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Filing 2010 Taxes Late Online

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Filing 2010 Taxes Late Online

Filing 2010 taxes late online 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. Filing 2010 taxes late online Hybrid method. Filing 2010 taxes late online Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Filing 2010 taxes late online Accounting Periods You must use a tax year to figure your taxable income. Filing 2010 taxes late online A tax year is an annual accounting period for keeping records and reporting income and expenses. Filing 2010 taxes late online An annual accounting period does not include a short tax year (discussed later). Filing 2010 taxes late online You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Filing 2010 taxes late online Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Filing 2010 taxes late online A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Filing 2010 taxes late online 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. Filing 2010 taxes late online This section discusses: A calendar year. Filing 2010 taxes late online A fiscal year (including a period of 52 or 53 weeks). Filing 2010 taxes late online A short tax year. Filing 2010 taxes late online An improper tax year. Filing 2010 taxes late online A change in tax year. Filing 2010 taxes late online Special situations that apply to individuals. Filing 2010 taxes late online Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Filing 2010 taxes late online Special situations that apply to corporations. Filing 2010 taxes late online Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online See Change in Tax Year, later. Filing 2010 taxes late online Generally, anyone can adopt the calendar year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online If you make this election, your 52-53-week tax year must always end on the same day of the week. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Election. Filing 2010 taxes late online   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Filing 2010 taxes late online The month in which the new 52-53-week tax year ends. Filing 2010 taxes late online The day of the week on which the tax year always ends. Filing 2010 taxes late online The date the tax year ends. Filing 2010 taxes late online 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. Filing 2010 taxes late online   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Filing 2010 taxes late online   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. Filing 2010 taxes late online Example. Filing 2010 taxes late online Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Filing 2010 taxes late online 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. Filing 2010 taxes late online Short Tax Year A short tax year is a tax year of less than 12 months. Filing 2010 taxes late online 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. Filing 2010 taxes late online Tax on a short period tax return is figured differently for each situation. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online XYZ Corporation was organized on July 1, 2012. Filing 2010 taxes late online It elected the calendar year as its tax year. Filing 2010 taxes late online Therefore, its first tax return was due March 15, 2013. Filing 2010 taxes late online This short period return will cover the period from July 1, 2012, through December 31, 2012. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online A calendar year corporation dissolved on July 23, 2012. Filing 2010 taxes late online Its final return is due by October 15, 2012. Filing 2010 taxes late online It will cover the short period from January 1, 2012, through July 23, 2012. Filing 2010 taxes late online Death of individual. Filing 2010 taxes late online   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. Filing 2010 taxes late online The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example. Filing 2010 taxes late online   Agnes Green was a single, calendar year taxpayer. Filing 2010 taxes late online She died on March 6, 2012. Filing 2010 taxes late online Her final income tax return must be filed by April 15, 2013. Filing 2010 taxes late online It will cover the short period from January 1, 2012, to March 6, 2012. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Figure tax for a short year under the general rule, explained below. Filing 2010 taxes late online You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Filing 2010 taxes late online General rule. Filing 2010 taxes late online   Income tax for a short tax year must be annualized. Filing 2010 taxes late online However, self-employment tax is figured on the actual self-employment income for the short period. Filing 2010 taxes late online Individuals. Filing 2010 taxes late online   An individual must figure income tax for the short tax year as follows. Filing 2010 taxes late online Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Filing 2010 taxes late online You must itemize deductions when you file a short period tax return. Filing 2010 taxes late online Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Filing 2010 taxes late online Subtract the amount in (2) from the amount in (1). Filing 2010 taxes late online The result is your modified taxable income. Filing 2010 taxes late online Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Filing 2010 taxes late online The result is your annualized income. Filing 2010 taxes late online Figure the total tax on your annualized income using the appropriate tax rate schedule. Filing 2010 taxes late online Multiply the total tax by the number of months in the short tax year and divide the result by 12. Filing 2010 taxes late online The result is your tax for the short tax year. Filing 2010 taxes late online Relief procedure. Filing 2010 taxes late online   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Filing 2010 taxes late online It may result in less tax. Filing 2010 taxes late online Under this procedure, the tax is figured by two separate methods. Filing 2010 taxes late online 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. Filing 2010 taxes late online For more information, see section 443(b)(2) of the Internal Revenue Code. Filing 2010 taxes late online Alternative minimum tax. Filing 2010 taxes late online   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. Filing 2010 taxes late online Multiply the AMTI by 12. Filing 2010 taxes late online Divide the result by the number of months in the short tax year. Filing 2010 taxes late online Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Filing 2010 taxes late online The result is the annualized AMT. Filing 2010 taxes late online Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Filing 2010 taxes late online   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Filing 2010 taxes late online For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Filing 2010 taxes late online Tax withheld from wages. Filing 2010 taxes late online   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Filing 2010 taxes late online Federal income tax is withheld on a calendar year basis. Filing 2010 taxes late online The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Filing 2010 taxes late online Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Filing 2010 taxes late online 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. Filing 2010 taxes late online See Accounting Periods, earlier, for a description of permissible tax years. Filing 2010 taxes late online To change to a proper tax year, you must do one of the following. Filing 2010 taxes late online 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. Filing 2010 taxes late online Attach a completed Form 1128 to the amended tax return. Filing 2010 taxes late online Write “FILED UNDER REV. Filing 2010 taxes late online PROC. Filing 2010 taxes late online 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Filing 2010 taxes late online 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. Filing 2010 taxes late online Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Filing 2010 taxes late online See the Instructions for Form 1128 for exceptions. Filing 2010 taxes late online If you qualify for an automatic approval request, a user fee is not required. Filing 2010 taxes late online Individuals Generally, individuals must adopt the calendar year as their tax year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Filing 2010 taxes late online A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Filing 2010 taxes late online 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). Filing 2010 taxes late online The following discussions provide the rules for partnerships, S corporations, and PSCs. Filing 2010 taxes late online Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online The partnership can establish a business purpose for a different tax year. Filing 2010 taxes late online The rules for the required tax year for partnerships are as follows. Filing 2010 taxes late online 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. Filing 2010 taxes late online If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Filing 2010 taxes late online A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Filing 2010 taxes late online 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. Filing 2010 taxes late online If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Filing 2010 taxes late online Least aggregate deferral of income. Filing 2010 taxes late online   The tax year that results in the least aggregate deferral of income is determined as follows. Filing 2010 taxes late online Figure the number of months of deferral for each partner using one partner's tax year. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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). Filing 2010 taxes late online Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Filing 2010 taxes late online Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Filing 2010 taxes late online   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Filing 2010 taxes late online 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. Filing 2010 taxes late online However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Filing 2010 taxes late online Example. Filing 2010 taxes late online A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Filing 2010 taxes late online A uses the calendar year and B uses a fiscal year ending November 30. Filing 2010 taxes late online 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. Filing 2010 taxes late online Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Filing 2010 taxes late online 5 -0- -0- B 11/30 0. Filing 2010 taxes late online 5 11 5. Filing 2010 taxes late online 5 Total Deferral 5. Filing 2010 taxes late online 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Filing 2010 taxes late online 5 1 0. Filing 2010 taxes late online 5 B 11/30 0. Filing 2010 taxes late online 5 -0- -0- Total Deferral 0. Filing 2010 taxes late online 5 When determination is made. Filing 2010 taxes late online   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. Filing 2010 taxes late online However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Filing 2010 taxes late online This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Filing 2010 taxes late online Short period return. Filing 2010 taxes late online   When a partnership changes its tax year, a short period return must be filed. Filing 2010 taxes late online 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. Filing 2010 taxes late online   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. Filing 2010 taxes late online The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Filing 2010 taxes late online 706-1. Filing 2010 taxes late online ” More information. Filing 2010 taxes late online   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Filing 2010 taxes late online S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Filing 2010 taxes late online A permitted tax year is any of the following. Filing 2010 taxes late online The calendar year. Filing 2010 taxes late online A tax year elected under section 444 of the Internal Revenue Code. Filing 2010 taxes late online See Section 444 Election, below for details. Filing 2010 taxes late online A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Filing 2010 taxes late online Any other tax year for which the corporation establishes a business purpose. Filing 2010 taxes late online 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. Filing 2010 taxes late online For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Filing 2010 taxes late online Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Filing 2010 taxes late online The corporation makes an election under section 444 of the Internal Revenue Code. Filing 2010 taxes late online See Section 444 Election, below for details. Filing 2010 taxes late online 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. Filing 2010 taxes late online The corporation establishes a business purpose for a fiscal year. Filing 2010 taxes late online See the Instructions for Form 1120 for general information about PSCs. Filing 2010 taxes late online For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Filing 2010 taxes late online 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. Filing 2010 taxes late online Certain restrictions apply to the election. Filing 2010 taxes late online 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). Filing 2010 taxes late online 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. Filing 2010 taxes late online A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Filing 2010 taxes late online It is not a member of a tiered structure (defined in section 1. Filing 2010 taxes late online 444-2T of the regulations). Filing 2010 taxes late online It has not previously had a section 444 election in effect. Filing 2010 taxes late online It elects a year that meets the deferral period requirement. Filing 2010 taxes late online Deferral period. Filing 2010 taxes late online   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. Filing 2010 taxes late online Retaining tax year. Filing 2010 taxes late online   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. Filing 2010 taxes late online This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Filing 2010 taxes late online Adopting or changing tax year. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Filing 2010 taxes late online If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online BD Partnership uses a calendar year, which is also its required tax year. Filing 2010 taxes late online BD cannot make a section 444 election because the deferral period is zero. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online E, a newly formed partnership, began operations on December 1. Filing 2010 taxes late online E is owned by calendar year partners. Filing 2010 taxes late online E wants to make a section 444 election to adopt a September 30 tax year. Filing 2010 taxes late online E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Filing 2010 taxes late online Making the election. Filing 2010 taxes late online   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Filing 2010 taxes late online 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. Filing 2010 taxes late online For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Filing 2010 taxes late online Note. Filing 2010 taxes late online If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Filing 2010 taxes late online   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. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Filing 2010 taxes late online AB must file Form 8716 by March 17, 2013. Filing 2010 taxes late online Example 3. Filing 2010 taxes late online B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Filing 2010 taxes late online B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Filing 2010 taxes late online 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. Filing 2010 taxes late online Note. Filing 2010 taxes late online The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Filing 2010 taxes late online Extension of time for filing. Filing 2010 taxes late online   There is an automatic extension of 12 months to make this election. Filing 2010 taxes late online See the Form 8716 instructions for more information. Filing 2010 taxes late online Terminating the election. Filing 2010 taxes late online   The section 444 election remains in effect until it is terminated. Filing 2010 taxes late online If the election is terminated, another section 444 election cannot be made for any tax year. Filing 2010 taxes late online   The election ends when any of the following applies to the partnership, S corporation, or PSC. Filing 2010 taxes late online The entity changes to its required tax year. Filing 2010 taxes late online The entity liquidates. Filing 2010 taxes late online The entity becomes a member of a tiered structure. Filing 2010 taxes late online The IRS determines that the entity willfully failed to comply with the required payments or distributions. Filing 2010 taxes late online   The election will also end if either of the following events occur. Filing 2010 taxes late online An S corporation's S election is terminated. Filing 2010 taxes late online However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Filing 2010 taxes late online A PSC ceases to be a PSC. Filing 2010 taxes late online If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Filing 2010 taxes late online Required payment for partnership or S corporation. Filing 2010 taxes late online   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Filing 2010 taxes late online The required payment for that year (or any preceding tax year) is more than $500. Filing 2010 taxes late online    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Applicable election year. Filing 2010 taxes late online   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Required distribution for PSC. Filing 2010 taxes late online   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Filing 2010 taxes late online If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Filing 2010 taxes late online The amount deferred is treated as paid or incurred in the following tax year. Filing 2010 taxes late online   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). Filing 2010 taxes late online Back-up election. Filing 2010 taxes late online   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. Filing 2010 taxes late online If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Filing 2010 taxes late online Making back-up election. Filing 2010 taxes late online   The general rules for making a section 444 election, as discussed earlier, apply. Filing 2010 taxes late online When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Filing 2010 taxes late online 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. Filing 2010 taxes late online Activating election. Filing 2010 taxes late online   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Filing 2010 taxes late online The due date for filing Form 8752 and making the payment is the later of the following dates. Filing 2010 taxes late online May 15 of the calendar year following the calendar year in which the applicable election year begins. Filing 2010 taxes late online 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Filing 2010 taxes late online   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. Filing 2010 taxes late online ” 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). Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Filing 2010 taxes late online See the Instructions for Form 1128 for details. Filing 2010 taxes late online Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Filing 2010 taxes late online 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. Filing 2010 taxes late online An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Filing 2010 taxes late online 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. Filing 2010 taxes late online See the Instructions for Form 1128 for details. Filing 2010 taxes late online Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Filing 2010 taxes late online Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Filing 2010 taxes late online You choose an accounting method when you file your first tax return. Filing 2010 taxes late online If you later want to change your accounting method, you must get IRS approval. Filing 2010 taxes late online See Change in Accounting Method, later. Filing 2010 taxes late online No single accounting method is required of all taxpayers. Filing 2010 taxes late online 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. Filing 2010 taxes late online In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Filing 2010 taxes late online You must use the same accounting method from year to year. Filing 2010 taxes late online An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Methods you can use. Filing 2010 taxes late online   In general, you can compute your taxable income under any of the following accounting methods. Filing 2010 taxes late online Cash method. Filing 2010 taxes late online Accrual method. Filing 2010 taxes late online Special methods of accounting for certain items of income and expenses. Filing 2010 taxes late online A hybrid method which combines elements of two or more of the above accounting methods. Filing 2010 taxes late online The cash and accrual methods of accounting are explained later. Filing 2010 taxes late online Special methods. Filing 2010 taxes late online   This publication does not discuss special methods of accounting for certain items of income or expenses. Filing 2010 taxes late online 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. Filing 2010 taxes late online The following publications also discuss special methods of reporting income or expenses. Filing 2010 taxes late online Publication 225, Farmer's Tax Guide. Filing 2010 taxes late online Publication 535, Business Expenses. Filing 2010 taxes late online Publication 537, Installment Sales. Filing 2010 taxes late online Publication 946, How To Depreciate Property. Filing 2010 taxes late online Hybrid method. Filing 2010 taxes late online   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. Filing 2010 taxes late online However, the following restrictions apply. Filing 2010 taxes late online If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Filing 2010 taxes late online See Exceptions under Inventories, later. Filing 2010 taxes late online Generally, you can use the cash method for all other items of income and expenses. Filing 2010 taxes late online See Inventories, later. Filing 2010 taxes late online If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Filing 2010 taxes late online If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Filing 2010 taxes late online Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Filing 2010 taxes late online Business and personal items. Filing 2010 taxes late online   You can account for business and personal items using different accounting methods. Filing 2010 taxes late online 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. Filing 2010 taxes late online Two or more businesses. Filing 2010 taxes late online   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Filing 2010 taxes late online No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Filing 2010 taxes late online Note. Filing 2010 taxes late online 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. Filing 2010 taxes late online Cash Method Most individuals and many small businesses use the cash method of accounting. Filing 2010 taxes late online Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Filing 2010 taxes late online See Inventories, later, for exceptions to this rule. Filing 2010 taxes late online Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Filing 2010 taxes late online If you receive property and services, you must include their fair market value (FMV) in income. Filing 2010 taxes late online Constructive receipt. Filing 2010 taxes late online   Income is constructively received when an amount is credited to your account or made available to you without restriction. Filing 2010 taxes late online You need not have possession of it. Filing 2010 taxes late online 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. Filing 2010 taxes late online Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Filing 2010 taxes late online Example. Filing 2010 taxes late online You are a calendar year taxpayer. Filing 2010 taxes late online Your bank credited, and made available, interest to your bank account in December 2012. Filing 2010 taxes late online You did not withdraw it or enter it into your books until 2013. Filing 2010 taxes late online You must include the amount in gross income for 2012, the year you constructively received it. Filing 2010 taxes late online You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Filing 2010 taxes late online You must report the income in the year the property is received or made available to you without restriction. Filing 2010 taxes late online Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Filing 2010 taxes late online This includes business expenses for which you contest liability. Filing 2010 taxes late online However, you may not be able to deduct an expense paid in advance. Filing 2010 taxes late online Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Filing 2010 taxes late online Expense paid in advance. Filing 2010 taxes late online   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. Filing 2010 taxes late online   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. Filing 2010 taxes late online 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Filing 2010 taxes late online   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. Filing 2010 taxes late online See Change in Accounting Method, later. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online 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. Filing 2010 taxes late online The 12-month rule applies. Filing 2010 taxes late online Therefore, the full $10,000 is deductible in 2012. Filing 2010 taxes late online Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Filing 2010 taxes late online (See Special rules for farming businesses, later. Filing 2010 taxes late online ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Filing 2010 taxes late online See Gross receipts test, below. Filing 2010 taxes late online 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. Filing 2010 taxes late online See Gross receipts test, below. Filing 2010 taxes late online A tax shelter. Filing 2010 taxes late online Exceptions The following entities are not prohibited from using the cash method of accounting. Filing 2010 taxes late online Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Filing 2010 taxes late online A qualified personal service corporation (PSC). Filing 2010 taxes late online Gross receipts test. Filing 2010 taxes late online   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Filing 2010 taxes late online 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. Filing 2010 taxes late online    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. Filing 2010 taxes late online See Gross receipts test for qualifying taxpayers, for more information. Filing 2010 taxes late online Generally, a partnership applies the test at the partnership level. Filing 2010 taxes late online Gross receipts for a short tax year are annualized. Filing 2010 taxes late online Aggregation rules. Filing 2010 taxes late online   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. Filing 2010 taxes late online Change to accrual method. Filing 2010 taxes late online   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. Filing 2010 taxes late online Special rules for farming businesses. Filing 2010 taxes late online   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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). Filing 2010 taxes late online   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. Filing 2010 taxes late online For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Filing 2010 taxes late online See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Filing 2010 taxes late online Qualified PSC. Filing 2010 taxes late online   A PSC that meets the following function and ownership tests can use the cash method. Filing 2010 taxes late online Function test. Filing 2010 taxes late online   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. Filing 2010 taxes late online Ownership test. Filing 2010 taxes late online   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. Filing 2010 taxes late online Employees performing services for the corporation in a field qualifying under the function test. Filing 2010 taxes late online Retired employees who had performed services in those fields. Filing 2010 taxes late online The estate of an employee described in (1) or (2). Filing 2010 taxes late online 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. Filing 2010 taxes late online   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Filing 2010 taxes late online Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Filing 2010 taxes late online 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. Filing 2010 taxes late online   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. Filing 2010 taxes late online Change to accrual method. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online The purpose of an accrual method of accounting is to match income and expenses in the correct year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Under this rule, you report an amount in your gross income on the earliest of the following dates. Filing 2010 taxes late online When you receive payment. Filing 2010 taxes late online When the income amount is due to you. Filing 2010 taxes late online When you earn the income. Filing 2010 taxes late online When title has passed. Filing 2010 taxes late online Estimated income. Filing 2010 taxes late online   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. Filing 2010 taxes late online Change in payment schedule. Filing 2010 taxes late online   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. Filing 2010 taxes late online Continue this procedure until you complete the services, then account for the difference. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online However, you cannot postpone including any payment beyond that tax year. Filing 2010 taxes late online Service agreement. Filing 2010 taxes late online   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Filing 2010 taxes late online This includes an agreement providing for incidental replacement of parts or materials. Filing 2010 taxes late online However, this applies only if you offer the property without a service agreement in the normal course of business. Filing 2010 taxes late online Postponement not allowed. Filing 2010 taxes late online   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Examples. Filing 2010 taxes late online   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online You manufacture, sell, and service computers. Filing 2010 taxes late online You received payment in 2012 for a one-year contingent service contract on a computer you sold. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online You are in the television repair business. Filing 2010 taxes late online 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. Filing 2010 taxes late online You include the payments in gross income as you earn them. Filing 2010 taxes late online Example 3. Filing 2010 taxes late online You own a dance studio. Filing 2010 taxes late online On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Filing 2010 taxes late online You give eight lessons in 2012. Filing 2010 taxes late online 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. Filing 2010 taxes late online Example 4. Filing 2010 taxes late online Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Filing 2010 taxes late online You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Filing 2010 taxes late online Guarantee or warranty. Filing 2010 taxes late online   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Filing 2010 taxes late online Prepaid rent. Filing 2010 taxes late online   You cannot postpone reporting income from prepaid rent. Filing 2010 taxes late online Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Filing 2010 taxes late online 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. Filing 2010 taxes late online Books and records. Filing 2010 taxes late online   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. Filing 2010 taxes late online Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Filing 2010 taxes late online IRS approval. Filing 2010 taxes late online   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online An agreement includes a gift certificate that can be redeemed for goods. Filing 2010 taxes late online Amounts due and payable are considered received. Filing 2010 taxes late online How to report payments. Filing 2010 taxes late online   Generally, include an advance payment in income in the year in which you receive it. Filing 2010 taxes late online However, you can use the alternative method, discussed next. Filing 2010 taxes late online Alternative method of reporting. Filing 2010 taxes late online   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. Filing 2010 taxes late online Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online You are a retailer. Filing 2010 taxes late online You use an accrual method of accounting and account for the sale of goods when you ship the goods. Filing 2010 taxes late online You use this method for both tax and financial reporting purposes. Filing 2010 taxes late online 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. Filing 2010 taxes late online However, see Exception for inventory goods, later. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online You are a calendar year taxpayer. Filing 2010 taxes late online You manufacture household furniture and use an accrual method of accounting. Filing 2010 taxes late online Under this method, you accrue income for your financial reports when you ship the furniture. Filing 2010 taxes late online For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Filing 2010 taxes late online 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. Filing 2010 taxes late online You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Filing 2010 taxes late online 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. Filing 2010 taxes late online Information schedule. Filing 2010 taxes late online   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. Filing 2010 taxes late online Total advance payments received in the current tax year. Filing 2010 taxes late online Total advance payments received in earlier tax years and not included in income before the current tax year. Filing 2010 taxes late online Total payments received in earlier tax years included in income for the current tax year. Filing 2010 taxes late online Exception for inventory goods. Filing 2010 taxes late online   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. Filing 2010 taxes late online You account for the advance payment under the alternative method (discussed earlier). Filing 2010 taxes late online You have received a substantial advance payment on the agreement (discussed next). Filing 2010 taxes late online You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Filing 2010 taxes late online 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. Filing 2010 taxes late online   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. Filing 2010 taxes late online You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Filing 2010 taxes late online If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Filing 2010 taxes late online Note. Filing 2010 taxes late online You must report any advance payments you receive after the second year in the year received. Filing 2010 taxes late online No further deferral is allowed. Filing 2010 taxes late online Substantial advance payments. Filing 2010 taxes late online   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. Filing 2010 taxes late online Example. Filing 2010 taxes late online You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Filing 2010 taxes late online In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Filing 2010 taxes late online The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Filing 2010 taxes late online You receive the following advance payments under the contract. Filing 2010 taxes late online 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. Filing 2010 taxes late online In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Filing 2010 taxes late online 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. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Filing 2010 taxes late online   No further deferral is allowed. Filing 2010 taxes late online You must include in gross income the advance payment you receive each remaining year of the contract. Filing 2010 taxes late online Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Filing 2010 taxes late online IRS approval. Filing 2010 taxes late online   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Filing 2010 taxes late online Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Filing 2010 taxes late online The all-events test has been met. Filing 2010 taxes late online The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Filing 2010 taxes late online Economic performance has occurred. Filing 2010 taxes late online Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Filing 2010 taxes late online 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. Filing 2010 taxes late online If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Filing 2010 taxes late online Example. Filing 2010 taxes late online You are a calendar year taxpayer. Filing 2010 taxes late online You buy office supplies in December 2012. Filing 2010 taxes late online You receive the supplies and the bill in December, but you pay the bill in January 2013. Filing 2010 taxes late online 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. Filing 2010 taxes late online Your office supplies may qualify as a recurring item, discussed later. Filing 2010 taxes late online If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Filing 2010 taxes late online Workers' compensation and tort liability. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Taxes. Filing 2010 taxes late online   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Filing 2010 taxes late online are paid. Filing 2010 taxes late online However, you can elect to treat taxes as a recurring item, discussed later. Filing 2010 taxes late online You can also elect to ratably accrue real estate taxes. Filing 2010 taxes late online See chapter 5 of Publication 535 for information about real estate taxes. Filing 2010 taxes late online Other liabilities. Filing 2010 taxes late online   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. Filing 2010 taxes late online Interest. Filing 2010 taxes late online   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. Filing 2010 taxes late online Compensation for services. Filing 2010 taxes late online   Generally, economic performance occurs as an employee renders service to the employer. Filing 2010 taxes late online 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. Filing 2010 taxes late online For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Filing 2010 taxes late online Vacation pay. Filing 2010 taxes late online   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. Filing 2010 taxes late online If you pay it later than this, you must deduct it in the year actually paid. Filing 2010 taxes late online An amount is vested if your right to it cannot be nullified or cancelled. Filing 2010 taxes late online Exception for recurring items. Filing 2010 taxes late online   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. Filing 2010 taxes late online The exception applies if all the following requirements are met. Filing 2010 taxes late online The all-events test, discussed earlier, is met. Filing 2010 taxes late online Economic performance occurs by the earlier of the following dates. Filing 2010 taxes late online 8½ months after the close of the year. Filing 2010 taxes late online The date you file a timely return (including extensions) for the year. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online This exception does not apply to workers' compensation or tort liabilities. Filing 2010 taxes late online Amended return. Filing 2010 taxes late online   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Filing 2010 taxes late online 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. Filing 2010 taxes late online Recurrence and consistency. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online Materiality. Filing 2010 taxes late online   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. Filing 2010 taxes late online   An item considered material for financial statement purposes is also considered material for tax purposes. Filing 2010 taxes late online However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Filing 2010 taxes late online Matching expenses with income. Filing 2010 taxes late online   Costs directly associated with the revenue of a period are properly allocable to that period. Filing 2010 taxes late online 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. Filing 2010 taxes late online fasab. Filing 2010 taxes late online gov/accepted. Filing 2010 taxes late online html) are an important factor. Filing 2010 taxes late online   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. Filing 2010 taxes late online 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. Filing 2010 taxes late online However, the matching requirement is considered met for certain types of expenses. Filing 2010 taxes late online These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Filing 2010 taxes late online 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. Filing 2010 taxes late online 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. Filing 2010 taxes late online 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Filing 2010 taxes late online 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. Filing 2010 taxes late online See Change in Accounting Method, later, for information on how to get IRS approval. Filing 2010 taxes late online See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Filing 2010 taxes late online 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. Filing 2010 taxes late online Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Filing 2010 taxes late online See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Filing 2010 taxes late online Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Filing 2010 taxes late online If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Filing 2010 taxes late online However, see Exceptions, next. Filing 2010 taxes late online See also Accrual Method, earlier. Filing 2010 taxes late online To figure taxable income, you must value your inventory at the beginning and end of each tax year. Filing 2010 taxes late online To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Filing 2010 taxes late online See Identifying Cost and Valuing Inventory, later. Filing 2010 taxes late online The rules for valuing inventory are not the same for all businesses. Filing 2010 taxes late online The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Filing 2010 taxes late online Your inventory practices must be consistent from year to year. Filing 2010 taxes late online 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. Filing 2010 taxes late online Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Filing 2010 taxes late online These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Filing 2010 taxes late online A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Filing 2010 taxes late online irs. Filing 2010 taxes late online gov/pub/irs-irbs/irb01–02. Filing 2010 taxes late online pdf. Filing 2010 taxes late online A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Filing 2010 taxes late online irs. Filing 2010 taxes late online gov/pub/irs-irbs/irb02–18. Filing 2010 taxes late online pdf. Filing 2010 taxes late online 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). Filing 2010 taxes late online Qualifying taxpayer. Filing 2010 taxes late online   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). Filing 2010 taxes late online Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Filing 2010 taxes late online You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Filing 2010 taxes late online Gross receipts test for qualifying taxpayers. Filing 2010 taxes late online   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Filing 2010 taxes late online List each of the test years. Filing 2010 taxes late online For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Filing 2010 taxes late online Step 2. Filing 2010 taxes late online Determine your average annual gross receipts for each test year listed in Step 1. Filing 2010 taxes late online 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. Filing 2010 taxes late online Step 3. Filing 2010 taxes late online 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. Filing 2010 taxes late online Qualifying small business taxpayer. Filing 2010 taxes late online   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). Filing 2010 taxes late online Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Filing 2010 taxes late online You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Filing 2010 taxes late online Your principle business activity is an eligible business. Filing 2010 taxes late online See Eligible business, later. Filing 2010 taxes late online 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. Filing 2010 taxes late online Note. Filing 2010 taxes late online Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Filing 2010 taxes late online A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Filing 2010 taxes late online See Special rules for farming businesses under Cash Method, earlier. Filing 2010 taxes late online Gross receipts test for qualifying small business taxpayers. Filing 2010 taxes late online   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Filing 2010 taxes late online List each of the test years. Filing 2010 taxes late online 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. Filing 2010 taxes late online Step 2. Filing 2010 taxes late online Determine your average annual gross receipts for each test year listed in Step 1. Filing 2010 taxes late online 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. Filing 2010 taxes late online Step 3. Filing 2010 taxes late online 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. Filing 2010 taxes late online Eligible business. Filing 2010 taxes late online   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. Filing 2010 taxes late online You have an eligible business if you meet any of the following requirements. Filing 2010 taxes late online 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). Filing 2010 taxes late online NAICS codes 31-33 (manufacturing). Filing 2010 taxes late online NAICS code 42 (wholesale trade). Filing 2010 taxes late online NAICS codes 44-45 (retail trade). Filing 2010 taxes late online NAICS codes 5111 and 5122 (information industries). Filing 2010 taxes late online Your principal business activity is the provision of services, including the provision of property incident to those services. Filing 2010 taxes late online Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Filing 2010 taxes late online   Information about the NAICS codes can be found at http://www. Filing 2010 taxes late online census. Filing 2010 taxes late online gov/naics or in the instructions for your federal income tax return. Filing 2010 taxes late online Gross receipts. Filing 2010 taxes late online   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. Filing 2010 taxes late online See the definit
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The Filing 2010 Taxes Late Online

Filing 2010 taxes late online 5. Filing 2010 taxes late online   Exemptions, Deductions, and Credits Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Items Related to Excluded Income Exemptions Contributions to Foreign Charitable Organizations Moving ExpensesAllocation of Moving Expenses Forms To File Contributions to Individual Retirement Arrangements Taxes of Foreign Countries and U. Filing 2010 taxes late online S. Filing 2010 taxes late online PossessionsCredit for Foreign Income Taxes Deduction for Foreign Income Taxes Deduction for Other Foreign Taxes How To Report Deductions Topics - This chapter discusses: The rules concerning items related to excluded income, Exemptions, Contributions to foreign charitable organizations, Moving expenses, Contributions to individual retirement arrangements (IRAs), Taxes of foreign countries and U. Filing 2010 taxes late online S. Filing 2010 taxes late online possessions, and How to report deductions. Filing 2010 taxes late online Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 514 Foreign Tax Credit for Individuals 521 Moving Expenses 523 Selling Your Home 590 Individual Retirement Arrangements (IRAs) 597 Information on the United States—Canada Income Tax Treaty Form (and Instructions) 1116 Foreign Tax Credit 2106 Employee Business Expenses 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 3903 Moving Expenses Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business SS-5 Application for a Social Security Card W-7 Application for IRS Individual Taxpayer Identification Number See chapter 7 for information about getting these publications and forms. Filing 2010 taxes late online Items Related to Excluded Income U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. Filing 2010 taxes late online If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Filing 2010 taxes late online This includes any expenses, losses, and other normally deductible items that are allocable to the excluded income. Filing 2010 taxes late online You can deduct only those expenses connected with earning includible income. Filing 2010 taxes late online These rules apply only to items definitely related to the excluded earned income and they do not apply to other items that are not definitely related to any particular type of gross income. Filing 2010 taxes late online These rules do not apply to items such as: Personal exemptions, Qualified retirement contributions, Alimony payments, Charitable contributions, Medical expenses, Mortgage interest, or Real estate taxes on your personal residence. Filing 2010 taxes late online For purposes of these rules, your housing deduction is not treated as allocable to your excluded income, but the deduction for self- employment tax is. Filing 2010 taxes late online If you receive foreign earned income in a tax year after the year in which you earned it, you may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your foreign earned income and housing exclusions. Filing 2010 taxes late online Example. Filing 2010 taxes late online In 2012, you had $90,400 of foreign earned income and $9,500 of deductions allocable to your foreign earned income. Filing 2010 taxes late online You did not have a housing exclusion. Filing 2010 taxes late online Because you excluded all of your foreign earned income, you would not have been able to claim any of the deductions on your 2012 return. Filing 2010 taxes late online In 2013, you received a $12,000 bonus for work you did abroad in 2012. Filing 2010 taxes late online You can exclude $4,700 of the bonus because the limit on the foreign earned income exclusion for 2012 was $95,100 and you have already excluded $90,400. Filing 2010 taxes late online Since you must include $7,300 of the bonus ($12,000 − $4,700) for work you did in 2012 in income, you can file an amended return for 2012 to claim $677 of the deductions. Filing 2010 taxes late online This is the deductions allocable to the foreign earned income ($9,500) multiplied by the includible portion of the foreign earned income ($7,300) and divided by the total foreign earned income for 2012 ($102,400). Filing 2010 taxes late online Exemptions You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax purposes and is not the dependent of another U. Filing 2010 taxes late online S. Filing 2010 taxes late online taxpayer. Filing 2010 taxes late online You also can claim exemptions for individuals who qualify as your dependents. Filing 2010 taxes late online To be your dependent, the individual must be a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen, U. Filing 2010 taxes late online S. Filing 2010 taxes late online national, U. Filing 2010 taxes late online S. Filing 2010 taxes late online resident alien, or a resident of Canada or Mexico for some part of the calendar year in which your tax year begins. Filing 2010 taxes late online Children. Filing 2010 taxes late online   Children usually are citizens or residents of the same country as their parents. Filing 2010 taxes late online If you were a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen when your child was born, your child generally is a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen. Filing 2010 taxes late online This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent. Filing 2010 taxes late online   If you have a legally adopted child who is not a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen, U. Filing 2010 taxes late online S. Filing 2010 taxes late online resident, or U. Filing 2010 taxes late online S. Filing 2010 taxes late online national, the child meets the citizen requirement if you are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen or U. Filing 2010 taxes late online S. Filing 2010 taxes late online national and the child lived with you as a member of your household all year. Filing 2010 taxes late online Social security number. Filing 2010 taxes late online   You must include on your return the social security number (SSN) of each dependent for whom you claim an exemption. Filing 2010 taxes late online To get a social security number for a dependent, apply at a Social Security office or U. Filing 2010 taxes late online S. Filing 2010 taxes late online consulate. Filing 2010 taxes late online You must provide original or certified copies of documents to verify the dependent's age, identity, and citizenship, and complete Form SS-5. Filing 2010 taxes late online   If you do not have an SSN for a child who was born in 2013 and died in 2013, attach a copy of the child's birth certificate to your tax return. Filing 2010 taxes late online Print “Died” in column (2) of line 6c of your Form 1040 or Form 1040A. Filing 2010 taxes late online   If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN. Filing 2010 taxes late online To apply for an ITIN, file Form W-7 with the IRS. Filing 2010 taxes late online It usually takes 6 to 10 weeks to get an ITIN. Filing 2010 taxes late online Enter your dependent's ITIN wherever an SSN is requested on your tax return. Filing 2010 taxes late online More information. Filing 2010 taxes late online   For more information about exemptions, see Publication 501. Filing 2010 taxes late online Contributions to Foreign Charitable Organizations If you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them. Filing 2010 taxes late online Exceptions are explained under Canadian, Mexican, and Israeli charities, later. Filing 2010 taxes late online You can deduct contributions to a U. Filing 2010 taxes late online S. Filing 2010 taxes late online organization that transfers funds to a charitable foreign organization if the U. Filing 2010 taxes late online S. Filing 2010 taxes late online organization controls the use of the funds by the foreign organization or if the foreign organization is just an administrative arm of the U. Filing 2010 taxes late online S. Filing 2010 taxes late online organization. Filing 2010 taxes late online Canadian, Mexican, and Israeli charities. Filing 2010 taxes late online   Under the income tax treaties with Canada, Mexico and Israel, you may be able to deduct contributions to certain Canadian, Mexican, and Israeli charitable organizations. Filing 2010 taxes late online Generally, you must have income from sources in Canada, Mexico, or Israel, and the organization must meet certain requirements. Filing 2010 taxes late online See Publication 597, Information on the United States-Canada Income Tax Treaty, and Publication 526, Charitable Contributions, for more information. Filing 2010 taxes late online Moving Expenses If you moved to a new home in 2013 because of your job or business, you may be able to deduct the expenses of your move. Filing 2010 taxes late online Generally, to be deductible, the moving expenses must have been paid or incurred in connection with starting work at a new job location. Filing 2010 taxes late online See Publication 521 for a complete discussion of the deduction for moving expenses and information about moves within the United States. Filing 2010 taxes late online Foreign moves. Filing 2010 taxes late online   A foreign move is a move in connection with the start of work at a new job location outside the United States and its possessions. Filing 2010 taxes late online A foreign move does not include a move back to the United States or its possessions. Filing 2010 taxes late online Allocation of Moving Expenses When your new place of work is in a foreign country, your moving expenses are directly connected with the income earned in that foreign country. Filing 2010 taxes late online If you exclude all or part of the income that you earn at the new location under the foreign earned income exclusion or the foreign housing exclusion, you cannot deduct the part of your moving expense that is allocable to the excluded income. Filing 2010 taxes late online Also, you cannot deduct the part of the moving expense related to the excluded income for a move from a foreign country to the United States if you receive a reimbursement that you are able to treat as compensation for services performed in the foreign country. Filing 2010 taxes late online Year to which expense is connected. Filing 2010 taxes late online   The moving expense is connected with earning the income (including reimbursements, as discussed in chapter 4 under Reimbursement of moving expenses ) either entirely in the year of the move or in 2 years. Filing 2010 taxes late online It is connected with earning the income entirely in the year of the move if you qualify for the foreign earned income exclusion under the bona fide residence test or physical presence test for at least 120 days during that tax year. Filing 2010 taxes late online   If you do not qualify under either the bona fide residence test or the physical presence test for at least 120 days during the year of the move, the expense is connected with earning the income in 2 years. Filing 2010 taxes late online The moving expense is connected with the year of the move and the following year if the move is from the United States to a foreign country. Filing 2010 taxes late online The moving expense is connected with the year of the move and the preceding year if the move is from a foreign country to the United States. Filing 2010 taxes late online Amount allocable to excluded income. Filing 2010 taxes late online   To figure the amount of your moving expense that is allocable to your excluded foreign earned income (and not deductible), you must multiply your total moving expense deduction by a fraction. Filing 2010 taxes late online The numerator (top number) of the fraction is the total of your excluded foreign earned income and housing amounts for both years and the denominator (bottom number) of the fraction is your total foreign earned income for both years. Filing 2010 taxes late online Example. Filing 2010 taxes late online On November 1, 2012, you transfer to Monaco. Filing 2010 taxes late online Your tax home is in Monaco, and you are a bona fide resident of Monaco for the entire tax year 2013. Filing 2010 taxes late online In 2012, you paid $6,000 for allowable moving expenses for your move from the United States to Monaco. Filing 2010 taxes late online You were fully reimbursed (under a nonaccountable plan) for these expenses in the same year. Filing 2010 taxes late online The reimbursement is included in your income. Filing 2010 taxes late online Your only other income consists of $16,000 wages earned in 2012 after the date of your move, and $100,100 wages earned in Monaco for 2013. Filing 2010 taxes late online Because you did not meet the bona fide residence test for at least 120 days during 2012, the year of the move, the moving expenses are for services you performed in both 2012 and the following year, 2013. Filing 2010 taxes late online Your total foreign earned income for both years is $122,100, consisting of $16,000 wages for 2012, $100,100 wages for 2013, and $6,000 moving expense reimbursement for both years. Filing 2010 taxes late online You have no housing exclusion. Filing 2010 taxes late online The total amount you can exclude is $113,190, consisting of the $97,600 full-year exclusion for 2013 and a $15,590 part-year exclusion for 2012 ($95,100 times the fraction of 60 qualifying bona fide residence days over 366 total days in the year). Filing 2010 taxes late online To find the part of your moving expenses that is not deductible, multiply your $6,000 total expenses by the fraction $113,190 over $122,100. Filing 2010 taxes late online The result, $5,562, is your nondeductible amount. Filing 2010 taxes late online    You must report the full amount of the moving expense reimbursement in the year in which you received the reimbursement. Filing 2010 taxes late online In the preceding example, this year was 2012. Filing 2010 taxes late online You attribute the reimbursement to both 2012 and 2013 only to figure the amount of foreign earned income eligible for exclusion for each year. Filing 2010 taxes late online Move between foreign countries. Filing 2010 taxes late online   If you move between foreign countries, your moving expense is allocable to income earned in the year of the move if you qualified under either the bona fide residence test or the physical presence test for a period that includes at least 120 days in the year of the move. Filing 2010 taxes late online New place of work in U. Filing 2010 taxes late online S. Filing 2010 taxes late online   If your new place of work is in the United States, the deductible moving expenses are directly connected with the income earned in the United States. Filing 2010 taxes late online If you treat a reimbursement from your employer as foreign earned income (see the discussion in chapter 4), you must allocate deductible moving expenses to foreign earned income. Filing 2010 taxes late online Storage expenses. Filing 2010 taxes late online   These expenses are attributable to work you do during the year in which you incur the storage expenses. Filing 2010 taxes late online You cannot deduct the amount allocable to excluded income. Filing 2010 taxes late online Moving Expense Attributable to Foreign Earnings in 2 Years If your moving expense deduction is attributable to your foreign earnings in 2 years (the year of the move and the following year), you should request an extension of time to file your return for the year of the move until after the end of the second year. Filing 2010 taxes late online By then, you should have all the information needed to properly figure the moving expense deduction. Filing 2010 taxes late online See Extensions under When To File and Pay in chapter 1. Filing 2010 taxes late online If you do not request an extension, you should figure the part of the moving expense that you cannot deduct because it is allocable to the foreign earned income you are excluding. Filing 2010 taxes late online You do this by multiplying the moving expense by a fraction, the numerator (top number) of which is your excluded foreign earned income for the year of the move, and the denominator (bottom number) of which is your total foreign earned income for the year of the move. Filing 2010 taxes late online Once you know your foreign earnings and exclusion for the following year, you must either: Adjust the moving expense deduction by filing an amended return for the year of the move, or Recapture any additional unallowable amount as income on your return for the following year. Filing 2010 taxes late online If, after you make the final computation, you have an additional amount of allowable moving expense deduction, you can claim this only on an amended return for the year of the move. Filing 2010 taxes late online You cannot claim it on the return for the second year. Filing 2010 taxes late online Forms To File Report your moving expenses on Form 3903. Filing 2010 taxes late online Report your moving expense deduction on line 26 of Form 1040. Filing 2010 taxes late online If you must reduce your moving expenses by the amount allocable to excluded income (as explained later under How To Report Deductions ), attach a statement to your return showing how you figured this amount. Filing 2010 taxes late online For more information about figuring moving expenses, see Publication 521. Filing 2010 taxes late online Contributions to Individual Retirement Arrangements Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. Filing 2010 taxes late online In determining compensation for this purpose, do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Filing 2010 taxes late online Do not reduce your compensation by the foreign housing deduction. Filing 2010 taxes late online If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally limited based on your modified adjusted gross income. Filing 2010 taxes late online This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Filing 2010 taxes late online Other modifications are also required. Filing 2010 taxes late online For more information on IRAs, see Publication 590. Filing 2010 taxes late online Taxes of Foreign Countries and U. Filing 2010 taxes late online S. Filing 2010 taxes late online Possessions You can take either a credit or a deduction for income taxes paid to a foreign country or a U. Filing 2010 taxes late online S. Filing 2010 taxes late online possession. Filing 2010 taxes late online Taken as a deduction, foreign income taxes reduce your taxable income. Filing 2010 taxes late online Taken as a credit, foreign income taxes reduce your tax liability. Filing 2010 taxes late online You must treat all foreign income taxes the same way. Filing 2010 taxes late online If you take a credit for any foreign income taxes, you cannot deduct any foreign income taxes. Filing 2010 taxes late online However, you may be able to deduct other foreign taxes. Filing 2010 taxes late online See Deduction for Other Foreign Taxes, later. Filing 2010 taxes late online There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income taxes. Filing 2010 taxes late online In most cases, it is to your advantage to take foreign income taxes as a tax credit, which you subtract directly from your U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax liability, rather than as a deduction in figuring taxable income. Filing 2010 taxes late online However, if foreign income taxes were imposed at a high rate and the proportion of foreign income to U. Filing 2010 taxes late online S. Filing 2010 taxes late online income is small, a lower final tax may result from deducting the foreign income taxes. Filing 2010 taxes late online In any event, you should figure your tax liability both ways and then use the one that is better for you. Filing 2010 taxes late online You can make or change your choice within 10 years from the due date for filing the tax return on which you are entitled to take either the deduction or the credit. Filing 2010 taxes late online Foreign income taxes. Filing 2010 taxes late online   These are generally income taxes you pay to any foreign country or possession of the United States. Filing 2010 taxes late online Foreign income taxes on U. Filing 2010 taxes late online S. Filing 2010 taxes late online return. Filing 2010 taxes late online   Foreign income taxes can only be taken as a credit on Form 1040, line 47, or as an itemized deduction on Schedule A. Filing 2010 taxes late online These amounts cannot be included as withheld income taxes on Form 1040, line 62. Filing 2010 taxes late online Foreign taxes paid on excluded income. Filing 2010 taxes late online   You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following. Filing 2010 taxes late online Foreign earned income exclusion. Filing 2010 taxes late online Foreign housing exclusion. Filing 2010 taxes late online Possession exclusion. Filing 2010 taxes late online If your wages are completely excluded, you cannot deduct or take a credit for any of the foreign taxes paid on your wages. Filing 2010 taxes late online   If only part of your wages is excluded, you cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. Filing 2010 taxes late online You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes paid on foreign earned income received during the tax year. Filing 2010 taxes late online The numerator (top number) of the fraction is your excluded foreign earned income received during the tax year minus deductible expenses allocable to that income (not including the foreign housing deduction). Filing 2010 taxes late online The denominator (bottom number) of the fraction is your total foreign earned income received during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Filing 2010 taxes late online   If foreign law taxes both earned income and some other type of income and the taxes on the other type cannot be separated, the denominator of the fraction is the total amount of income subject to foreign tax minus deductible expenses allocable to that income. Filing 2010 taxes late online    If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be considered revoked. Filing 2010 taxes late online Credit for Foreign Income Taxes If you take the foreign tax credit, you may have to file Form 1116 with Form 1040. Filing 2010 taxes late online Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign tax credit. Filing 2010 taxes late online Do not include the amount of foreign tax paid or accrued as withheld federal income taxes on Form 1040, line 62. Filing 2010 taxes late online The foreign income tax for which you can claim a credit is the amount of legal and actual tax liability you pay or accrue during the year. Filing 2010 taxes late online The amount for which you can claim a credit is not necessarily the amount withheld by the foreign country. Filing 2010 taxes late online You cannot take a foreign tax credit for income tax you paid to a foreign country that would be refunded by the foreign country if you made a claim for refund. Filing 2010 taxes late online Subsidies. Filing 2010 taxes late online   If a foreign country returns your foreign tax payments to you in the form of a subsidy, you cannot claim a foreign tax credit based on these payments. Filing 2010 taxes late online This rule applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of tax, or to the base used to figure the tax. Filing 2010 taxes late online   Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Filing 2010 taxes late online A credit is also not allowed if the subsidy is given to a person related to you, or persons who participated in a transaction or a related transaction with you. Filing 2010 taxes late online Limit The foreign tax credit is limited to the part of your total U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. Filing 2010 taxes late online The allowable foreign tax credit cannot be more than your actual foreign tax liability. Filing 2010 taxes late online Exemption from limit. Filing 2010 taxes late online   You will not be subject to this limit and will not have to file Form 1116 if you meet all three of the following requirements. Filing 2010 taxes late online Your only foreign source income for the year is passive income (dividends, interest, royalties, etc. Filing 2010 taxes late online ) that is reported to you on a payee statement (such as a Form 1099-DIV or 1099-INT). Filing 2010 taxes late online Your foreign taxes for the year that qualify for the credit are not more than $300 ($600 if you are filing a joint return) and are reported on a payee statement. Filing 2010 taxes late online You elect this procedure. Filing 2010 taxes late online If you make this election, you cannot carry back or carry over any unused foreign tax to or from this year. Filing 2010 taxes late online Separate limit. Filing 2010 taxes late online   You must figure the limit on a separate basis with regard to “passive category income” and “general category income” (see the instructions for Form 1116). Filing 2010 taxes late online Figuring the limit. Filing 2010 taxes late online   In figuring taxable income in each category, you take into account only the amount that you must include in income on your federal tax return. Filing 2010 taxes late online Do not take any excluded amount into account. Filing 2010 taxes late online   To determine your taxable income in each category, deduct expenses and losses that are definitely related to that income. Filing 2010 taxes late online   Other expenses (such as itemized deductions or the standard deduction) not definitely related to specific items of income must be apportioned to the foreign income in each category by multiplying them by a fraction. Filing 2010 taxes late online The numerator (top number) of the fraction is your gross foreign income in the separate limit category. Filing 2010 taxes late online The denominator (bottom number) of the fraction is your gross income from all sources. Filing 2010 taxes late online For this purpose, gross income includes income that is excluded under the foreign earned income provisions but does not include any other exempt income. Filing 2010 taxes late online You must use special rules for deducting interest expenses. Filing 2010 taxes late online For more information on allocating and apportioning your deductions, see Publication 514. Filing 2010 taxes late online Exemptions. Filing 2010 taxes late online   Do not take the deduction for exemptions for yourself, your spouse, or your dependents in figuring taxable income for purposes of the limit. Filing 2010 taxes late online Recapture of foreign losses. Filing 2010 taxes late online   If you have an overall foreign loss and the loss reduces your U. Filing 2010 taxes late online S. Filing 2010 taxes late online source income (resulting in a reduction of your U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax liability), you must recapture the loss in later years when you have taxable income from foreign sources. Filing 2010 taxes late online This is done by treating a part of your taxable income from foreign sources in later years as U. Filing 2010 taxes late online S. Filing 2010 taxes late online source income. Filing 2010 taxes late online This reduces the numerator of the limiting fraction and the resulting foreign tax credit limit. Filing 2010 taxes late online Recapture of domestic losses. Filing 2010 taxes late online   If you have an overall domestic loss (resulting in no U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax liability), you cannot claim a foreign tax credit for taxes paid during that year. Filing 2010 taxes late online You must recapture the loss in later years when you have U. Filing 2010 taxes late online S. Filing 2010 taxes late online source taxable income. Filing 2010 taxes late online This is done by treating a part of your taxable income from U. Filing 2010 taxes late online S. Filing 2010 taxes late online sources in later years as foreign source income. Filing 2010 taxes late online This increases the numerator of the limiting fraction and the resulting foreign tax credit limit. Filing 2010 taxes late online Foreign tax credit carryback and carryover. Filing 2010 taxes late online   The amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried forward 10 years. Filing 2010 taxes late online   More information on figuring the foreign tax credit can be found in Publication 514. Filing 2010 taxes late online Deduction for Foreign Income Taxes Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). Filing 2010 taxes late online You can deduct only foreign income taxes paid on income that is subject to U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax. Filing 2010 taxes late online You cannot deduct foreign taxes paid on earnings you exclude from tax under any of the following. Filing 2010 taxes late online Foreign earned income exclusion. Filing 2010 taxes late online Foreign housing exclusion. Filing 2010 taxes late online Possession exclusion. Filing 2010 taxes late online Example. Filing 2010 taxes late online You are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen and qualify to exclude your foreign earned income. Filing 2010 taxes late online Your excluded wages in Country X are $70,000 on which you paid income tax of $10,000. Filing 2010 taxes late online You received dividends from Country X of $2,000 on which you paid income tax of $600. Filing 2010 taxes late online You can deduct the $600 tax payment because the dividends relating to it are subject to U. Filing 2010 taxes late online S. Filing 2010 taxes late online tax. Filing 2010 taxes late online Because you exclude your wages, you cannot deduct the income tax of $10,000. Filing 2010 taxes late online If you exclude only a part of your wages, see the earlier discussion under Foreign taxes paid on excluded income. Filing 2010 taxes late online Deduction for Other Foreign Taxes You can deduct real property taxes you pay that are imposed on you by a foreign country. Filing 2010 taxes late online You take this deduction on Schedule A (Form 1040). Filing 2010 taxes late online You cannot deduct other foreign taxes, such as personal property taxes, unless you incurred the expenses in a trade or business or in the production of income. Filing 2010 taxes late online On the other hand, you generally can deduct personal property taxes when you pay them to U. Filing 2010 taxes late online S. Filing 2010 taxes late online possessions. Filing 2010 taxes late online But if you claim the possession exclusion, see Publication 570. Filing 2010 taxes late online The deduction for foreign taxes other than foreign income taxes is not related to the foreign tax credit. Filing 2010 taxes late online You can take deductions for these miscellaneous foreign taxes and also claim the foreign tax credit for income taxes imposed by a foreign country. Filing 2010 taxes late online How To Report Deductions If you exclude foreign earned income or housing amounts, how you show your deductions on your tax return and how you figure the amount allocable to your excluded income depends on whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are itemized deductions. Filing 2010 taxes late online If you have deductions used in figuring adjusted gross income, enter the total amount for each of these items on the appropriate lines and schedules of Form 1040. Filing 2010 taxes late online Generally, you figure the amount of a deduction related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Filing 2010 taxes late online Enter the amount of the deduction(s) related to excluded income on line 44 of Form 2555. Filing 2010 taxes late online If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not related to excluded income. Filing 2010 taxes late online You figure that amount by subtracting from the total deduction the amount related to excluded income. Filing 2010 taxes late online Generally, you figure the amount that is related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income. Filing 2010 taxes late online Attach a statement to your return showing how you figured the deductible amount. Filing 2010 taxes late online Example 1. Filing 2010 taxes late online You are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen employed as an accountant. Filing 2010 taxes late online Your tax home is in Germany for the entire tax year. Filing 2010 taxes late online You meet the physical presence test. Filing 2010 taxes late online Your foreign earned income for the year was $122,000 and your investment income was $10,380. Filing 2010 taxes late online After excluding $97,600, your AGI is $34,780. Filing 2010 taxes late online You had unreimbursed business expenses of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for meals and entertainment. Filing 2010 taxes late online These expenses are deductible only as miscellaneous deductions on Schedule A (Form 1040). Filing 2010 taxes late online You also have $500 of miscellaneous expenses that are not related to your foreign income that you enter on line 23 of Schedule A. Filing 2010 taxes late online You must fill out Form 2106. Filing 2010 taxes late online On that form, reduce your deductible meal and entertainment expenses by 50% ($250). Filing 2010 taxes late online You must reduce the remaining $2,250 of travel and entertainment expenses by 80% ($1,800) because you excluded 80% ($97,600/$122,000) of your foreign earned income. Filing 2010 taxes late online You carry the remaining total of $450 to line 21 of Schedule A. Filing 2010 taxes late online Add the $450 to the $500 that you have on line 23 and enter the total ($950) on line 24. Filing 2010 taxes late online On line 26 of Schedule A, enter $696, which is 2% of your adjusted gross income of $34,780 (line 38, Form 1040) and subtract it from the amount on line 24. Filing 2010 taxes late online Enter $254 on line 27 of Schedule A. Filing 2010 taxes late online Example 2. Filing 2010 taxes late online You are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen, have a tax home in Spain, and meet the physical presence test. Filing 2010 taxes late online You are self-employed and personal services produce the business income. Filing 2010 taxes late online Your gross income was $116,931, business expenses $66,895, and net income (profit) $50,036. Filing 2010 taxes late online You choose the foreign earned income exclusion and exclude $97,600 of your gross income. Filing 2010 taxes late online Since your excluded income is 83. Filing 2010 taxes late online 47% of your total income, 83. Filing 2010 taxes late online 47% of your business expenses are not deductible. Filing 2010 taxes late online Report your total income and expenses on Schedule C (Form 1040). Filing 2010 taxes late online On Form 2555 you will show the following: Line 20a, $116,931, gross income, Lines 42 and 43, $97,600, foreign earned income exclusion, and Line 44, $55,837 (83. Filing 2010 taxes late online 47% × $66,895) business expenses attributable to the exclusion. Filing 2010 taxes late online In this situation (Example 2), you cannot use Form 2555-EZ since you had self-employment income and business expenses. Filing 2010 taxes late online Example 3. Filing 2010 taxes late online Assume in Example 2 that both capital and personal services combine to produce the business income. Filing 2010 taxes late online No more than 30% of your net income, or $15,011, assuming that this amount is a reasonable allowance for your services, is considered earned and can be excluded. Filing 2010 taxes late online Your exclusion of $15,011 is 12. Filing 2010 taxes late online 84% of your gross income ($15,011 ÷ $116,931). Filing 2010 taxes late online Because you excluded 12. Filing 2010 taxes late online 84% of your total income, $8,589 (. Filing 2010 taxes late online 1284 x $66,895) of your business expenses is attributable to the excluded income and is not deductible. Filing 2010 taxes late online Example 4. Filing 2010 taxes late online You are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen, have a tax home in Brazil, and meet the physical presence test. Filing 2010 taxes late online You are self-employed and both capital and personal services combine to produce business income. Filing 2010 taxes late online Your gross income was $146,000, business expenses were $172,000, and your net loss was $26,000. Filing 2010 taxes late online A reasonable allowance for the services you performed for the business is $77,000. Filing 2010 taxes late online Because you incurred a net loss, the earned income limit of 30% of your net profit does not apply. Filing 2010 taxes late online The $77,000 is foreign earned income. Filing 2010 taxes late online If you choose to exclude the $77,000, you exclude 52. Filing 2010 taxes late online 74% of your gross income ($77,000 ÷ $146,000), and 52. Filing 2010 taxes late online 74% of your business expenses ($90,713) is attributable to that income and is not deductible. Filing 2010 taxes late online Show your total income and expenses on Schedule C (Form 1040). Filing 2010 taxes late online On Form 2555, exclude $77,000 and show $90,713 on line 44. Filing 2010 taxes late online Subtract line 44 from line 43, and enter the difference as a negative (in parentheses) on line 45. Filing 2010 taxes late online Because this amount is negative, enter it as a positive (no parentheses) on line 21, Form 1040, and combine it with your other income to arrive at total income on line 22 of Form 1040. Filing 2010 taxes late online In this situation (Example 4), you would probably not want to choose the foreign earned income exclusion if this was the first year you were eligible. Filing 2010 taxes late online If you had chosen the exclusion in an earlier year, you might want to revoke the choice for this year. Filing 2010 taxes late online To do so would mean that you could not claim the exclusion again for the next 5 tax years without IRS approval. Filing 2010 taxes late online See Choosing the Exclusion in chapter 4. Filing 2010 taxes late online Example 5. Filing 2010 taxes late online You are a U. Filing 2010 taxes late online S. Filing 2010 taxes late online citizen, have a tax home in Panama, and meet the bona fide residence test. Filing 2010 taxes late online You have been performing services for clients as a partner in a firm that provides services exclusively in Panama. Filing 2010 taxes late online Capital investment is not material in producing the partnership's income. Filing 2010 taxes late online Under the terms of the partnership agreement, you are to receive 50% of the net profits. Filing 2010 taxes late online The partnership received gross income of $244,000 and incurred operating expenses of $98,250. Filing 2010 taxes late online Of the net profits of $145,750, you received $72,875 as your distributive share. Filing 2010 taxes late online You choose to exclude $97,600 of your share of the gross income. Filing 2010 taxes late online Because you exclude 80% ($97,600 ÷ $122,000) of your share of the gross income, you cannot deduct $39,300, 80% of your share of the operating expenses (. Filing 2010 taxes late online 80 × $49,125). Filing 2010 taxes late online Report $72,875, your distributive share of the partnership net profit, on Schedule E (Form 1040), Supplemental Income and Loss. Filing 2010 taxes late online On Form 2555, show $97,600 on line 42 and show $39,300 on line 44. Filing 2010 taxes late online Your exclusion on Form 2555 is $58,300. Filing 2010 taxes late online In this situation (Example 5), you cannot use Form 2555-EZ since you had earned income other than salaries and wages and you had business expenses. Filing 2010 taxes late online Prev  Up  Next   Home   More Online Publications