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Free State Taxes File

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Free State Taxes File

Free state taxes file 10. Free state taxes file   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. Free state taxes file Cash method. Free state taxes file Debt acquired from a decedent. Free state taxes file Liquidation. Free state taxes file Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. Free state taxes file Introduction You have a bad debt if you cannot collect money owed to you. Free state taxes file A bad debt is either a business bad debt or a nonbusiness bad debt. Free state taxes file This chapter discusses only business bad debts. Free state taxes file Generally, a business bad debt is one that comes from operating your trade or business. Free state taxes file You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. Free state taxes file All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. Free state taxes file For more information on nonbusiness bad debts, see Publication 550. Free state taxes file Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. Free state taxes file S. Free state taxes file Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. Free state taxes file Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. Free state taxes file A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. Free state taxes file Bad debts of a corporation (other than an S corporation) are always business bad debts. Free state taxes file Credit sales. Free state taxes file   Business bad debts are mainly the result of credit sales to customers. Free state taxes file Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. Free state taxes file After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. Free state taxes file   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. Free state taxes file If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. Free state taxes file    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. Free state taxes file This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. Free state taxes file Accrual method. Free state taxes file   If you use the accrual method of accounting, you generally report income as you earn it. Free state taxes file You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. Free state taxes file   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. Free state taxes file Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. Free state taxes file Cash method. Free state taxes file   If you use the cash method of accounting, you generally report income when you receive payment. Free state taxes file You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. Free state taxes file For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. Free state taxes file Debts from a former business. Free state taxes file   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. Free state taxes file If any of these receivables subsequently become worthless, the loss is still a business bad debt. Free state taxes file Debt acquired from a decedent. Free state taxes file   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. Free state taxes file The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. Free state taxes file Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. Free state taxes file Liquidation. Free state taxes file   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. Free state taxes file Types of Business Bad Debts Business bad debts may result from the following. Free state taxes file Loans to clients and suppliers. Free state taxes file   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. Free state taxes file Debts owed by political parties. Free state taxes file   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. Free state taxes file You use the accrual method of accounting. Free state taxes file The debt arose from the sale of goods or services in the ordinary course of your trade or business. Free state taxes file More than 30% of your receivables accrued in the year of the sale were from sales to political parties. Free state taxes file You made substantial and continuing efforts to collect on the debt. Free state taxes file Loan or capital contribution. Free state taxes file   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. Free state taxes file Debts of an insolvent partner. Free state taxes file   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. Free state taxes file If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. Free state taxes file Business loan guarantee. Free state taxes file   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. Free state taxes file You made the guarantee in the course of your trade or business. Free state taxes file You have a legal duty to pay the debt. Free state taxes file You made the guarantee before the debt became worthless. Free state taxes file You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. Free state taxes file You received reasonable consideration for making the guarantee. Free state taxes file You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. Free state taxes file Example. Free state taxes file Jane Zayne owns the Zayne Dress Company. Free state taxes file She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. Free state taxes file Elegant Fashions is one of Zayne's largest clients. Free state taxes file Elegant Fashions later defaulted on the loan. Free state taxes file As a result, Ms. Free state taxes file Zayne paid the remaining balance of the loan in full to the bank. Free state taxes file She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. Free state taxes file She was motivated by the desire to retain one of her better clients and keep a sales outlet. Free state taxes file Deductible in the year paid. Free state taxes file   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. Free state taxes file Rights against a borrower. Free state taxes file   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. Free state taxes file The debt is then owed to you. Free state taxes file If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. Free state taxes file Joint debtor. Free state taxes file   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. Free state taxes file Sale of mortgaged property. Free state taxes file   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. Free state taxes file When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. Free state taxes file This may occur when the debt is due or prior to that date. Free state taxes file To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. Free state taxes file It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Free state taxes file Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Free state taxes file Property received for debt. Free state taxes file   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. Free state taxes file You can deduct the remaining debt as a bad debt if and when it becomes worthless. Free state taxes file   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. Free state taxes file It is not a recovery of a bad debt. Free state taxes file For information on the sale of an asset, see Publication 544. Free state taxes file How To Claim a Business Bad Debt There are two methods to claim a business bad debt. Free state taxes file The specific charge-off method. Free state taxes file The nonaccrual-experience method. Free state taxes file Generally, you must use the specific charge-off method. Free state taxes file However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . Free state taxes file Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. Free state taxes file However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. Free state taxes file Partly worthless debts. Free state taxes file   You can deduct specific bad debts that become partly uncollectible during the tax year. Free state taxes file Your tax deduction is limited to the amount you charge off on your books during the year. Free state taxes file You do not have to charge off and deduct your partly worthless debts annually. Free state taxes file You can delay the charge off until a later year. Free state taxes file However, you cannot deduct any part of a debt after the year it becomes totally worthless. Free state taxes file Significantly modified debt. Free state taxes file   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. Free state taxes file For more information, see Regulations section 1. Free state taxes file 166-3(a)(3). Free state taxes file Deduction disallowed. Free state taxes file   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. Free state taxes file If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. Free state taxes file The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. Free state taxes file Totally worthless debts. Free state taxes file   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. Free state taxes file   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. Free state taxes file However, you may want to do so. Free state taxes file If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. Free state taxes file See Partly worthless debts, earlier. Free state taxes file Filing a claim for refund. Free state taxes file   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. Free state taxes file If the bad debt was totally worthless, you must file the claim by the later of the following dates. Free state taxes file 7 years from the date your original return was due (not including extensions). Free state taxes file 2 years from the date you paid the tax. Free state taxes file   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. Free state taxes file 3 years from the date you filed your original return. Free state taxes file 2 years from the date you paid the tax. Free state taxes file You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. Free state taxes file Such an impairment requires proof of existence. Free state taxes file   For details and more information about filing a claim, see Publication 556. Free state taxes file Use one of the following forms to file a claim. Free state taxes file For more information, see the instructions for the applicable form. Free state taxes file Table 10-1. Free state taxes file Forms Used To File a Claim IF you filed as a. Free state taxes file . Free state taxes file . Free state taxes file THEN file. Free state taxes file . Free state taxes file . Free state taxes file Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. Free state taxes file Under this method, you do not accrue service related income you expect to be uncollectible. Free state taxes file Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. Free state taxes file Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. Free state taxes file Service related income. Free state taxes file   You can use the nonaccrual-experience method only for amounts earned by performing services. Free state taxes file You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. Free state taxes file Gross receipts test. Free state taxes file   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. Free state taxes file If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. Free state taxes file   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. Free state taxes file For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. Free state taxes file Interest or penalty charged. Free state taxes file   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. Free state taxes file However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. Free state taxes file You otherwise accrue the full amount due as gross income at the time you provide the services. Free state taxes file You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. Free state taxes file Change in accounting method. Free state taxes file   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. Free state taxes file See Form 3115 and the Instructions for Form 3115 for more information. Free state taxes file Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. Free state taxes file The amount you include is limited to the amount you actually deducted. Free state taxes file However, you can exclude the amount deducted that did not reduce your tax. Free state taxes file Report the recovery as “Other income” on the appropriate business form or schedule. Free state taxes file See Recoveries in Publication 525 for more information. Free state taxes file Net operating loss (NOL) carryover. Free state taxes file   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. Free state taxes file A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. Free state taxes file For more information about NOLs, see Publication 536. Free state taxes file Also, see the Instructions for Form 1045, and the Instructions for Form 1139. Free state taxes file Prev  Up  Next   Home   More Online Publications
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The Free State Taxes File

Free state taxes file 3. Free state taxes file   Adjustments to Income Table of Contents Individual Retirement Arrangement (IRA) Contributions and DeductionsContributions to Kay Bailey Hutchison Spousal IRAs. Free state taxes file Deductible contribution. Free state taxes file Nondeductible contribution. Free state taxes file You may be able to subtract amounts from your total income (Form 1040, line 22 or Form 1040A, line 15) or total effectively connected income (Form 1040NR, line 23) to get your adjusted gross income (Form 1040, line 37; Form 1040A, line 21; or Form 1040NR, line 36). Free state taxes file Some adjustments to income follow. Free state taxes file Contributions to your individual retirement arrangement (IRA) (Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32), explained later in this publication. Free state taxes file Certain moving expenses (Form 1040, line 26; or Form 1040NR, line 26) if you changed job locations or started a new job in 2013. Free state taxes file See Publication 521, Moving Expenses, or see Form 3903, Moving Expenses, and its instructions. Free state taxes file Some health insurance costs (Form 1040, line 29 or Form 1040NR, line 29) if you were self-employed and had a net profit for the year, or if you received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Free state taxes file For more details, see Publication 535, Business Expenses. Free state taxes file Payments to your self-employed SEP, SIMPLE, or qualified plan (Form 1040, line 28 or Form 1040NR, line 28). Free state taxes file For more information, including limits on how much you can deduct, see Publication 560, Retirement Plans for Small Business. Free state taxes file Penalties paid on early withdrawal of savings (Form 1040, line 30 or Form 1040NR, line 30). Free state taxes file Form 1099-INT, Interest Income, or Form 1099-OID, Original Issue Discount, will show the amount of any penalty you were charged. Free state taxes file Alimony payments (Form 1040, line 31a). Free state taxes file For more information, see Publication 504, Divorced or Separated Individuals. Free state taxes file There are other items you can claim as adjustments to income. Free state taxes file These adjustments are discussed in your tax return instructions. Free state taxes file Individual Retirement Arrangement (IRA) Contributions and Deductions This section explains the tax treatment of amounts you pay into traditional IRAs. Free state taxes file A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Free state taxes file Roth and SIMPLE IRAs are defined earlier in the IRA discussion under Retirement Plan Distributions . Free state taxes file For more detailed information, see Publication 590. Free state taxes file Contributions. Free state taxes file   An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement. Free state taxes file Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until distributed. Free state taxes file    Although interest earned from your traditional IRA generally is not taxed in the year earned, it is not tax-exempt interest. Free state taxes file Do not report this interest on your tax return as tax-exempt interest. Free state taxes file General limit. Free state taxes file   The most that can be contributed for 2013 to your traditional IRA is the smaller of the following amounts. Free state taxes file Your taxable compensation for the year, or $5,500 ($6,500 if you were age 50 or older by the end of 2013). Free state taxes file Contributions to Kay Bailey Hutchison Spousal IRAs. Free state taxes file   In the case of a married couple filing a joint return for 2013, up to $5,500 ($6,500 for each spouse age 50 or older by the end of 2013) can be contributed to IRAs on behalf of each spouse, even if one spouse has little or no compensation. Free state taxes file For more information on the general limit and the Kay Bailey Hutchison Spousal IRA limit, see How Much Can Be Contributed? in Publication 590. Free state taxes file Deductible contribution. Free state taxes file   Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or Kay Bailey Hutchison Spousal IRA limit, if applicable) just explained. Free state taxes file However, if you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Free state taxes file Your deduction may be reduced or eliminated, depending on your filing status and the amount of your income. Free state taxes file For more information, see Limit if Covered by Employer Plan in Publication 590. Free state taxes file Nondeductible contribution. Free state taxes file   The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Free state taxes file You must file Form 8606, Nondeductible IRAs, to report nondeductible contributions even if you do not have to file a tax return for the year. Free state taxes file    For 2014, the most that can be contributed to your traditional IRA is $5,500 ($6,500 if you are age 50 or older at the end of 2014). Free state taxes file Prev  Up  Next   Home   More Online Publications