Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free State File Tax Return

Online Tax Filing2010 New Car Tax Credit2013 Amended Tax ReturnFile Free Federal And State Taxes OnlineFree State Tax Preparation OnlineFree Tax Preparation For SeniorsH&r Block Free File1040 Nr Tax FormDo Students Need To File TaxesFile 1040x ElectronicallyAmend Tax ReturnFreetaxusa 20091040x Tax Form2011 Irs Forms PublicationsFile 2006 Tax ReturnDownload 1040ezH And R Block 1040x2011 Income Tax Forms IndividualFederal Tax 1040ezIrs Tax Forms For 2012File 2011 Tax OnlineHow To Fill Out A 1040ez Tax FormIrs 2012 Tax Forms 10401040ez Income Tax FormH & R Block Taxes For FreeHow To File Only State Taxes For FreeWww Irs Gov 2012 Tax FormsFile Back Taxes Free OnlineH & R Block Free Tax FilingH&r BlocksHow Do You Amend TaxesDo State Taxes Online Free2011 1040ez Tax FormHow To File A Amended Tax Return For 2010Irs Gov 2010 Tax Forms1040ez Tax FormsFiling An Amended Tax ReturnAmended Tax Return Form 2013FreestatefilingState Taxes Forms

Free State File Tax Return

Free state file tax return Publication 4492-B - Additional Material Prev  Up  Next   Home   More Online Publications
Español

Work in the U.S.

Find resources on work visas and driving in the U.S., search for jobs, and more.

Back to Top

The Free State File Tax Return

Free state file tax return 5. Free state file tax return   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Free state file tax return Short-term lease. Free state file tax return Retail space. Free state file tax return Qualified long-term real property. Free state file tax return Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Free state file tax return If there is a connection between any income you receive and your business, the income is business income. Free state file tax return A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Free state file tax return You can have business income even if you are not involved in the activity on a regular full-time basis. Free state file tax return Income from work you do on the side in addition to your regular job can be business income. Free state file tax return You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Free state file tax return But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Free state file tax return For information on selling business assets, see chapter 3. Free state file tax return Nonemployee compensation. Free state file tax return Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Free state file tax return This includes amounts reported as nonemployee compensation in box 7 of the form. Free state file tax return You can find more information in the instructions on the back of the Form 1099-MISC you received. Free state file tax return Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Free state file tax return In most cases, your business income will be in the form of cash, checks, and credit card charges. Free state file tax return But business income can be in other forms, such as property or services. Free state file tax return These and other types of income are explained next. Free state file tax return If you are a U. Free state file tax return S. Free state file tax return citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Free state file tax return S. Free state file tax return law. Free state file tax return If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Free state file tax return For details, see Publication 54, Tax Guide for U. Free state file tax return S. Free state file tax return Citizens and Resident Aliens Abroad. Free state file tax return Bartering for Property or Services Bartering is an exchange of property or services. Free state file tax return You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Free state file tax return If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Free state file tax return Example 1. Free state file tax return You are a self-employed lawyer. Free state file tax return You perform legal services for a client, a small corporation. Free state file tax return In payment for your services, you receive shares of stock in the corporation. Free state file tax return You must include the fair market value of the shares in income. Free state file tax return Example 2. Free state file tax return You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Free state file tax return You must include the fair rental value of the apartment in your gross receipts. Free state file tax return Your landlord must include the fair market value of the work of art in his or her rental income. Free state file tax return Example 3. Free state file tax return You are a self-employed accountant. Free state file tax return Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Free state file tax return Members get in touch with other members directly and bargain for the value of the services to be performed. Free state file tax return In return for accounting services you provided for the house painter's business, the house painter painted your home. Free state file tax return You must include in gross receipts the fair market value of the services you received from the house painter. Free state file tax return The house painter must include the fair market value of your accounting services in his or her gross receipts. Free state file tax return Example 4. Free state file tax return You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Free state file tax return As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Free state file tax return You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Free state file tax return The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Free state file tax return It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Free state file tax return See Publication 15 (Circular E), Employer's Tax Guide. Free state file tax return Example 5. Free state file tax return You operate a plumbing business and use the cash method of accounting. Free state file tax return You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Free state file tax return Each member has access to a directory that lists the members of the club and the services available. Free state file tax return Members contact each other directly and request services to be performed. Free state file tax return You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Free state file tax return You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Free state file tax return Information returns. Free state file tax return   If you are involved in a bartering transaction, you may have to file either of the following forms. Free state file tax return Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Free state file tax return Form 1099-MISC, Miscellaneous Income. Free state file tax return For information about these forms, see the General Instructions for Certain Information Returns. Free state file tax return Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Free state file tax return , who provides services (maid services, etc. Free state file tax return ) for guests, report the rental income and expenses on Schedule C or C-EZ. Free state file tax return If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Free state file tax return For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Free state file tax return Real estate dealer. Free state file tax return   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Free state file tax return Rent you receive from real estate held for sale to customers is subject to SE tax. Free state file tax return However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Free state file tax return Trailer park owner. Free state file tax return   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Free state file tax return    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Free state file tax return Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Free state file tax return   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Free state file tax return   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Free state file tax return Hotels, boarding houses, and apartments. Free state file tax return   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Free state file tax return   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Free state file tax return An example of a service that is not normally provided for the convenience of the occupants is maid service. Free state file tax return However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Free state file tax return Prepaid rent. Free state file tax return   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Free state file tax return This is true no matter what accounting method or period you use. Free state file tax return Lease bonus. Free state file tax return   A bonus you receive from a lessee for granting a lease is an addition to the rent. Free state file tax return Include it in your gross receipts in the year received. Free state file tax return Lease cancellation payments. Free state file tax return   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Free state file tax return Payments to third parties. Free state file tax return   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Free state file tax return A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Free state file tax return Settlement payments. Free state file tax return   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Free state file tax return Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Free state file tax return ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Free state file tax return Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Free state file tax return If you receive any of those payments, include them in your gross receipts as explained in that discussion. Free state file tax return Interest and Dividend Income Interest and dividends may be considered business income. Free state file tax return Interest. Free state file tax return   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Free state file tax return Interest received on loans is business income if you are in the business of lending money. Free state file tax return Uncollectible loans. Free state file tax return   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Free state file tax return If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Free state file tax return See Bad Debts in chapter 8. Free state file tax return Unstated interest. Free state file tax return   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Free state file tax return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free state file tax return Dividends. Free state file tax return   Generally, dividends are business income to dealers in securities. Free state file tax return For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Free state file tax return If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Free state file tax return   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Free state file tax return To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Free state file tax return Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Free state file tax return General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Free state file tax return Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Free state file tax return If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Free state file tax return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free state file tax return Price reduced after purchase. Free state file tax return   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Free state file tax return Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Free state file tax return Deductible debt. Free state file tax return   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Free state file tax return Example. Free state file tax return You get accounting services for your business on credit. Free state file tax return Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Free state file tax return Your accountant forgives part of the amount you owe for the accounting services. Free state file tax return How you treat the canceled debt depends on your method of accounting. Free state file tax return Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Free state file tax return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free state file tax return   For information on the cash and accrual methods of accounting, see chapter 2. Free state file tax return Exclusions Do not include canceled debt in income in the following situations. Free state file tax return However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Free state file tax return For more information, see Form 982. Free state file tax return The cancellation takes place in a bankruptcy case under title 11 of the U. Free state file tax return S. Free state file tax return Code (relating to bankruptcy). Free state file tax return See Publication 908, Bankruptcy Tax Guide. Free state file tax return The cancellation takes place when you are insolvent. Free state file tax return You can exclude the canceled debt to the extent you are insolvent. Free state file tax return See Publication 908. Free state file tax return The canceled debt is a qualified farm debt owed to a qualified person. Free state file tax return See chapter 3 in Publication 225, Farmer's Tax Guide. Free state file tax return The canceled debt is a qualified real property business debt. Free state file tax return This situation is explained later. Free state file tax return The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Free state file tax return See Form 982. Free state file tax return If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Free state file tax return If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Free state file tax return Debt. Free state file tax return   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Free state file tax return Qualified real property business debt. Free state file tax return   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Free state file tax return If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Free state file tax return Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Free state file tax return However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Free state file tax return Cancellation of qualified real property business debt. Free state file tax return   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Free state file tax return It was incurred or assumed in connection with real property used in a trade or business. Free state file tax return It was secured by such real property. Free state file tax return It was incurred or assumed at either of the following times. Free state file tax return Before January 1, 1993. Free state file tax return After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Free state file tax return It is debt to which you choose to apply these rules. Free state file tax return   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Free state file tax return   You cannot exclude more than either of the following amounts. Free state file tax return The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Free state file tax return The total adjusted bases of depreciable real property held by you immediately before the cancellation. Free state file tax return These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Free state file tax return Do not take into account depreciable real property acquired in contemplation of the cancellation. Free state file tax return Election. Free state file tax return   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Free state file tax return You must file your return by the due date (including extensions). Free state file tax return If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free state file tax return For more information, see When To File in the form instructions. Free state file tax return Other Income The following discussion explains how to treat other types of business income you may receive. Free state file tax return Restricted property. Free state file tax return   Restricted property is property that has certain restrictions that affect its value. Free state file tax return If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Free state file tax return However, you can choose to be taxed in the year you receive the property. Free state file tax return For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Free state file tax return Gains and losses. Free state file tax return   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Free state file tax return Instead, you must report these gains and losses on other forms. Free state file tax return For more information, see chapter 3. Free state file tax return Promissory notes. Free state file tax return   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Free state file tax return In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Free state file tax return Lost income payments. Free state file tax return   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Free state file tax return Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Free state file tax return Damages. Free state file tax return   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Free state file tax return Patent infringement. Free state file tax return Breach of contract or fiduciary duty. Free state file tax return Antitrust injury. Free state file tax return Economic injury. Free state file tax return   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Free state file tax return Your deduction is the smaller of the following amounts. Free state file tax return The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Free state file tax return Your loss from the injury that you have not yet deducted. Free state file tax return Punitive damages. Free state file tax return   You must also include punitive damages in income. Free state file tax return Kickbacks. Free state file tax return   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Free state file tax return However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Free state file tax return Recovery of items previously deducted. Free state file tax return   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Free state file tax return However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Free state file tax return If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Free state file tax return Example. Free state file tax return Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Free state file tax return He also had 2 personal exemptions for a total of $7,800. Free state file tax return He would not pay income tax even if he did not deduct the bad debt. Free state file tax return Therefore, he will not report as income any part of the $300 he may recover in any future year. Free state file tax return Exception for depreciation. Free state file tax return   This rule does not apply to depreciation. Free state file tax return You recover depreciation using the rules explained next. Free state file tax return Recapture of depreciation. Free state file tax return   In the following situations, you have to recapture the depreciation deduction. Free state file tax return This means you include in income part or all of the depreciation you deducted in previous years. Free state file tax return Listed property. Free state file tax return   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Free state file tax return You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Free state file tax return Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Free state file tax return For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Free state file tax return That chapter explains how to determine whether property is used more than 50% in your business. Free state file tax return Section 179 property. Free state file tax return   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Free state file tax return You do this by including in income on Schedule C part of the deduction you took. Free state file tax return Use Part IV of Form 4797 to figure the amount to include on Schedule C. Free state file tax return See chapter 2 in Publication 946 to find out when you recapture the deduction. Free state file tax return Sale or exchange of depreciable property. Free state file tax return   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Free state file tax return You figure the income due to depreciation recapture in Part III of Form 4797. Free state file tax return For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Free state file tax return Items That Are Not Income In some cases the property or money you receive is not income. Free state file tax return Appreciation. Free state file tax return   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Free state file tax return Consignments. Free state file tax return   Consignments of merchandise to others to sell for you are not sales. Free state file tax return The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Free state file tax return Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Free state file tax return Merchandise you have shipped out on consignment is included in your inventory until it is sold. Free state file tax return   Do not include merchandise you receive on consignment in your inventory. Free state file tax return Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Free state file tax return Construction allowances. Free state file tax return   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Free state file tax return Under a short-term lease of retail space. Free state file tax return For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Free state file tax return Amount you can exclude. Free state file tax return   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Free state file tax return Short-term lease. Free state file tax return   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Free state file tax return The following rules apply in determining whether the lease is for 15 years or less. Free state file tax return Take into account options to renew when figuring whether the lease is for 15 years or less. Free state file tax return But do not take into account any option to renew at fair market value determined at the time of renewal. Free state file tax return Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Free state file tax return Retail space. Free state file tax return   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Free state file tax return Qualified long-term real property. Free state file tax return   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Free state file tax return Exchange of like-kind property. Free state file tax return   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Free state file tax return This means that the gain is not taxable and the loss is not deductible. Free state file tax return A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Free state file tax return For more information, see Form 8824. Free state file tax return Leasehold improvements. Free state file tax return   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Free state file tax return However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Free state file tax return Loans. Free state file tax return   Money borrowed through a bona fide loan is not income. Free state file tax return Sales tax. Free state file tax return   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Free state file tax return Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Free state file tax return Direct seller. Free state file tax return   You must report all income you receive as a direct seller on Schedule C or C-EZ. Free state file tax return This includes any of the following. Free state file tax return Income from sales—payments you receive from customers for products they buy from you. Free state file tax return Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Free state file tax return Prizes, awards, and gifts you receive from your selling business. Free state file tax return You must report this income regardless of whether it is reported to you on an information return. Free state file tax return   You are a direct seller if you meet all the following conditions. Free state file tax return You are engaged in one of the following trades or businesses. Free state file tax return Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Free state file tax return Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Free state file tax return Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Free state file tax return Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Free state file tax return Executor or administrator. Free state file tax return   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Free state file tax return A nonprofessional fiduciary (personal representative) and both of the following apply. Free state file tax return The estate includes an active trade or business in which you actively participate. Free state file tax return Your fees are related to the operation of that trade or business. Free state file tax return A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Free state file tax return    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Free state file tax return Fishing crew member. Free state file tax return    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Free state file tax return Insurance agent, former. Free state file tax return   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Free state file tax return You received payments after your agreement to perform services for the company ended. Free state file tax return You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Free state file tax return You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Free state file tax return The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Free state file tax return The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Free state file tax return Insurance agent, retired. Free state file tax return   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Free state file tax return Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Free state file tax return   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Free state file tax return Newspaper carrier or distributor. Free state file tax return   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free state file tax return You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Free state file tax return Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Free state file tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free state file tax return   This rule applies whether or not you hire others to help you make deliveries. Free state file tax return It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Free state file tax return Newspaper or magazine vendor. Free state file tax return   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free state file tax return You sell newspapers or magazines to ultimate consumers. Free state file tax return You sell them at a fixed price. Free state file tax return Your earnings are based on the difference between the sales price and your cost of goods sold. Free state file tax return   This rule applies whether or not you are guaranteed a minimum amount of earnings. Free state file tax return It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Free state file tax return Notary public. Free state file tax return   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Free state file tax return These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Free state file tax return Public official. Free state file tax return   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Free state file tax return This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Free state file tax return Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Free state file tax return   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Free state file tax return Real estate agent or direct seller. Free state file tax return   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Free state file tax return Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Free state file tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free state file tax return Securities dealer. Free state file tax return   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Free state file tax return For more information, see sections 1256 and 1402(i). Free state file tax return Securities trader. Free state file tax return   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Free state file tax return As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Free state file tax return However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Free state file tax return For more information about securities traders, see Publication 550, Investment Income and Expenses. Free state file tax return Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Free state file tax return This section discusses some of the more common differences that may affect business transactions. Free state file tax return Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Free state file tax return If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Free state file tax return Dealers in real estate are not allowed to use inventories. Free state file tax return For more information on inventories, see chapter 2. Free state file tax return Income paid to a third party. Free state file tax return   All income you earn is taxable to you. Free state file tax return You cannot avoid tax by having the income paid to a third party. Free state file tax return Example. Free state file tax return You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Free state file tax return The amount paid to your son is gross income to you. Free state file tax return Cash discounts. Free state file tax return   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Free state file tax return For income tax purposes, you can use either of the following two methods to account for cash discounts. Free state file tax return Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Free state file tax return Credit the cash discount to a discount income account. Free state file tax return You must use the chosen method every year for all your purchase discounts. Free state file tax return   If you use the second method, the credit balance in the account at the end of your tax year is business income. Free state file tax return Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Free state file tax return When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Free state file tax return Trade discounts. Free state file tax return   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Free state file tax return Do not enter these discounts on your books of account. Free state file tax return Instead, use only the net amount as the cost of the merchandise purchased. Free state file tax return For more information, see Trade discounts in chapter 6. Free state file tax return Payment placed in escrow. Free state file tax return   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Free state file tax return However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Free state file tax return Sales returns and allowances. Free state file tax return   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Free state file tax return Advance payments. Free state file tax return   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Free state file tax return Insurance proceeds. Free state file tax return   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Free state file tax return You cannot deduct the reimbursed part of a casualty or theft loss. Free state file tax return   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free state file tax return Prev  Up  Next   Home   More Online Publications