Federal tax ez form 2011 You are a retailer. Federal tax ez form 2011 You use an accrual method of accounting and account for the sale of goods when you ship the goods. Federal tax ez form 2011 You use this method for both tax and financial reporting purposes. Federal tax ez form 2011 You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Federal tax ez form 2011 However, see Exception for inventory goods, later. Federal tax ez form 2011 Example 2. Federal tax ez form 2011 You are a calendar year taxpayer. Federal tax ez form 2011 You manufacture household furniture and use an accrual method of accounting. Federal tax ez form 2011 Under this method, you accrue income for your financial reports when you ship the furniture. Federal tax ez form 2011 For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Federal tax ez form 2011 In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Federal tax ez form 2011 You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Federal tax ez form 2011 For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Federal tax ez form 2011 Information schedule. Federal tax ez form 2011   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Federal tax ez form 2011 Total advance payments received in the current tax year. Federal tax ez form 2011 Total advance payments received in earlier tax years and not included in income before the current tax year. Federal tax ez form 2011 Total payments received in earlier tax years included in income for the current tax year. Federal tax ez form 2011 Exception for inventory goods. Federal tax ez form 2011   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Federal tax ez form 2011 You account for the advance payment under the alternative method (discussed earlier). Federal tax ez form 2011 You have received a substantial advance payment on the agreement (discussed next). Federal tax ez form 2011 You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Federal tax ez form 2011 These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Federal tax ez form 2011   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Federal tax ez form 2011 You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Federal tax ez form 2011 If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Federal tax ez form 2011 Note. Federal tax ez form 2011 You must report any advance payments you receive after the second year in the year received. Federal tax ez form 2011 No further deferral is allowed. Federal tax ez form 2011 Substantial advance payments. Federal tax ez form 2011   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Federal tax ez form 2011 Example. Federal tax ez form 2011 You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Federal tax ez form 2011 In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Federal tax ez form 2011 The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Federal tax ez form 2011 You receive the following advance payments under the contract. Federal tax ez form 2011 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Federal tax ez form 2011 In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Federal tax ez form 2011 Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Federal tax ez form 2011   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Federal tax ez form 2011 You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Federal tax ez form 2011 If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Federal tax ez form 2011   No further deferral is allowed. Federal tax ez form 2011 You must include in gross income the advance payment you receive each remaining year of the contract. Federal tax ez form 2011 Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Federal tax ez form 2011 IRS approval. Federal tax ez form 2011   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Federal tax ez form 2011 Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Federal tax ez form 2011 The all-events test has been met. Federal tax ez form 2011 The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Federal tax ez form 2011 Economic performance has occurred. Federal tax ez form 2011 Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Federal tax ez form 2011 If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Federal tax ez form 2011 If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Federal tax ez form 2011 Example. Federal tax ez form 2011 You are a calendar year taxpayer. Federal tax ez form 2011 You buy office supplies in December 2012. Federal tax ez form 2011 You receive the supplies and the bill in December, but you pay the bill in January 2013. Federal tax ez form 2011 You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Federal tax ez form 2011 Your office supplies may qualify as a recurring item, discussed later. Federal tax ez form 2011 If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Federal tax ez form 2011 Workers' compensation and tort liability. Federal tax ez form 2011   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Federal tax ez form 2011 If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Federal tax ez form 2011 Taxes. Federal tax ez form 2011   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Federal tax ez form 2011 are paid. Federal tax ez form 2011 However, you can elect to treat taxes as a recurring item, discussed later. Federal tax ez form 2011 You can also elect to ratably accrue real estate taxes. Federal tax ez form 2011 See chapter 5 of Publication 535 for information about real estate taxes. Federal tax ez form 2011 Other liabilities. Federal tax ez form 2011   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Federal tax ez form 2011 Interest. Federal tax ez form 2011   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Federal tax ez form 2011 Compensation for services. Federal tax ez form 2011   Generally, economic performance occurs as an employee renders service to the employer. Federal tax ez form 2011 However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Federal tax ez form 2011 For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Federal tax ez form 2011 Vacation pay. Federal tax ez form 2011   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Federal tax ez form 2011 If you pay it later than this, you must deduct it in the year actually paid. Federal tax ez form 2011 An amount is vested if your right to it cannot be nullified or cancelled. Federal tax ez form 2011 Exception for recurring items. Federal tax ez form 2011   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Federal tax ez form 2011 The exception applies if all the following requirements are met. Federal tax ez form 2011 The all-events test, discussed earlier, is met. Federal tax ez form 2011 Economic performance occurs by the earlier of the following dates. Federal tax ez form 2011 8½ months after the close of the year. Federal tax ez form 2011 The date you file a timely return (including extensions) for the year. Federal tax ez form 2011 The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Federal tax ez form 2011 Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Federal tax ez form 2011 This exception does not apply to workers' compensation or tort liabilities. Federal tax ez form 2011 Amended return. Federal tax ez form 2011   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Federal tax ez form 2011 You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Federal tax ez form 2011 Recurrence and consistency. Federal tax ez form 2011   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Federal tax ez form 2011 A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Federal tax ez form 2011 Materiality. Federal tax ez form 2011   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Federal tax ez form 2011   An item considered material for financial statement purposes is also considered material for tax purposes. Federal tax ez form 2011 However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Federal tax ez form 2011 Matching expenses with income. Federal tax ez form 2011   Costs directly associated with the revenue of a period are properly allocable to that period. Federal tax ez form 2011 To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Federal tax ez form 2011 fasab. Federal tax ez form 2011 gov/accepted. Federal tax ez form 2011 html) are an important factor. Federal tax ez form 2011   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Federal tax ez form 2011 Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Federal tax ez form 2011 However, the matching requirement is considered met for certain types of expenses. Federal tax ez form 2011 These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Federal tax ez form 2011 Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Federal tax ez form 2011 Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Federal tax ez form 2011 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Federal tax ez form 2011 If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Federal tax ez form 2011 See Change in Accounting Method, later, for information on how to get IRS approval. Federal tax ez form 2011 See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Federal tax ez form 2011 Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Federal tax ez form 2011 Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Federal tax ez form 2011 See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Federal tax ez form 2011 Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Federal tax ez form 2011 If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Federal tax ez form 2011 However, see Exceptions, next. Federal tax ez form 2011 See also Accrual Method, earlier. Federal tax ez form 2011 To figure taxable income, you must value your inventory at the beginning and end of each tax year. Federal tax ez form 2011 To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Federal tax ez form 2011 See Identifying Cost and Valuing Inventory, later. Federal tax ez form 2011 The rules for valuing inventory are not the same for all businesses. Federal tax ez form 2011 The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Federal tax ez form 2011 Your inventory practices must be consistent from year to year. Federal tax ez form 2011 The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Federal tax ez form 2011 Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Federal tax ez form 2011 These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Federal tax ez form 2011 A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Federal tax ez form 2011 irs. Federal tax ez form 2011 gov/pub/irs-irbs/irb01–02. Federal tax ez form 2011 pdf. Federal tax ez form 2011 A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Federal tax ez form 2011 irs. Federal tax ez form 2011 gov/pub/irs-irbs/irb02–18. Federal tax ez form 2011 pdf. Federal tax ez form 2011 In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Federal tax ez form 2011 Qualifying taxpayer. Federal tax ez form 2011   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Federal tax ez form 2011 Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Federal tax ez form 2011 You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Federal tax ez form 2011 Gross receipts test for qualifying taxpayers. Federal tax ez form 2011   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Federal tax ez form 2011 List each of the test years. Federal tax ez form 2011 For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Federal tax ez form 2011 Step 2. Federal tax ez form 2011 Determine your average annual gross receipts for each test year listed in Step 1. Federal tax ez form 2011 Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Federal tax ez form 2011 Step 3. Federal tax ez form 2011 You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Federal tax ez form 2011 Qualifying small business taxpayer. Federal tax ez form 2011   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Federal tax ez form 2011 Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Federal tax ez form 2011 You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Federal tax ez form 2011 Your principle business activity is an eligible business. Federal tax ez form 2011 See Eligible business, later. Federal tax ez form 2011 You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Federal tax ez form 2011 Note. Federal tax ez form 2011 Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Federal tax ez form 2011 A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Federal tax ez form 2011 See Special rules for farming businesses under Cash Method, earlier. Federal tax ez form 2011 Gross receipts test for qualifying small business taxpayers. Federal tax ez form 2011   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Federal tax ez form 2011 List each of the test years. Federal tax ez form 2011 For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Federal tax ez form 2011 Step 2. Federal tax ez form 2011 Determine your average annual gross receipts for each test year listed in Step 1. Federal tax ez form 2011 Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Federal tax ez form 2011 Step 3. Federal tax ez form 2011 You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Federal tax ez form 2011 Eligible business. Federal tax ez form 2011   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Federal tax ez form 2011 You have an eligible business if you meet any of the following requirements. Federal tax ez form 2011 Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Federal tax ez form 2011 NAICS codes 31-33 (manufacturing). Federal tax ez form 2011 NAICS code 42 (wholesale trade). Federal tax ez form 2011 NAICS codes 44-45 (retail trade). Federal tax ez form 2011 NAICS codes 5111 and 5122 (information industries). Federal tax ez form 2011 Your principal business activity is the provision of services, including the provision of property incident to those services. Federal tax ez form 2011 Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Federal tax ez form 2011   Information about the NAICS codes can be found at http://www. Federal tax ez form 2011 census. Federal tax ez form 2011 gov/naics or in the instructions for your federal income tax return. Federal tax ez form 2011 Gross receipts. Federal tax ez form 2011   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Federal tax ez form 2011 See the definit