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Free Online Taxes 2012

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Free Online Taxes 2012

Free online taxes 2012 Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Free online taxes 2012 More information. Free online taxes 2012 Exception—Community Income. Free online taxes 2012 Exception—Qualified joint venture. Free online taxes 2012 More information. Free online taxes 2012 More information. Free online taxes 2012 Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Free online taxes 2012 Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Free online taxes 2012 Table 1 can help you learn what those responsibilities are. Free online taxes 2012 Ask yourself each question listed in the table, then see the related discussion to find the answer. Free online taxes 2012 In addition to knowing about federal taxes, you need to make some basic business decisions. Free online taxes 2012 Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Free online taxes 2012 For information on how to contact the SBA, see How to Get More Information, later. Free online taxes 2012 Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Free online taxes 2012 When beginning a business, you must decide which form of business to use. Free online taxes 2012 Legal and tax considerations enter into this decision. Free online taxes 2012 Only tax considerations are discussed in this publication. Free online taxes 2012 Your form of business determines which income tax return form you have to file. Free online taxes 2012 See Table 2 to find out which form you have to file. Free online taxes 2012 Sole proprietorships. Free online taxes 2012   A sole proprietorship is an unincorporated business that is owned by one individual. Free online taxes 2012 It is the simplest form of business organization to start and maintain. Free online taxes 2012 The business has no existence apart from you, the owner. Free online taxes 2012 Its liabilities are your personal liabilities. Free online taxes 2012 You undertake the risks of the business for all assets owned, whether or not used in the business. Free online taxes 2012 You include the income and expenses of the business on your personal tax return. Free online taxes 2012 More information. Free online taxes 2012   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Free online taxes 2012 If you are a farmer, see Publication 225, Farmer's Tax Guide. Free online taxes 2012 Partnerships. Free online taxes 2012   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Free online taxes 2012 Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Free online taxes 2012   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Free online taxes 2012 , from its operations, but it does not pay income tax. Free online taxes 2012 Instead, it “passes through” any profits or losses to its partners. Free online taxes 2012 Each partner includes his or her share of the partnership's items on his or her tax return. Free online taxes 2012 More information. Free online taxes 2012   For more information on partnerships, see Publication 541, Partnerships. Free online taxes 2012 Husband and wife business. Free online taxes 2012   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Free online taxes 2012 Do not use Schedule C or C-EZ. Free online taxes 2012 Instead, file Form 1065, U. Free online taxes 2012 S. Free online taxes 2012 Return of Partnership Income. Free online taxes 2012 For more information, see Publication 541, Partnerships. Free online taxes 2012 Exception—Community Income. Free online taxes 2012   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Free online taxes 2012 S. Free online taxes 2012 possession, you can treat the business either as a sole proprietorship or a partnership. Free online taxes 2012 The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Free online taxes 2012 A change in your reporting position will be treated as a conversion of the entity. Free online taxes 2012 Exception—Qualified joint venture. Free online taxes 2012   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Free online taxes 2012 Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Free online taxes 2012 For an explanation of "material participation," see the Instructions for Schedule C, line G. Free online taxes 2012   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Free online taxes 2012 Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Free online taxes 2012 For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Free online taxes 2012 Corporations. Free online taxes 2012   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Free online taxes 2012 A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Free online taxes 2012 A corporation can also take special deductions. Free online taxes 2012   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Free online taxes 2012 However, shareholders cannot deduct any loss of the corporation. Free online taxes 2012 More information. Free online taxes 2012   For more information on corporations, see Publication 542, Corporations. Free online taxes 2012 S corporations. Free online taxes 2012   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Free online taxes 2012 Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Free online taxes 2012 On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Free online taxes 2012 More information. Free online taxes 2012   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Free online taxes 2012 S. Free online taxes 2012 Income Tax Return for an S Corporation. Free online taxes 2012 Limited liability company. Free online taxes 2012   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Free online taxes 2012 The members of an LLC are not personally liable for its debts. Free online taxes 2012 An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Free online taxes 2012 7701-3. Free online taxes 2012 For more information, see the instructions for Form 8832, Entity Classification Election. Free online taxes 2012 Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Free online taxes 2012 The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Free online taxes 2012 An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Free online taxes 2012 An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Free online taxes 2012 You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Free online taxes 2012 You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Free online taxes 2012 This includes returns or documents filed to report the following information. Free online taxes 2012 Interest, dividends, royalties, etc. Free online taxes 2012 , paid to you. Free online taxes 2012 Any amount paid to you as a dependent care provider. Free online taxes 2012 Certain other amounts paid to you that total $600 or more for the year. Free online taxes 2012 If you do not furnish your identification number as required, you may be subject to penalties. Free online taxes 2012 See Penalties, later. Free online taxes 2012 Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Free online taxes 2012 If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Free online taxes 2012 Applying for an EIN. Free online taxes 2012   You may apply for an EIN: Online—Click on the EIN link at www. Free online taxes 2012 irs. Free online taxes 2012 gov/businesses/small. Free online taxes 2012 The EIN is issued immediately once the application information is validated. Free online taxes 2012 By telephone at 1-800-829-4933. Free online taxes 2012 By mailing or faxing Form SS-4, Application for Employer Identification Number. Free online taxes 2012 When to apply. Free online taxes 2012   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Free online taxes 2012 If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Free online taxes 2012 If you apply by telephone or through the IRS website, you can get an EIN immediately. Free online taxes 2012 If you apply by fax, you can get an EIN within 4 business days. Free online taxes 2012   If you do not receive your EIN by the time a return is due, file your return anyway. Free online taxes 2012 Write “Applied for” and the date you applied for the number in the space for the EIN. Free online taxes 2012 Do not use your social security number as a substitute for an EIN on your tax returns. Free online taxes 2012 More than one EIN. Free online taxes 2012   You should have only one EIN. Free online taxes 2012 If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Free online taxes 2012 Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Free online taxes 2012 The IRS will tell you which number to use. Free online taxes 2012 More information. Free online taxes 2012   For more information about EINs, see Publication 1635, Understanding Your EIN. Free online taxes 2012 Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Free online taxes 2012 The forms used to report these payments must include the payee's identification number. Free online taxes 2012 Employee. Free online taxes 2012   If you have employees, you must get an SSN from each of them. Free online taxes 2012 Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Free online taxes 2012 If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Free online taxes 2012 This may occur, for example, if the employee's name has changed due to marriage or divorce. Free online taxes 2012   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Free online taxes 2012 This form is available at SSA offices or by calling 1-800-772-1213. Free online taxes 2012 It is also available from the SSA website at www. Free online taxes 2012 ssa. Free online taxes 2012 gov. Free online taxes 2012 Other payee. Free online taxes 2012   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Free online taxes 2012 If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Free online taxes 2012   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Free online taxes 2012 This form is available from IRS offices or by calling 1-800-829-3676. Free online taxes 2012 It is also available from the IRS website at IRS. Free online taxes 2012 gov. Free online taxes 2012    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Free online taxes 2012 For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Free online taxes 2012 Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Free online taxes 2012 A tax year is usually 12 consecutive months. Free online taxes 2012 There are two kinds of tax years. Free online taxes 2012 Calendar tax year. Free online taxes 2012 A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Free online taxes 2012 Fiscal tax year. Free online taxes 2012 A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Free online taxes 2012 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. Free online taxes 2012 If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Free online taxes 2012 You must use a calendar tax year if: You keep no books. Free online taxes 2012 You have no annual accounting period. Free online taxes 2012 Your present tax year does not qualify as a fiscal year. Free online taxes 2012 You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Free online taxes 2012 For more information, see Publication 538, Accounting Periods and Methods. Free online taxes 2012 First-time filer. Free online taxes 2012   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Free online taxes 2012 You adopt a tax year by filing your first income tax return using that tax year. Free online taxes 2012 You have not adopted a tax year if you merely did any of the following. Free online taxes 2012 Filed an application for an extension of time to file an income tax return. Free online taxes 2012 Filed an application for an employer identification number. Free online taxes 2012 Paid estimated taxes for that tax year. Free online taxes 2012 Changing your tax year. Free online taxes 2012   Once you have adopted your tax year, you may have to get IRS approval to change it. Free online taxes 2012 To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Free online taxes 2012 You may have to pay a fee. Free online taxes 2012 For more information, see Publication 538. Free online taxes 2012 Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Free online taxes 2012 You choose an accounting method for your business when you file your first income tax return. Free online taxes 2012 There are two basic accounting methods. Free online taxes 2012 Cash method. Free online taxes 2012 Under the cash method, you report income in the tax year you receive it. Free online taxes 2012 You usually deduct or capitalize expenses in the tax year you pay them. Free online taxes 2012 Accrual method. Free online taxes 2012 Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Free online taxes 2012 You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Free online taxes 2012 For other methods, see Publication 538. Free online taxes 2012 If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Free online taxes 2012 Inventories include goods held for sale in the normal course of business. Free online taxes 2012 They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Free online taxes 2012 Inventories are explained in Publication 538. Free online taxes 2012 Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Free online taxes 2012 For more information, see Publication 538. Free online taxes 2012 You must use the same accounting method to figure your taxable income and to keep your books. Free online taxes 2012 Also, you must use an accounting method that clearly shows your income. Free online taxes 2012 In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Free online taxes 2012 An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Free online taxes 2012 More than one business. Free online taxes 2012   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Free online taxes 2012 You must keep a complete and separate set of books and records for each business. Free online taxes 2012 Changing your method of accounting. Free online taxes 2012   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Free online taxes 2012 A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Free online taxes 2012 For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Free online taxes 2012 Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Free online taxes 2012 The following are the four general kinds of business taxes. Free online taxes 2012 Income tax. Free online taxes 2012 Self-employment tax. Free online taxes 2012 Employment taxes. Free online taxes 2012 Excise taxes. Free online taxes 2012 See Table 2 for the forms you file to report these taxes. Free online taxes 2012 You may want to get Publication 509. Free online taxes 2012 It has tax calendars that tell you when to file returns and make tax payments. Free online taxes 2012 Income Tax All businesses except partnerships must file an annual income tax return. Free online taxes 2012 Partnerships file an information return. Free online taxes 2012 Which form you use depends on how your business is organized. Free online taxes 2012 See Table 2 to find out which return you have to file. Free online taxes 2012 The federal income tax is a pay-as-you-go tax. Free online taxes 2012 You must pay the tax as you earn or receive income during the year. Free online taxes 2012 An employee usually has income tax withheld from his or her pay. Free online taxes 2012 If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Free online taxes 2012 If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Free online taxes 2012 Table 2. Free online taxes 2012 Which Forms Must I File? IF you are a. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012   THEN you may be liable for. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012   Use Form. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012 Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Free online taxes 2012 2 Various other schedules may be needed. Free online taxes 2012 Estimated tax. Free online taxes 2012   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Free online taxes 2012 Sole proprietors, partners, and S corporation shareholders. Free online taxes 2012   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Free online taxes 2012 Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Free online taxes 2012 For more information, see Publication 505, Tax Withholding and Estimated Tax. Free online taxes 2012 Corporations. Free online taxes 2012   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Free online taxes 2012 Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Free online taxes 2012 You must deposit the payments as explained later under Depositing Taxes. Free online taxes 2012 For more information, see Publication 542. Free online taxes 2012 Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Free online taxes 2012 Your payments of SE tax contribute to your coverage under the social security system. Free online taxes 2012 Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Free online taxes 2012 You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Free online taxes 2012 Your net earnings from self-employment were $400 or more. Free online taxes 2012 You had church employee income of $108. Free online taxes 2012 28 or more. Free online taxes 2012 Use Schedule SE (Form 1040) to figure your SE tax. Free online taxes 2012 For more information, see Publication 334, Tax Guide for Small Business. Free online taxes 2012 You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Free online taxes 2012 The Social Security Administration (SSA) time limit for posting self-employment income. Free online taxes 2012   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Free online taxes 2012 If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Free online taxes 2012 The SSA will not change its records to increase your self-employment income. Free online taxes 2012 Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Free online taxes 2012 Employment taxes include the following. Free online taxes 2012 Social security and Medicare taxes. Free online taxes 2012 Federal income tax withholding. Free online taxes 2012 Federal unemployment (FUTA) tax. Free online taxes 2012 If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Free online taxes 2012 If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Free online taxes 2012 These publications explain your tax responsibilities as an employer. Free online taxes 2012 If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Free online taxes 2012 That publication has information to help you determine whether an individual is an employee or an independent contractor. Free online taxes 2012 If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Free online taxes 2012 An independent contractor is someone who is self-employed. Free online taxes 2012 Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Free online taxes 2012 Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Free online taxes 2012 To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Free online taxes 2012 Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Free online taxes 2012 Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Free online taxes 2012 Medicare tax pays for benefits under the hospital insurance part of FICA. Free online taxes 2012 You withhold part of these taxes from your employee's wages and you pay a part yourself. Free online taxes 2012 To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Free online taxes 2012 Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Free online taxes 2012 (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Free online taxes 2012 ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Free online taxes 2012 You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Free online taxes 2012 You pay FUTA tax only from your own funds. Free online taxes 2012 Employees do not pay this tax or have it withheld from their pay. Free online taxes 2012 Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Free online taxes 2012 See Publication 15 to find out if you can use this form. Free online taxes 2012 Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Free online taxes 2012 Form I-9. Free online taxes 2012   You must verify that each new employee is legally eligible to work in the United States. Free online taxes 2012 Both you and the employee must complete the U. Free online taxes 2012 S. Free online taxes 2012 Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Free online taxes 2012 You can get the form from USCIS offices or from the USCIS website at www. Free online taxes 2012 uscis. Free online taxes 2012 gov. Free online taxes 2012 Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Free online taxes 2012 Form W-4. Free online taxes 2012   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Free online taxes 2012 You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Free online taxes 2012 For more information, see Publication 15. Free online taxes 2012 Employees claiming more than 10 withholding allowances. Free online taxes 2012   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Free online taxes 2012 See section 16 of Publication 15. Free online taxes 2012 Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Free online taxes 2012 You must also send copies to the Social Security Administration. Free online taxes 2012 See Information Returns, later, for more information on Form W-2. Free online taxes 2012 Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Free online taxes 2012 Manufacture or sell certain products. Free online taxes 2012 Operate certain kinds of businesses. Free online taxes 2012 Use various kinds of equipment, facilities, or products. Free online taxes 2012 Receive payment for certain services. Free online taxes 2012 For more information on excise taxes, see Publication 510, Excise Taxes. Free online taxes 2012 Form 720. Free online taxes 2012   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Free online taxes 2012 Environmental taxes. Free online taxes 2012 Communications and air transportation taxes. Free online taxes 2012 Fuel taxes. Free online taxes 2012 Tax on the first retail sale of heavy trucks, trailers, and tractors. Free online taxes 2012 Manufacturers taxes on the sale or use of a variety of different articles. Free online taxes 2012 Form 2290. Free online taxes 2012   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Free online taxes 2012 The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Free online taxes 2012 Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Free online taxes 2012 For more information, see the instructions for Form 2290. Free online taxes 2012 Form 730. Free online taxes 2012   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Free online taxes 2012 Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Free online taxes 2012 Form 11-C. Free online taxes 2012   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Free online taxes 2012 Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Free online taxes 2012 Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Free online taxes 2012 Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Free online taxes 2012 Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Free online taxes 2012 Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Free online taxes 2012 The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Free online taxes 2012 You must give a copy of each information return you are required to file to the recipient or payer. Free online taxes 2012 In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Free online taxes 2012 For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Free online taxes 2012 Form 1099-MISC. Free online taxes 2012   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Free online taxes 2012 These payments include the following items. Free online taxes 2012 Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Free online taxes 2012 Rent payments of $600 or more, other than rents paid to real estate agents. Free online taxes 2012 Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Free online taxes 2012 Royalty payments of $10 or more. Free online taxes 2012 Payments to certain crew members by operators of fishing boats. Free online taxes 2012 You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Free online taxes 2012 Form W-2. Free online taxes 2012   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Free online taxes 2012 For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Free online taxes 2012 Form 8300. Free online taxes 2012   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Free online taxes 2012 Cash includes U. Free online taxes 2012 S. Free online taxes 2012 and foreign coin and currency. Free online taxes 2012 It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Free online taxes 2012 For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Free online taxes 2012 Penalties The law provides penalties for not filing returns or paying taxes as required. Free online taxes 2012 Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Free online taxes 2012 Failure to file tax returns. Free online taxes 2012   If you do not file your tax return by the due date, you may have to pay a penalty. Free online taxes 2012 The penalty is based on the tax not paid by the due date. Free online taxes 2012 See your tax return instructions for more information about this penalty. Free online taxes 2012 Failure to pay tax. Free online taxes 2012   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Free online taxes 2012 For more information, see your tax return instructions. Free online taxes 2012 Failure to withhold, deposit, or pay taxes. Free online taxes 2012   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Free online taxes 2012 You may also be subject to penalties if you deposit the taxes late. Free online taxes 2012 For more information, see Publication 15. Free online taxes 2012 Failure to follow information reporting requirements. Free online taxes 2012   The following penalties apply if you are required to file information returns. Free online taxes 2012 For more information, see the General Instructions for Certain Information Returns. Free online taxes 2012 Failure to file information returns. Free online taxes 2012 A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Free online taxes 2012 Failure to furnish correct payee statements. Free online taxes 2012 A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Free online taxes 2012 Waiver of penalty. Free online taxes 2012   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Free online taxes 2012   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Free online taxes 2012 (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Free online taxes 2012 ) Failure to supply taxpayer identification number. Free online taxes 2012   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Free online taxes 2012 You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Free online taxes 2012 Business Expenses You can deduct business expenses on your income tax return. Free online taxes 2012 These are the current operating costs of running your business. Free online taxes 2012 To be deductible, a business expense must be both ordinary and necessary. Free online taxes 2012 An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Free online taxes 2012 A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Free online taxes 2012 An expense does not have to be indispensable to be considered necessary. Free online taxes 2012 The following are brief explanations of some expenses that are of interest to people starting a business. Free online taxes 2012 There are many other expenses that you may be able to deduct. Free online taxes 2012 See your form instructions and Publication 535, Business Expenses. Free online taxes 2012 Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Free online taxes 2012 Your business start-up costs will depend on the type of business you are starting. Free online taxes 2012 They may include costs for advertising, travel, surveys, and training. Free online taxes 2012 These costs are generally capital expenses. Free online taxes 2012 You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Free online taxes 2012 You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Free online taxes 2012 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Free online taxes 2012 Any remaining cost must be amortized. Free online taxes 2012 For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Free online taxes 2012 Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Free online taxes 2012 You must spread the cost over more than one tax year and deduct part of it each year. Free online taxes 2012 This method of deducting the cost of business property is called depreciation. Free online taxes 2012 Business property you must depreciate includes the following items. Free online taxes 2012 Office furniture. Free online taxes 2012 Buildings. Free online taxes 2012 Machinery and equipment. Free online taxes 2012 You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Free online taxes 2012 This deduction is known as the “section 179 deduction. Free online taxes 2012 ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Free online taxes 2012 Depreciation must be taken in the year it is allowable. Free online taxes 2012 Allowable depreciation not taken in a prior year cannot be taken in the current year. Free online taxes 2012 If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Free online taxes 2012 S. Free online taxes 2012 Individual Income Tax Return, or by changing your accounting method. Free online taxes 2012 For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Free online taxes 2012 Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Free online taxes 2012 Even then, your deduction may be limited. Free online taxes 2012 To qualify to claim expenses for business use of your home, you must meet both the following tests. Free online taxes 2012 Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Free online taxes 2012 Exclusive use. Free online taxes 2012   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Free online taxes 2012 The area used for business can be a room or other separately identifiable space. Free online taxes 2012 The space does not need to be marked off by a permanent partition. Free online taxes 2012   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Free online taxes 2012 Exceptions to exclusive use. Free online taxes 2012   You do not have to meet the exclusive use test if either of the following applies. Free online taxes 2012 You use part of your home for the storage of inventory or product samples. Free online taxes 2012 You use part of your home as a daycare facility. Free online taxes 2012 For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Free online taxes 2012 Principal place of business. Free online taxes 2012   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Free online taxes 2012 You use it exclusively and regularly for administrative or management activities of your trade or business. Free online taxes 2012 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free online taxes 2012   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Free online taxes 2012 The relative importance of the activities performed at each location. Free online taxes 2012 If the relative importance factor does not determine your principal place of business, the time spent at each location. Free online taxes 2012    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Free online taxes 2012 However, for other ways to qualify to deduct home office expenses, see Publication 587. Free online taxes 2012 Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Free online taxes 2012 If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Free online taxes 2012 More information. Free online taxes 2012   For more information about business use of your home, see Publication 587. Free online taxes 2012 Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Free online taxes 2012 You generally can deduct either your actual expenses or the standard mileage rate. Free online taxes 2012 Actual expenses. Free online taxes 2012   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Free online taxes 2012 You can divide your expenses based on the miles driven for each purpose. Free online taxes 2012 Example. Free online taxes 2012 You are the sole proprietor of a flower shop. Free online taxes 2012 You drove your van 20,000 miles during the year. Free online taxes 2012 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Free online taxes 2012 You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Free online taxes 2012 Standard mileage rate. Free online taxes 2012   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Free online taxes 2012 You can use the standard mileage rate for a vehicle you own or lease. Free online taxes 2012 The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Free online taxes 2012 It is announced annually by the IRS. Free online taxes 2012 To figure your deduction, multiply your business miles by the standard mileage rate for the year. Free online taxes 2012    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Free online taxes 2012 However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Free online taxes 2012 Choosing the standard mileage rate. Free online taxes 2012   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Free online taxes 2012 In later years, you can choose to use either the standard mileage rate or actual expenses. Free online taxes 2012   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Free online taxes 2012 Additional information. Free online taxes 2012   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Free online taxes 2012 Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Free online taxes 2012 It also explains how long you must keep your records for federal tax purposes. Free online taxes 2012 A sample recordkeeping system is illustrated at the end of this part. Free online taxes 2012 Why Keep Records? Everyone in business must keep records. Free online taxes 2012 Good records will help you do the following. Free online taxes 2012 Monitor the progress of your business. Free online taxes 2012   You need good records to monitor the progress of your business. Free online taxes 2012 Records can show whether your business is improving, which items are selling, or what changes you need to make. Free online taxes 2012 Good records can increase the likelihood of business success. Free online taxes 2012 Prepare your financial statements. Free online taxes 2012   You need good records to prepare accurate financial statements. Free online taxes 2012 These include income (profit and loss) statements and balance sheets. Free online taxes 2012 These statements can help you in dealing with your bank or creditors and help you manage your business. Free online taxes 2012 An income statement shows the income and expenses of the business for a given period of time. Free online taxes 2012 A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Free online taxes 2012 Identify source of receipts. Free online taxes 2012   You will receive money or property from many sources. Free online taxes 2012 Your records can identify the source of your receipts. Free online taxes 2012 You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Free online taxes 2012 Keep track of deductible expenses. Free online taxes 2012   You may forget expenses when you prepare your tax return unless you record them when they occur. Free online taxes 2012 Prepare your tax returns. Free online taxes 2012   You need good records to prepare your tax returns. Free online taxes 2012 These records must support the income, expenses, and credits you report. Free online taxes 2012 Generally, these are the same records you use to monitor your business and prepare your financial statements. Free online taxes 2012 Support items reported on tax returns. Free online taxes 2012   You must keep your business records available at all times for inspection by the IRS. Free online taxes 2012 If the IRS examines any of your tax returns, you may be asked to explain the items reported. Free online taxes 2012 A complete set of records will speed up the examination. Free online taxes 2012 Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Free online taxes 2012 You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Free online taxes 2012 The business you are in affects the type of records you need to keep for federal tax purposes. Free online taxes 2012 You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Free online taxes 2012 See Accounting Method, earlier. Free online taxes 2012 If you are in more than one business, you should keep a complete and separate set of records for each business. Free online taxes 2012 A corporation should keep minutes of board of directors' meetings. Free online taxes 2012 Your recordkeeping system should include a summary of your business transactions. Free online taxes 2012 This summary is ordinarily made in your books (for example, accounting journals and ledgers). Free online taxes 2012 Your books must show your gross income, as well as your deductions and credits. Free online taxes 2012 For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Free online taxes 2012 In addition, you must keep supporting documents, explained later. Free online taxes 2012 Electronic records. Free online taxes 2012   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Free online taxes 2012 When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Free online taxes 2012 An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Free online taxes 2012 The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Free online taxes 2012 All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Free online taxes 2012 Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Free online taxes 2012   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Free online taxes 2012 You still have the responsibility of retaining any other books and records that are required to be retained. Free online taxes 2012   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Free online taxes 2012 This test is not considered an examination and the results must be shared with you. Free online taxes 2012 If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Free online taxes 2012 If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Free online taxes 2012 For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Free online taxes 2012 Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Free online taxes 2012 Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Free online taxes 2012 These documents contain information you need to record in your books. Free online taxes 2012 It is important to keep these documents because they support the entries in your books and on your tax return. Free online taxes 2012 Keep them in an orderly fashion and in a safe place. Free online taxes 2012 For instance, organize them by year and type of income or expense. Free online taxes 2012 Gross receipts. Free online taxes 2012   Gross receipts are the income you receive from your business. Free online taxes 2012 You should keep supporting documents that show the amounts and sources of your gross receipts. Free online taxes 2012 Documents that show gross receipts include the following. Free online taxes 2012 Cash register tapes. Free online taxes 2012 Bank deposit slips. Free online taxes 2012 Receipt books. Free online taxes 2012 Invoices. Free online taxes 2012 Credit card charge slips. Free online taxes 2012 Forms 1099-MISC. Free online taxes 2012 Purchases. Free online taxes 2012   Purchases are the items you buy and resell to customers. Free online taxes 2012 If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Free online taxes 2012 Your supporting documents should show the amount paid and that the amount was for purchases. Free online taxes 2012 Documents for purchases include the following. Free online taxes 2012 Canceled checks. Free online taxes 2012 Cash register tape receipts. Free online taxes 2012 Credit card sales slips. Free online taxes 2012 Invoices. Free online taxes 2012 These records will help you determine the value of your inventory at the end of the year. Free online taxes 2012 See Publication 538 for information on methods for valuing inventory. Free online taxes 2012 Expenses. Free online taxes 2012   Expenses are the costs you incur (other than purchases) to carry on your business. Free online taxes 2012 Your supporting documents should show the amount paid and that the amount was for a business expense. Free online taxes 2012 Documents for expenses include the following. Free online taxes 2012 Canceled checks. Free online taxes 2012 Cash register tapes. Free online taxes 2012 Account statements. Free online taxes 2012 Credit card sales slips. Free online taxes 2012 Invoices. Free online taxes 2012 Petty cash slips for small cash payments. Free online taxes 2012    A petty cash fund allows you to make small payments without having to write checks for small amounts. Free online taxes 2012 Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Free online taxes 2012 Travel, transportation, entertainment, and gift expenses. Free online taxes 2012   Specific recordkeeping rules apply to these expenses. Free online taxes 2012 For more information, see Publication 463. Free online taxes 2012 Employment taxes. Free online taxes 2012   There are specific employment tax records you must keep. Free online taxes 2012 For a list, see Publication 15. Free online taxes 2012 Assets. Free online taxes 2012   Assets are the property, such as machinery and furniture you own and use in your business. Free online taxes 2012 You must keep records to verify certain information about your business assets. Free online taxes 2012 You need records to figure the annual depreciation and the gain or loss when you sell the assets. Free online taxes 2012 Your records should show the following information. Free online taxes 2012 When and how you acquired the asset. Free online taxes 2012 Purchase price. Free online taxes 2012 Cost of any improvements. Free online taxes 2012 Section 179 deduction taken. Free online taxes 2012 Deductions taken for depreciation. Free online taxes 2012 Deductions taken for casualty losses, such as losses resulting from fires or storms. Free online taxes 2012 How you used the asset. Free online taxes 2012 When and how you disposed of the asset. Free online taxes 2012 Selling price. Free online taxes 2012 Expenses of sale. Free online taxes 2012   The following documents may show this information. Free online taxes 2012 Purchase and sales invoices. Free online taxes 2012 Real estate closing statements. Free online taxes 2012 Canceled checks. Free online taxes 2012 What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Free online taxes 2012 These include account statements prepared for the financial institution by a third party. Free online taxes 2012 These account statements must be highly legible. Free online taxes 2012 The following table lists acceptable account statements. Free online taxes 2012  IF payment is by. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012 THEN the statement must show the. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012 Check Check number. Free online taxes 2012 Amount. Free online taxes 2012 Payee's name. Free online taxes 2012 Date the check amount was posted to the account by the financial institution. Free online taxes 2012 Electronic funds transfer Amount transferred. Free online taxes 2012 Payee's name. Free online taxes 2012 Date the transfer was posted to the account by the financial institution. Free online taxes 2012 Credit card Amount charged. Free online taxes 2012 Payee's name. Free online taxes 2012 Transaction date. Free online taxes 2012    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Free online taxes 2012 You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Free online taxes 2012 Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Free online taxes 2012 (Your business transactions are shown on the supporting documents just discussed. Free online taxes 2012 ) Business transactions are ordinarily summarized in books called journals and ledgers. Free online taxes 2012 You can buy them at your local stationery or office supply store. Free online taxes 2012 A journal is a book where you record each business transaction shown on your supporting documents. Free online taxes 2012 You may have to keep separate journals for transactions that occur frequently. Free online taxes 2012 A ledger is a book that contains the totals from all of your journals. Free online taxes 2012 It is organized into different accounts. Free online taxes 2012 Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Free online taxes 2012 For example, a recordkeeping system for a small business might include the following items. Free online taxes 2012 Business checkbook. Free online taxes 2012 Daily summary of cash receipts. Free online taxes 2012 Monthly summary of cash receipts. Free online taxes 2012 Check disbursements journal. Free online taxes 2012 Depreciation worksheet. Free online taxes 2012 Employee compensation record. Free online taxes 2012 The business checkbook is explained next. Free online taxes 2012 The other items are illustrated later under Sample Record System. Free online taxes 2012 The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Free online taxes 2012 For example, record expenses when they occur, and identify the source of recorded receipts. Free online taxes 2012 Generally, it is best to record transactions on a daily basis. Free online taxes 2012 Business checkbook. Free online taxes 2012   One of the first things you should do when you start a business is open a business checking account. Free online taxes 2012 You should keep your business account separate from your personal checking account. Free online taxes 2012   The business checkbook is your basic source of information for recording your business expenses. Free online taxes 2012 You should deposit all daily receipts in your business checking account. Free online taxes 2012 You should check your account for errors by reconciling it. Free online taxes 2012 See Reconciling the checking account, later. Free online taxes 2012   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Free online taxes 2012 You should also note on the deposit slip the source of the deposit and keep copies of all slips. Free online taxes 2012   You should make all payments by check to document business expenses. Free online taxes 2012 Write checks payable to yourself only when making withdrawals from your business for personal use. Free online taxes 2012 Avoid writing checks payable to cash. Free online taxes 2012 If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Free online taxes 2012 If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Free online taxes 2012    Use the business account for business purposes only. Free online taxes 2012 Indicate the source of deposits and the type of expense in the checkbook. Free online taxes 2012 Reconciling the checking account. Free online taxes 2012   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Free online taxes 2012 The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Free online taxes 2012   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Free online taxes 2012    You should reconcile your checking account each month. Free online taxes 2012     Before you reconcile your monthly bank statement, check your own figures. Free online taxes 2012 Begin with the balance shown in your checkbook at the end of the previous month. Free online taxes 2012 To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Free online taxes 2012   After checking your figures, the result should agree with your checkbook balance at the end of the month. Free online taxes 2012 If the result does not agree, you may have made an error in recording a check or deposit. Free online taxes 2012 You can find the error by doing the following. Free online taxes 2012 Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Free online taxes 2012 If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Free online taxes 2012 Adding the deposit amounts in your checkbook. Free online taxes 2012 Compare that total with the monthly total in your cash receipt book, if you have one. Free online taxes 2012 If the totals do not agree, check the individual amounts to find any errors. Free online taxes 2012   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Free online taxes 2012   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Free online taxes 2012 Many banks print a reconciliation worksheet on the back of the statement. Free online taxes 2012   To reconcile your account, follow these steps. Free online taxes 2012 Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Free online taxes 2012 Note all differences in the dollar amounts. Free online taxes 2012 Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Free online taxes 2012 Note all differences in the dollar amounts. Free online taxes 2012 Mark the check number in the checkbook as having cleared the bank. Free online taxes 2012 After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Free online taxes 2012 Prepare a bank reconciliation. Free online taxes 2012 One is illustrated later under Sample Record System. Free online taxes 2012 Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Free online taxes 2012 At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Free online taxes 2012 If you still have differences, check the previous steps to find the errors. Free online taxes 2012   Table 3. Free online taxes 2012 Period of Limitations IF you. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012   THEN the period is. Free online taxes 2012 . Free online taxes 2012 . Free online taxes 2012 1. Free online taxes 2012 Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Free online taxes 2012 Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Free online taxes 2012 File a fraudulent return   Not limited 4. Free online taxes 2012 Do not file a return   Not limited 5. Free online taxes 2012 File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Free online taxes 2012 File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Free online taxes 2012 The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Free online taxes 2012 You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Free online taxes 2012 Single-entry. Free online taxes 2012   A single-entry system is based on the income statement (profit or loss statement). Free online taxes 2012 It can be a simple and practical system if you are starting a small business. Free online taxes 2012 The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Free online taxes 2012 Double-entry. Free online taxes 2012   A double-entry bookkeeping system uses journals and ledgers. Free online taxes 2012 Transactions are first entered in a journal and then posted to ledger accounts. Free online taxes 2012 These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Free online taxes 2012 You close income and expense accounts at the end of each tax year. Free online taxes 2012 You keep asset, liability, and net worth accounts open on a permanent basis. Free online taxes 2012   In the double-entry system, each account has a left side for debits and a right side for credits. Free online taxes 2012 It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Free online taxes 2012   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Free online taxes 2012 If the amounts do not balance, you have made an error and you must find and correct it. Free online taxes 2012   An example of a journal entry exhibiting a payment of rent in October is shown next. Free online taxes 2012 General Journal Date Description of Entry Debit  Credit Oct. Free online taxes 2012 5 Rent expense 780. Free online taxes 2012 00     Cash   780. Free online taxes 2012 00                 Computerized System There are computer software packages you can use for recordkeeping. Free online taxes 2012 They can be purchased in many retail stores. Free online taxes 2012 These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Free online taxes 2012 If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Free online taxes 2012 To meet this qualification, the machine-sensible records must reconcile with your books and return. Free online taxes 2012 These records must provide enough detail to identify the underlying source documents. Free online taxes 2012 You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Free online taxes 2012 This documentation must be sufficiently detailed to show all of the following items. Free online taxes 2012 Functions being performed as the data flows through the system. Free online taxes 2012 Controls used to ensure accurate and reliable processing. Free online taxes 2012 Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Free online taxes 2012 Charts of accounts and detailed account descriptions. Free online taxes 2012 See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Free online taxes 2012 How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Free online taxes 2012 Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Free online taxes 2012 The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Free online taxes 2012 Table 3 contains the periods of limitations that apply to income tax returns. Free online taxes 2012 Unless otherwise stated, the years refer to the period after the return was filed. Free online taxes 2012 Returns filed before the due date are treated as filed on the due date. Free online taxes 2012 Keep copies of your filed tax returns. Free online taxes 2012 They help in preparing future tax returns and making computations if you file an amended return. Free online taxes 2012 Employment taxes. Free online taxes 2012   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Free online taxes 2012 For more information about recordkeeping for employment taxes, see Publication 15. Free online taxes 2012 Assets. Free online taxes 2012   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Free online taxes 2012 You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Free online taxes 2012   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Free online taxes 2012 You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Free online taxes 2012 Records for nontax purposes. Free online taxes 2012   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Free online taxes 2012 For example, your insurance company or creditors may require you to keep them longer than the IRS does. Free online taxes 2012 Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Free online taxes 2012 Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Free online taxes 2012 These sample records should not be viewed as a recommendation of how to keep your records. Free online taxes 2012 They are intended only to show how one business keeps its records. Free online taxes 2012 1. Free online taxes 2012 Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Free online taxes 2012 It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Free online taxes 2012 Henry takes the cash sales entry from his cash register tape. Free online taxes 2012 If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Free online taxes 2012 He carries the total receipts shown in this summary for January 3 ($267. Free online taxes 2012 80), including cash sales ($263. Free online taxes 2012 60) and sales tax ($4. Free online taxes 2012 20), to the Monthly Summary of Cash Receipts. Free online taxes 2012 Petty cash fund. Free online taxes 2012   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Free online taxes 2012 Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Free online taxes 2012 He sets up a fixed amount ($50) in his petty cash fund. Free online taxes 2012 The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Free online taxes 2012 When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Free online taxes 2012 (See the Check Disbursements Journal entry for check number 92. Free online taxes 2012 ) This restores the fund to its fixed amount of $50. Free online taxes 2012 He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Free online taxes 2012 2. Free online taxes 2012 Monthly Summary of Cash Receipts This shows the income activity for the month. Free online taxes 2012 Henry carries the total monthly net sales shown in this summary for January ($4,865. Free online taxes 2012 05) to his Annual Summary. Free online taxes 2012 To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Free online taxes 2012 He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Free online taxes 2012 He does not include the tax in his income. Free online taxes 2012 3. Free online taxes 2012 Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Free online taxes 2012 All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Free online taxes 2012 Frequent expenses have their own headings across the sheet. Free online taxes 2012 He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Free online taxes 2012 Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Free online taxes 2012 Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Free online taxes 2012 If he did, he would record them in the journal, even though he could not deduct them as business expenses. Free online taxes 2012 Henry carries the January total of expenses for materials ($1,083. Free online taxes 2012 50) to the Annual Summary. Free online taxes 2012 Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Free online taxes 2012 , in the appropriate columns of that summary. Free online taxes 2012 4. Free online taxes 2012 Employee Compensation Record This record shows the following information. Free online taxes 2012 The number of hours Henry's employee worked in a pay period. Free online taxes 2012 The employee's total pay for the period. Free online taxes 2012 The deductions Henry withheld in figuring the employee's net pay. Free online taxes 2012 The monthly gross payroll. Free online taxes 2012 Henry carries the January gross payroll ($520) to the Annual Summary. Free online taxes 2012 5. Free online taxes 2012 Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Free online taxes 2012 He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Free online taxes 2012 He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Free online taxes 2012 As in the journal, he keeps each major expense in a separate column. Free online taxes 2012 Henry carries the cash receipts total shown in the annual summary ($47,440. Free online taxes 2012 9
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The Free Online Taxes 2012

Free online taxes 2012 Publication 561 - Additional Material Table of Contents Tax Publications for Individual Taxpayers and Commonly Used Tax Forms Tax Publications for Individual Taxpayers and Commonly Used Tax Forms. Free online taxes 2012  Summary: This is a listing of tax publications and commonly used tax forms. Free online taxes 2012 The text states:Tax Publications for Individual Taxpayers. Free online taxes 2012  See How to Get Tax Help for a variety of ways to get publications, including by computer, phone, and mail. Free online taxes 2012 General Guides. Free online taxes 2012   1--Your Rights as a Taxpayer 17--Your Federal Income Tax (For Individuals) 334--Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 509--Tax Calendars for 2007 553--Highlights of 2006 Tax Changes 910--IRS Guide to Free Tax Services Specialized Publications. Free online taxes 2012   3--Armed Forces' Tax Guide 54--Tax Guide for U. Free online taxes 2012 S. Free online taxes 2012 Citizens and Residents Aliens Abroad 225--Farmer's Tax Guide 463--Travel, Entertainment, Gift, and Car Expenses 501--Exemptions, Standard Deduction, and Filing Information 502--Medical and Dental Expenses 503--Child and Dependent Care Expenses 504--Divorced or Separated Individuals 505--Tax Withholding and Estimated Tax 514--Foreign Tax Credit for Individuals 516--U. Free online taxes 2012 S. Free online taxes 2012 Government Civilian Employees Stationed Abroad 517--Social Security and Other Information for Members of the Clergy and Religious Workers 519--U. Free online taxes 2012 S. Free online taxes 2012 Tax Guide for Aliens 520--Scholarships and Fellowships 521--Moving Expenses 523--Selling Your Home 524--Credit for the Elderly or the Disabled 525--Taxable and Nontaxable Income 526--Charitable Contributions 527--Residential Rental Property 529--Miscellaneous Deductions 530--Tax Information for First-Time Homeowners 531--Reporting Tip Income 536--Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 537--Installment Sales 541--Partnerships 544--Sales and Other Dispositions of Assets 547--Casualties, Disasters, and Thefts 550--Investment Income and Expenses 551--Basis of Assets 552--Recordkeeping for Individuals 554--Older Americans' Tax Guide 555--Community Property 556--Examination of Returns, Appeal Rights, and Claims for Refund 559--Survivors, Executors, and Administrators 561--Determining the Value of Donated Property 564--Mutual Fund Distributions 570--Tax Guide for Individuals With Income From U. Free online taxes 2012 S. Free online taxes 2012 Possessions 571--Tax-Sheltered Annuity Plans (403(b) Plans) 575--Pension and Annuity Income 584--Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 587--Business Use of Your Home (Including Use by Daycare Providers) 590--Individual Retirement Arrangements (IRAs) 593--Tax Highlights for U. Free online taxes 2012 S. Free online taxes 2012 Citizens and Residents Going Abroad 594--What You Should Know About the IRS Collection Process 596--Earned Income Credit (EIC) 721--Tax Guide to U. Free online taxes 2012 S. Free online taxes 2012 Civil Service Retirement Benefits 901--U. Free online taxes 2012 S. Free online taxes 2012 Tax Treaties 907--Tax Highlights for Persons with Disabilities 908--Bankruptcy Tax Guide 915--Social Security and Equivalent Railroad Retirement Benefits 919--How Do I Adjust My Tax Withholding? 925--Passive Activity and At-Risk Rules 926--Household Employer's Tax Guide 929--Tax Rules for Children and Dependents 936--Home Mortgage Interest Deduction 946--How to Depreciate Property 947--Practice Before the IRS and Power of Attorney 950--Introduction to Estate and Gift Taxes 967--The IRS Will Figure Your Tax 969--Health Savings Accounts and Other Tax-Favored Health Plans 970--Tax Benefits for Education 971--Innocent Spouse Relief 972--Child Tax Credit 1542--Per Diem Rates 1544--Reporting Cash Payments of Over $10,000 (Received in a Trade or Business) 1546--The Taxpayer Advocate Service of the IRS - How to Get Help With Unresolved Tax Problems Spanish Language Publications. Free online taxes 2012   1SP--Derechos del Contribuyente 579SP--Cómo Preparar la Declaración de Impuesto Federal 594SP--Que es lo que Debemos Saber sobre el Proceso de Cobro del IRS 596SP--Crédito por Ingreso del Trabajo 850--English-Spanish Glossary of Words and Phrases Used in Publications Issued by the Internal Revenue Service 1544SP--Informe de Pagos en Efectivo en Exceso de $10,000 (Recibidos en una Ocupación o Negocio) Commonly Used Tax Forms. Free online taxes 2012  See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone, and mail. Free online taxes 2012 1040--U. Free online taxes 2012 S. Free online taxes 2012 Individual Income Tax Return Schedule A&B--Itemized Deductions & Interest and Ordinary Dividends Schedule C--Profit or Loss From Business Schedule C-EZ--Net Profit From Business Schedule D--Capital Gains and Losses Schedule D-1--Continuation Sheet for Schedule D Schedule E--Supplemental Income and Loss Schedule EIC--Earned Income Credit Schedule F--Profit or Loss From Farming Schedule H--Household Employment Taxes Schedule J--Income Averaging for Farmers and Fishermen Schedule R--Credit for the Elderly or the Disabled Schedule SE--Self-Employment Tax 1040A--U. Free online taxes 2012 S. Free online taxes 2012 Individual Income Tax Return Schedule 1--Interest and Ordinary Dividends for Form 1040A Filers Schedule 2--Child and Dependent Care Expenses for Form 1040A Filers Schedule 3--Credit for the Elderly or the Disabled for Form 1040A Filers 1040EZ--Income Tax Return for Single and Joint Filers With No Dependents 1040-ES--Estimated Tax for Individuals 1040X--Amended U. Free online taxes 2012 S. Free online taxes 2012 Individual Income Tax Return 2106--Employee Business Expenses 2106-EZ--Unreimbursed Employee Business Expenses 2210--Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2441--Child and Dependent Care Expenses 2848--Power of Attorney and Declaration of Representative 3903--Moving Expenses 4562--Depreciation and Amortization 4868--Application for Automatic Extension of Time To File U. Free online taxes 2012 S. Free online taxes 2012 Individual Income Tax Return 4952--Investment Interest Expense Deduction 5329--Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 6251--Alternative Minimum Tax--Individuals 8283--Noncash Charitable Contributions 8582--Passive Activity Loss Limitations 8606--Nondeductible IRAs 8812--Additional Child Tax Credit 8822--Change of Address 8829--Expenses for Business Use of Your Home 8863--Education Credits 9465--Installment Agreement Request Prev  Up  Next   Home   More Online Publications