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Form 1040nr Software

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Form 1040nr Software

Form 1040nr software Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Form 1040nr software Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Form 1040nr software An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Form 1040nr software In general, an executor and an administrator perform the same duties and have the same responsibilities. Form 1040nr software For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Form 1040nr software It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Form 1040nr software Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Form 1040nr software The personal representative also must perform the following duties. Form 1040nr software Apply for an employer identification number (EIN) for the estate. Form 1040nr software File all tax returns, including income, estate and gift tax returns, when due. Form 1040nr software Pay the tax determined up to the date of discharge from duties. Form 1040nr software Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Form 1040nr software If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Form 1040nr software Penalty. Form 1040nr software   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Form 1040nr software Reliance on an agent (attorney, accountant, etc. Form 1040nr software ) is not reasonable cause for late filing. Form 1040nr software It is the personal representative's duty to file the returns for the decedent and the estate when due. Form 1040nr software Identification number. Form 1040nr software   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Form 1040nr software You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Form 1040nr software You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Form 1040nr software   You can get an EIN by applying online at www. Form 1040nr software irs. Form 1040nr software gov (click on "Apply for an EIN Online" under the Tools heading). Form 1040nr software Generally, if you apply online, you will receive your EIN immediately upon completing the application. Form 1040nr software You can also apply using Form SS-4, Application for Employer Identification Number. Form 1040nr software Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Form 1040nr software See the form instructions for other ways to apply. Form 1040nr software   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Form 1040nr software After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Form 1040nr software As the personal representative handling the estate, you must furnish this identification number to the payer. Form 1040nr software For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Form 1040nr software If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Form 1040nr software   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Form 1040nr software Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Form 1040nr software    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Form 1040nr software Also do not use it to make estimated tax payments for a tax year after the year of death. Form 1040nr software Penalty. Form 1040nr software   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Form 1040nr software You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Form 1040nr software Notice of fiduciary relationship. Form 1040nr software   The term fiduciary means any person acting for another person. Form 1040nr software It applies to persons who have positions of trust on behalf of others. Form 1040nr software A personal representative for a decedent's estate is a fiduciary. Form 1040nr software Form 56. Form 1040nr software   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Form 1040nr software Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Form 1040nr software See the Instructions for Form 56 for filing requirements and other information. Form 1040nr software   File Form 56 as soon as all the necessary information (including the EIN) is available. Form 1040nr software It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Form 1040nr software The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Form 1040nr software Termination of fiduciary relationship. Form 1040nr software   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Form 1040nr software See Form 56 and its instructions for more information. Form 1040nr software   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Form 1040nr software See below for a discussion of these forms. Form 1040nr software Request for prompt assessment (charge) of tax. Form 1040nr software   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Form 1040nr software However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Form 1040nr software This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Form 1040nr software This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Form 1040nr software This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Form 1040nr software Form 4810. Form 1040nr software   Form 4810 can be used for making this request. Form 1040nr software It must be filed separately from any other document. Form 1040nr software   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Form 1040nr software You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Form 1040nr software This applies even though the returns were filed before the decedent's death. Form 1040nr software Failure to report income. Form 1040nr software   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Form 1040nr software However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Form 1040nr software Request for discharge from personal liability for tax. Form 1040nr software   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Form 1040nr software The request must be made after the returns for those taxes are filed. Form 1040nr software To make the request, file Form 5495. Form 1040nr software For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Form 1040nr software   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Form 1040nr software If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Form 1040nr software If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Form 1040nr software    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Form 1040nr software Insolvent estate. Form 1040nr software   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Form 1040nr software Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Form 1040nr software The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Form 1040nr software The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Form 1040nr software Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Form 1040nr software Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Form 1040nr software If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Form 1040nr software If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Form 1040nr software If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Form 1040nr software Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Form 1040nr software A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Form 1040nr software See Joint Return, later. Form 1040nr software Return for preceding year. Form 1040nr software   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Form 1040nr software The return for that year will be a regular return and the personal representative must file it. Form 1040nr software Example. Form 1040nr software Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Form 1040nr software Her personal representative must file her 2012 return by April 15, 2013. Form 1040nr software Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Form 1040nr software Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Form 1040nr software If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Form 1040nr software If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Form 1040nr software Third party designee. Form 1040nr software   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Form 1040nr software This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Form 1040nr software It also allows the designee to perform certain actions. Form 1040nr software See the Instructions for Form 1040 for details. Form 1040nr software Signature. Form 1040nr software   If a personal representative has been appointed, that person must sign the return. Form 1040nr software If it is a joint return, the surviving spouse must also sign it. Form 1040nr software If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Form 1040nr software ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Form 1040nr software ” Paid preparer. Form 1040nr software   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Form 1040nr software See the Form 1040 instructions for details. Form 1040nr software When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Form 1040nr software A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Form 1040nr software However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Form 1040nr software The tax return must be prepared for the year of death regardless of when during the year death occurred. Form 1040nr software Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Form 1040nr software A tax return for a decedent can be electronically filed. Form 1040nr software A personal representative may also obtain an income tax filing extension on behalf of a decedent. Form 1040nr software Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Form 1040nr software Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Form 1040nr software It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Form 1040nr software In general, filing status depends on whether the decedent was considered single or married at the time of death. Form 1040nr software See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Form 1040nr software Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Form 1040nr software Also, the decedent may be entitled to other credits that result in a refund. Form 1040nr software These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Form 1040nr software Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Form 1040nr software   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Form 1040nr software   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Form 1040nr software S. Form 1040nr software Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Form 1040nr software Example. Form 1040nr software Edward Green died before filing his tax return. Form 1040nr software You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Form 1040nr software You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Form 1040nr software    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Form 1040nr software Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Form 1040nr software A new check will be issued in your name and mailed to you. Form 1040nr software Death certificate. Form 1040nr software   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Form 1040nr software Instead, keep it for your records and provide it if requested. Form 1040nr software Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Form 1040nr software S. Form 1040nr software Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Form 1040nr software See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Form 1040nr software Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Form 1040nr software However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Form 1040nr software This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Form 1040nr software The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Form 1040nr software A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Form 1040nr software The filing status of the decedent in this instance is married filing a separate return. Form 1040nr software For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Form 1040nr software Personal representative may revoke joint return election. Form 1040nr software   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Form 1040nr software This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Form 1040nr software The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Form 1040nr software Relief from joint liability. Form 1040nr software   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Form 1040nr software If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Form 1040nr software For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Form 1040nr software Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Form 1040nr software The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Form 1040nr software This section explains how some types of income are reported on the final return. Form 1040nr software For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Form 1040nr software Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Form 1040nr software Constructive receipt of income. Form 1040nr software   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Form 1040nr software Include the interest income on the final return. Form 1040nr software   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Form 1040nr software If the corporation customarily mailed its dividend checks, the dividend was includible when received. Form 1040nr software If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Form 1040nr software Do not include the dividend in the final return. Form 1040nr software Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Form 1040nr software If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Form 1040nr software Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Form 1040nr software A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Form 1040nr software You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Form 1040nr software For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Form 1040nr software For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Form 1040nr software If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Form 1040nr software See U. Form 1040nr software S. Form 1040nr software savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Form 1040nr software How to report. Form 1040nr software   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Form 1040nr software Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Form 1040nr software Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Form 1040nr software Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Form 1040nr software   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Form 1040nr software    Note. Form 1040nr software If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Form 1040nr software See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Form 1040nr software Partnership Income The death of a partner closes the partnership's tax year for that partner. Form 1040nr software Generally, it does not close the partnership's tax year for the remaining partners. Form 1040nr software The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Form 1040nr software To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Form 1040nr software On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Form 1040nr software The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Form 1040nr software The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Form 1040nr software Example. Form 1040nr software Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Form 1040nr software The partnership uses a tax year ending June 30. Form 1040nr software Mary died August 31, 2013, and her estate established its tax year through August 31. Form 1040nr software The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Form 1040nr software Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Form 1040nr software Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Form 1040nr software S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Form 1040nr software The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Form 1040nr software The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Form 1040nr software Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Form 1040nr software For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Form 1040nr software For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Form 1040nr software Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Form 1040nr software For more information, see Publication 555, Community Property. Form 1040nr software HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Form 1040nr software If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Form 1040nr software The estate tax deduction, discussed later, does not apply to this amount. Form 1040nr software If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Form 1040nr software For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Form 1040nr software Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Form 1040nr software The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Form 1040nr software If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Form 1040nr software The estate tax deduction, discussed later, does not apply to this amount. Form 1040nr software If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Form 1040nr software The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Form 1040nr software This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Form 1040nr software For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Form 1040nr software Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Form 1040nr software These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Form 1040nr software Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Form 1040nr software For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Form 1040nr software Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Form 1040nr software Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Form 1040nr software This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Form 1040nr software See Medical Expenses, later. Form 1040nr software Exemptions You can claim the decedent's personal exemption on the final income tax return. Form 1040nr software If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Form 1040nr software Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Form 1040nr software For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Form 1040nr software Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Form 1040nr software This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Form 1040nr software Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Form 1040nr software In that case medical expenses exceeding 7. Form 1040nr software 5% of AGI may be deducted. Form 1040nr software Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Form 1040nr software Election for decedent's expenses. Form 1040nr software   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Form 1040nr software However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Form 1040nr software   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Form 1040nr software You can deduct expenses incurred in the year of death on the final income tax return. Form 1040nr software You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Form 1040nr software   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Form 1040nr software 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Form 1040nr software Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Form 1040nr software Making the election. Form 1040nr software   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Form 1040nr software The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Form 1040nr software This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Form 1040nr software Example. Form 1040nr software Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Form 1040nr software Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Form 1040nr software Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Form 1040nr software Richard itemized his deductions when he filed his 2012 income tax return. Form 1040nr software The personal representative of the estate paid the entire $800 liability in August 2013. Form 1040nr software The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Form 1040nr software 5% limit. Form 1040nr software The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Form 1040nr software 5% limit. Form 1040nr software The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Form 1040nr software Medical expenses not paid by estate. Form 1040nr software   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Form 1040nr software If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Form 1040nr software Insurance reimbursements. Form 1040nr software   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Form 1040nr software The reimbursements are also includible in the decedent's gross estate. Form 1040nr software No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Form 1040nr software These expenses may be deductible for estate tax purposes on Form 706. Form 1040nr software Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Form 1040nr software A net operating loss on the decedent's final income tax return can be carried back to prior years. Form 1040nr software (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Form 1040nr software ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Form 1040nr software At-risk loss limits. Form 1040nr software   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Form 1040nr software   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Form 1040nr software An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Form 1040nr software An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Form 1040nr software The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Form 1040nr software For more information, see Publication 925, Passive Activity and At-Risk Rules. Form 1040nr software Passive activity rules. Form 1040nr software   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Form 1040nr software To determine material participation, see Publication 925. Form 1040nr software Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Form 1040nr software   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Form 1040nr software Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Form 1040nr software   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Form 1040nr software Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Form 1040nr software The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Form 1040nr software   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Form 1040nr software For more information, see Publication 925. Form 1040nr software Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Form 1040nr software Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Form 1040nr software Some of these credits are discussed next. Form 1040nr software Earned income credit. Form 1040nr software   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Form 1040nr software If the allowable credit is more than the tax liability for the year, the excess is refunded. Form 1040nr software   For more information, see Publication 596, Earned Income Credit (EIC). Form 1040nr software Credit for the elderly or the disabled. Form 1040nr software   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Form 1040nr software The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Form 1040nr software   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Form 1040nr software Child tax credit. Form 1040nr software   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Form 1040nr software You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Form 1040nr software For more information, see the Instructions for Form 1040. Form 1040nr software Adoption credit. Form 1040nr software   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Form 1040nr software   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Form 1040nr software See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Form 1040nr software General business tax credit. Form 1040nr software   The general business credit available to a taxpayer is limited. Form 1040nr software Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Form 1040nr software Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Form 1040nr software   After the carryforward period, a deduction may be allowed for any unused business credit. Form 1040nr software If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Form 1040nr software   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Form 1040nr software Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Form 1040nr software Self-employment tax. Form 1040nr software   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Form 1040nr software 28 or more. Form 1040nr software Alternative minimum tax (AMT). Form 1040nr software   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Form 1040nr software The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Form 1040nr software In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Form 1040nr software Form 6251. Form 1040nr software    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Form 1040nr software See the form instructions for information on when you must attach Form 6251 to Form 1040. Form 1040nr software Form 8801. Form 1040nr software   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Form 1040nr software See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Form 1040nr software Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Form 1040nr software Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Form 1040nr software Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Form 1040nr software For this purpose, a qualified hazardous duty area is treated as a combat zone. Form 1040nr software If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Form 1040nr software If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Form 1040nr software Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Form 1040nr software If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Form 1040nr software Also, if any tax was collected after the date of death, that amount will be credited or refunded. Form 1040nr software The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Form 1040nr software This is true even if death actually occurred earlier. Form 1040nr software For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Form 1040nr software Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Form 1040nr software S. Form 1040nr software employee, and In a military or terrorist action. Form 1040nr software The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Form 1040nr software Example. Form 1040nr software The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Form 1040nr software S. Form 1040nr software employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Form 1040nr software Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Form 1040nr software Military or terrorist action defined. Form 1040nr software   A military or terrorist action means the following. Form 1040nr software Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Form 1040nr software Any military action involving the U. Form 1040nr software S. Form 1040nr software Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Form 1040nr software   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Form 1040nr software Military action does not include training exercises. Form 1040nr software Any multinational force in which the United States is participating is treated as an ally of the United States. Form 1040nr software Determining if a terrorist activity or military action has occurred. Form 1040nr software   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Form 1040nr software Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Form 1040nr software Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Form 1040nr software The April 19, 1995, terrorist attack on the Alfred P. Form 1040nr software Murrah Federal Building (Oklahoma City). Form 1040nr software The September 11, 2001, terrorist attacks. Form 1040nr software The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Form 1040nr software The Act also exempts from federal income tax the following types of income. Form 1040nr software Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Form 1040nr software Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Form 1040nr software Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Form 1040nr software Payments from the September 11th Victim Compensation Fund 2001. Form 1040nr software The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Form 1040nr software See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Form 1040nr software Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Form 1040nr software The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Form 1040nr software For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Form 1040nr software However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Form 1040nr software For more information on the Act, see Publication 3920. Form 1040nr software Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Form 1040nr software If any tax is still due, it will be canceled. Form 1040nr software The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Form 1040nr software If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Form 1040nr software Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Form 1040nr software This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Form 1040nr software Filing a claim. Form 1040nr software   Use the following procedures to file a claim. Form 1040nr software If a U. Form 1040nr software S. Form 1040nr software individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Form 1040nr software Form W-2, Wage and Tax Statement, must accompany all returns. Form 1040nr software If a U. Form 1040nr software S. Form 1040nr software individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Form 1040nr software You must file a separate Form 1040X for each year in question. Form 1040nr software   You must file these returns and claims at the following address for regular mail (U. Form 1040nr software S. Form 1040nr software Postal Service). Form 1040nr software    Internal Revenue Service 333 W. Form 1040nr software Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Form 1040nr software On the applicable return, write the same phrase on the line for total tax. Form 1040nr software If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Form 1040nr software   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Form 1040nr software On joint returns, make an allocation of the tax as described below under Joint returns. Form 1040nr software If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Form 1040nr software   You must attach Form 1310 to all returns and claims for refund. Form 1040nr software However, for exceptions to filing Form 1310, see Form 1310. Form 1040nr software Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Form 1040nr software   You must also attach proof of death that includes a statement that the individual was a U. Form 1040nr software S. Form 1040nr software employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Form 1040nr software For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Form 1040nr software For other U. Form 1040nr software S. Form 1040nr software civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Form 1040nr software For other U. Form 1040nr software S. Form 1040nr software civilian employees killed overseas, attach a certification from the Department of State. Form 1040nr software   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Form 1040nr software Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Form 1040nr software Joint returns. Form 1040nr software   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Form 1040nr software Determine the decedent's tax liability as follows. Form 1040nr software Figure the income tax for which the decedent would have been liable if a separate return had been filed. Form 1040nr software Figure the income tax for which the spouse would have been liable if a separate return had been filed. Form 1040nr software Multiply the joint tax liability by a fraction. Form 1040nr software The numerator of the fraction is the amount in (1), above. Form 1040nr software The denominator of the fraction is the total of (1) and (2). Form 1040nr software   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Form 1040nr software Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Form 1040nr software Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Form 1040nr software If a personal representative has been appointed, the personal representative must sign the return. Form 1040nr software If it is a joint return, the surviving spouse must also sign it. Form 1040nr software If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Form 1040nr software If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Form 1040nr software ” To claim a refund for the decedent, do the following. Form 1040nr software If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Form 1040nr software If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Form 1040nr software (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Form 1040nr software ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Form 1040nr software If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Form 1040nr software Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Form 1040nr software Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Form 1040nr software Joint return by surviving spouse. Form 1040nr software   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Form 1040nr software Decedent as your dependent. Form 1040nr software   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Form 1040nr software   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Form 1040nr software To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Form 1040nr software To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Form 1040nr software Qualifying widows and widowers. Form 1040nr software   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Form 1040nr software Requirements. Form 1040nr software   Generally, you qualify for this special benefit if you meet all of the following requirements. Form 1040nr software You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Form 1040nr software You did not remarry before the end of the current tax year. Form 1040nr software You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Form 1040nr software You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Form 1040nr software Example. Form 1040nr software William Burns' wife died in 2010. Form 1040nr software William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Form 1040nr software For 2010, he was entitled to file a joint return for himself and his deceased wife. Form 1040nr software For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Form 1040nr software For later years, he may qualify to file as a head of household. Form 1040nr software Figuring your tax. Form 1040nr software   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Form 1040nr software Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Form 1040nr software   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Form 1040nr software Joint return filing rules. Form 1040nr software   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Form 1040nr software See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Form 1040nr software Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Form 1040nr software If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Form 1040nr software This exclusion does not apply to certain income. Form 1040nr software For more information, see Publication 3920. Form 1040nr software How To Report Income in respect of a decedent must be included in the income of one of the following. Form 1040nr software The decedent's estate, if the estate receives it. Form 1040nr software The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Form 1040nr software Any person to whom the estate properly distributes the right to receive it. Form 1040nr software If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Form 1040nr software See Estate Tax Deduction, later. Form 1040nr software Example 1. Form 1040nr software Frank Johnson owned and operated an apple orchard. Form 1040nr software He used the cash method of accounting. Form 1040nr software He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Form 1040nr software The proceeds from the sale are income in respect of a decedent. Form 1040nr software When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Form 1040nr software When Frank's widow collects the $2,000, she must include that amount in her return. Form 1040nr software It is not reported on the final return of the decedent or on the return of the estate. Form 1040nr software Example 2. Form 1040nr software Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Form 1040nr software The amount accrued from the sale of the apples would be included on his final return. Form 1040nr software Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Form 1040nr software Example 3. Form 1040nr software On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Form 1040nr software His adjusted basis in the tractor was $2,000. Form 1040nr software George died on February 15, before receiving payment. Form 1040nr software The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Form 1040nr software In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Form 1040nr software Example 4. Form 1040nr software Cathy O'Neil was entitled to a large salary payment at the date of her death. Form 1040nr software The amount was to be paid in five annual installments. Form 1040nr software The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Form 1040nr software The payments are income in respect of a decedent. Form 1040nr software None of the payments were includible on Cathy's final return. Form 1040nr software The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Form 1040nr software Example 5. Form 1040nr software You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Form 1040nr software You inherited the right from your mother, who acquired it by bequest from your father. Form 1040nr software Your mother died before she received all the commissions she had the right to receive, so you received the rest. Form 1040nr software The commissions are income in respect of a decedent. Form 1040nr software None of these commissions were includible in your father's final return. Form 1040nr software The commissions received by your mother were included in her income. Form 1040nr software The commissions you received are not includible in your mother's income, even on her final return. Form 1040nr software You must include them in your income. Form 1040nr software Character of income. Form 1040nr software   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Form 1040nr software If the income would have been a capital gain to the decedent, it will be a capital gain to you. Form 1040nr software Transfer of right to income. Form 1040nr software   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Form 1040nr software   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Form 1040nr software   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Form 1040nr software See Installment obligations, later. Form 1040nr software Transfer defined. Form 1040nr software   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Form 1040nr software Installment obligations. Form 1040nr software   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Form 1040nr software Include in your income the same profit the decedent would have included had death not occurred. Form 1040nr software For more information, see Publication 537, Installment Sales. Form 1040nr software   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Form 1040nr software Transfer to obligor. Form 1040nr software   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Form 1040nr software A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Form 1040nr software An obligation that becomes unenforceable is treated as having been canceled. Form 1040nr software   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Form 1040nr software The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Form 1040nr software   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Form 1040nr software Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Form 1040nr software Wages. Form 1040nr software   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Form 1040nr software The income is not reduced by any amounts withheld by the employer. Form 1040nr software If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Form 1040nr software   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Form 1040nr software However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Form 1040nr software These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Form 1040nr software These wages are not included in box 1 of Form W-2. Form 1040nr software   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe
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The Form 1040nr Software

Form 1040nr software 2. Form 1040nr software   Accounting Periods and Methods Table of Contents Introduction Useful Items - You may want to see: Accounting Periods Accounting MethodsCash Method Accrual Method Combination Method Inventories Uniform Capitalization Rules Special Methods Change in Accounting Method Introduction You must figure your taxable income and file an income tax return for an annual accounting period called a tax year. Form 1040nr software Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. Form 1040nr software Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. Form 1040nr software Accounting Periods When preparing a statement of income and expenses (generally your income tax return), you must use your books and records for a specific interval of time called an accounting period. Form 1040nr software The annual accounting period for your income tax return is called a tax year. Form 1040nr software You can use one of the following tax years. Form 1040nr software A calendar tax year. Form 1040nr software A fiscal tax year. Form 1040nr software Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Form 1040nr software A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Form 1040nr software Calendar tax year. Form 1040nr software   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Form 1040nr software   You must adopt the calendar tax year if any of the following apply. Form 1040nr software You do not keep books. Form 1040nr software You have no annual accounting period. Form 1040nr software Your present tax year does not qualify as a fiscal year. Form 1040nr software Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. Form 1040nr software   If you filed your first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Form 1040nr software For more information, see Change in tax year, later. Form 1040nr software   If you adopt the calendar tax year, you must maintain your books and records and report your income and expenses for the period from January 1 through December 31 of each year. Form 1040nr software Fiscal tax year. Form 1040nr software   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Form 1040nr software A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Form 1040nr software   If you adopt a fiscal tax year, you must maintain your books and records and report your income and expenses using the same tax year. Form 1040nr software   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. Form 1040nr software Change in tax year. Form 1040nr software   Generally, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year, to request IRS approval to change your tax year. Form 1040nr software See the Instructions for Form 1128 for exceptions. Form 1040nr software If you qualify for an automatic approval request, a user fee is not required. Form 1040nr software If you do not qualify for automatic approval, a ruling must be requested. Form 1040nr software See the instructions for Form 1128 for information about user fees if you are requesting a ruling. Form 1040nr software Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Form 1040nr software Your accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item. Form 1040nr software You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. Form 1040nr software After that, if you want to change your accounting method, you must generally get IRS approval. Form 1040nr software See Change in Accounting Method, later. Form 1040nr software Kinds of methods. Form 1040nr software   Generally, you can use any of the following accounting methods. Form 1040nr software Cash method. Form 1040nr software An accrual method. Form 1040nr software Special methods of accounting for certain items of income and expenses. Form 1040nr software Combination method using elements of two or more of the above. Form 1040nr software You must use the same accounting method to figure your taxable income and to keep your books. Form 1040nr software Also, you must use an accounting method that clearly shows your income. Form 1040nr software Business and personal items. Form 1040nr software   You can account for business and personal items under different accounting methods. Form 1040nr software For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Form 1040nr software Two or more businesses. Form 1040nr software   If you have two or more separate and distinct businesses, you can use a different accounting method for each if the method clearly reflects the income of each business. Form 1040nr software They are separate and distinct only if you maintain complete and separate books and records for each business. Form 1040nr software Cash Method Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. Form 1040nr software However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. Form 1040nr software For more information, see Inventories, later. Form 1040nr software Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. Form 1040nr software If you receive property or services, you must include their fair market value in income. Form 1040nr software Example. Form 1040nr software On December 30, 2012, Mrs. Form 1040nr software Sycamore sent you a check for interior decorating services you provided to her. Form 1040nr software You received the check on January 2, 2013. Form 1040nr software You must include the amount of the check in income for 2013. Form 1040nr software Constructive receipt. Form 1040nr software   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. Form 1040nr software You do not need to have possession of it. Form 1040nr software If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. Form 1040nr software Example. Form 1040nr software Interest is credited to your bank account in December 2013. Form 1040nr software You do not withdraw it or enter it into your passbook until 2014. Form 1040nr software You must include it in your gross income for 2013. Form 1040nr software Delaying receipt of income. Form 1040nr software   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Form 1040nr software You must report the income in the year the property is received or made available to you without restriction. Form 1040nr software Example. Form 1040nr software Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. Form 1040nr software She was told in December that her payment was available. Form 1040nr software At her request, she was not paid until January 2014. Form 1040nr software She must include this payment in her 2013 income because it was constructively received in 2013. Form 1040nr software Checks. Form 1040nr software   Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. Form 1040nr software Example. Form 1040nr software Dr. Form 1040nr software Redd received a check for $500 on December 31, 2013, from a patient. Form 1040nr software She could not deposit the check in her business account until January 2, 2014. Form 1040nr software She must include this fee in her income for 2013. Form 1040nr software Debts paid by another person or canceled. Form 1040nr software   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Form 1040nr software If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Form 1040nr software For more information, see Canceled Debt under Kinds of Income in chapter 5. Form 1040nr software Repayment of income. Form 1040nr software   If you include an amount in income and in a later year you have to repay all or part of it, you can usually deduct the repayment in the year in which you make it. Form 1040nr software If the amount you repay is over $3,000, a special rule applies. Form 1040nr software For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. Form 1040nr software Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. Form 1040nr software This includes business expenses for which you contest liability. Form 1040nr software However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Form 1040nr software Expenses paid in advance. Form 1040nr software   You can deduct an expense you pay in advance only in the year to which it applies. Form 1040nr software Example. Form 1040nr software You are a calendar year taxpayer and you pay $1,000 in 2013 for a business insurance policy effective for one year, beginning July 1. Form 1040nr software You can deduct $500 in 2013 and $500 in 2014. Form 1040nr software Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Form 1040nr software The purpose of an accrual method of accounting is to match income and expenses in the correct year. Form 1040nr software Income—General Rule Under an accrual method, you generally include an amount in your 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. Form 1040nr software Example. Form 1040nr software You are a calendar year accrual method taxpayer. Form 1040nr software You sold a computer on December 28, 2013. Form 1040nr software You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. Form 1040nr software You must include the amount received for the computer in your 2013 income. Form 1040nr software Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. Form 1040nr software Estimated income. Form 1040nr software   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 in which you make the determination. Form 1040nr software Change in payment schedule for services. Form 1040nr software   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 lower rate until you complete the services and then receive the difference. Form 1040nr software Advance payments for services. Form 1040nr software   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. Form 1040nr software 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. Form 1040nr software However, you cannot postpone including any payment beyond that tax year. Form 1040nr software   For more information, see Advance Payment for Services under Accrual Method in Publication 538. Form 1040nr software That publication also explains special rules for reporting the following types of income. Form 1040nr software Advance payments for service agreements. Form 1040nr software Prepaid rent. Form 1040nr software Advance payments for sales. Form 1040nr software   Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods you hold primarily for sale to your customers in the ordinary course of your business. Form 1040nr software If the advance payments are for contracts involving both the sale and service of goods, it may be necessary to treat them as two agreements. Form 1040nr software An agreement includes a gift certificate that can be redeemed for goods. Form 1040nr software Treat amounts that are due and payable as amounts you received. Form 1040nr software   You generally include an advance payment in income for the tax year in which you receive it. Form 1040nr software However, you can use an alternative method. Form 1040nr software For information about the alternative method, see Publication 538. Form 1040nr software Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Form 1040nr software The all-events test has been met. Form 1040nr software The test has been met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Form 1040nr software Economic performance has occurred. Form 1040nr software Economic performance. Form 1040nr software   You generally cannot deduct or capitalize a business expense until economic performance occurs. Form 1040nr software If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Form 1040nr software If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Form 1040nr software An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Form 1040nr software For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. Form 1040nr software Example. Form 1040nr software You are a calendar year taxpayer and use an accrual method of accounting. Form 1040nr software You buy office supplies in December 2013. Form 1040nr software You receive the supplies and the bill in December, but you pay the bill in January 2014. Form 1040nr software You can deduct the expense in 2013 because all events that fix the fact of liability have occurred, the amount of the liability could be reasonably determined, and economic performance occurred in that year. Form 1040nr software Your office supplies may qualify as a recurring expense. Form 1040nr software In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). Form 1040nr software Keeping inventories. Form 1040nr software   When the production, purchase, or sale of merchandise is an income-producing factor in your business, you must generally take inventories into account at the beginning and the end of your tax year. Form 1040nr software If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. Form 1040nr software For more information, see Inventories , later. Form 1040nr software Special rule for related persons. Form 1040nr software   You cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until you make the payment and the corresponding amount is includible in the related person's gross income. Form 1040nr software Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Form 1040nr software If a deduction is not allowed under this rule, the rule will continue to apply even if your relationship with the person ends before the expense or interest is includible in the gross income of that person. Form 1040nr software   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Form 1040nr software For a list of other related persons, see section 267 of the Internal Revenue Code. Form 1040nr software Combination Method You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Form 1040nr software However, the following restrictions apply. Form 1040nr software If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. Form 1040nr software (See, however, Inventories, later. Form 1040nr software ) You can use the cash method for all other items of income and expenses. Form 1040nr software If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Form 1040nr software If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Form 1040nr software If you use a combination method that includes the cash method, treat that combination method as the cash method. Form 1040nr software Inventories Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. Form 1040nr software However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Form 1040nr software These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Form 1040nr software A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Form 1040nr software A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Form 1040nr software Qualifying taxpayer. Form 1040nr software   You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. Form 1040nr software (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3. Form 1040nr software ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. Form 1040nr software Qualifying small business taxpayer. Form 1040nr software   You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. Form 1040nr software (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Form 1040nr software ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Form 1040nr software Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). Form 1040nr software Business not owned or not in existence for 3 years. Form 1040nr software   If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor. Form 1040nr software If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts. Form 1040nr software Materials and supplies that are not incidental. Form 1040nr software   If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. Form 1040nr software If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. Form 1040nr software Changing accounting method. Form 1040nr software   If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115, Application for Change in Accounting Method. Form 1040nr software See Change in Accounting Method, later. Form 1040nr software More information. Form 1040nr software    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. Form 1040nr software For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. Form 1040nr software Items included in inventory. Form 1040nr software   If you are required to account for inventories, include the following items when accounting for your inventory. Form 1040nr software Merchandise or stock in trade. Form 1040nr software Raw materials. Form 1040nr software Work in process. Form 1040nr software Finished products. Form 1040nr software Supplies that physically become a part of the item intended for sale. Form 1040nr software Valuing inventory. Form 1040nr software   You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42). Form 1040nr software To determine the value of your inventory, you need a method for identifying the items in your inventory and a method for valuing these items. Form 1040nr software   Inventory valuation rules cannot be the same for all kinds of businesses. Form 1040nr software The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Form 1040nr software Your inventory practices must be consistent from year to year. Form 1040nr software More information. Form 1040nr software   For more information about inventories, see Publication 538. Form 1040nr software Uniform Capitalization Rules Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. Form 1040nr software Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Form 1040nr software You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Form 1040nr software Activities subject to the uniform capitalization rules. Form 1040nr software   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Form 1040nr software Produce real or tangible personal property. Form 1040nr software For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Form 1040nr software Acquire property for resale. Form 1040nr software Exceptions. Form 1040nr software   These rules do not apply to the following property. Form 1040nr software Personal property you acquire for resale if your average annual gross receipts are $10 million or less. Form 1040nr software Property you produce if you meet either of the following conditions. Form 1040nr software Your indirect costs of producing the property are $200,000 or less. Form 1040nr software You use the cash method of accounting and do not account for inventories. Form 1040nr software For more information, see Inventories, earlier. Form 1040nr software Special Methods There are special methods of accounting for certain items of income or expense. Form 1040nr software These include the following. Form 1040nr software Amortization, discussed in chapter 8 of Publication 535, Business Expenses. Form 1040nr software Bad debts, discussed in chapter 10 of Publication 535. Form 1040nr software Depletion, discussed in chapter 9 of Publication 535. Form 1040nr software Depreciation, discussed in Publication 946, How To Depreciate Property. Form 1040nr software Installment sales, discussed in Publication 537, Installment Sales. Form 1040nr software Change in Accounting Method Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Form 1040nr software A change in your accounting method includes a change in: Your overall method, such as from cash to an accrual method, and Your treatment of any material item. Form 1040nr software To get approval, you must file Form 3115, Application for Change in Accounting Method. Form 1040nr software You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. Form 1040nr software You may have to pay a user fee. Form 1040nr software For more information, see the form instructions. Form 1040nr software Automatic change procedures. Form 1040nr software   Certain taxpayers can presume to have IRS approval to change their method of accounting. Form 1040nr software The approval is granted for the tax year for which the taxpayer requests a change (year of change), if the taxpayer complies with the provisions of the automatic change procedures. Form 1040nr software No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. Form 1040nr software   Generally, you must use Form 3115 to request an automatic change. Form 1040nr software For more information, see the Instructions for Form 3115. 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