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

H&r Block Online Filing

How Do I Ammend My Tax ReturnEfile 7004 Tax ExtensionState Tax Online FilingFiling Taxes Online FreeIrs Amended Return InstructionsWhere Can I File 2011 TaxesStatetaxformsFree Tax FiingWww 1040ezFile 2011 Taxes Online H&r BlockTax Return Preparation State Income TaxesFile State Tax Returns FreeHow To Amend A State Tax ReturnIrs Amended Tax ReturnWhere To Report State Income Tax On 10402011 Tax Amendment FormIrs 1040ez File OnlineE File 2012 Taxes For Free2011 1040a Tax FormsState Amended FormStudent Tax ReturnsFree Federal And State Efile 2013Can A Full Time Student File TaxesIrs Amendment FormIrs Tax Filing For 2012Free State Returns OnlineHow To Fill Out A 1040xFederal Tax Return 1040ez2012 E File2012 Taxes FreeTaxact For 2011Ez Tax Form 2012Amended Federal Income Tax Return1040nr Ez 2011Free E File 2012 TaxesAmended Tax Return FormsHow To File State And Federal Taxes For FreeNeed File Back TaxesTaxslayer LoginIrs Form 1040 Ez

H&r Block Online Filing

H&r block online filing 35. H&r block online filing   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. H&r block online filing They are: The American opportunity credit, and The lifetime learning credit. H&r block online filing The chapter will present an overview of these education credits. H&r block online filing To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. H&r block online filing Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. H&r block online filing For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. H&r block online filing   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. H&r block online filing   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. H&r block online filing This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. H&r block online filing Table 35-1. H&r block online filing Comparison of Education Credits Caution. H&r block online filing You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. H&r block online filing   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. H&r block online filing   There are several differences between these two credits. H&r block online filing These differences are summarized in Table 35-1, later. H&r block online filing Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. H&r block online filing The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. H&r block online filing For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). H&r block online filing Academic period. H&r block online filing   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. H&r block online filing In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. H&r block online filing Eligible educational institution. H&r block online filing   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. H&r block online filing S. H&r block online filing Department of Education. H&r block online filing It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. H&r block online filing The educational institution should be able to tell you if it is an eligible educational institution. H&r block online filing   Certain educational institutions located outside the United States also participate in the U. H&r block online filing S. H&r block online filing Department of Education's Federal Student Aid (FSA) programs. H&r block online filing Who can claim a dependent's expenses. H&r block online filing   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. H&r block online filing Therefore, only that person can claim an education credit for the student. H&r block online filing If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. H&r block online filing Expenses paid by a third party. H&r block online filing   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. H&r block online filing However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. H&r block online filing Therefore, you are treated as having paid expenses that were paid by the third party. H&r block online filing For more information and an example see Who Can Claim a Dependent's Expenses in Pub. H&r block online filing 970, chapter 2 or 3. H&r block online filing Who cannot claim a credit. H&r block online filing   You cannot take an education credit if any of the following apply. H&r block online filing You are claimed as a dependent on another person's tax return, such as your parent's return. H&r block online filing Your filing status is married filing separately. H&r block online filing You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. H&r block online filing Your MAGI is one of the following. H&r block online filing American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). H&r block online filing Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . H&r block online filing   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. H&r block online filing However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. H&r block online filing For details, see Pub. H&r block online filing 970. H&r block online filing    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. H&r block online filing The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. H&r block online filing However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. H&r block online filing You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. H&r block online filing See Pub. H&r block online filing 970 for information on other education benefits. H&r block online filing Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. H&r block online filing It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. H&r block online filing For course-related books, supplies, and equipment, only certain expenses qualify. H&r block online filing American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. H&r block online filing Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. H&r block online filing Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. H&r block online filing However, fees for personal expenses (described below) are never qualified education expenses. H&r block online filing Qualified education expenses for either credit do not include amounts paid for: Personal expenses. H&r block online filing This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. H&r block online filing Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. H&r block online filing You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). H&r block online filing However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). H&r block online filing In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. H&r block online filing Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. H&r block online filing Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. H&r block online filing If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. H&r block online filing Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. H&r block online filing See Adjustments to Qualified Education Expenses, later. H&r block online filing Prepaid Expenses. H&r block online filing   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. H&r block online filing See Academic period , earlier. H&r block online filing For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). H&r block online filing    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). H&r block online filing Paid with borrowed funds. H&r block online filing   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. H&r block online filing Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. H&r block online filing Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. H&r block online filing Student withdraws from class(es). H&r block online filing   You can claim an education credit for qualified education expenses not refunded when a student withdraws. H&r block online filing No Double Benefit Allowed You cannot do any of the following. H&r block online filing Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. H&r block online filing Claim more than one education credit based on the same qualified education expenses. H&r block online filing Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). H&r block online filing Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. H&r block online filing See Adjustments to Qualified Education Expenses, next. H&r block online filing Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. H&r block online filing The result is the amount of adjusted qualified education expenses for each student. H&r block online filing Tax-free educational assistance. H&r block online filing   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. H&r block online filing See Academic period , earlier. H&r block online filing      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. H&r block online filing 970), The tax-free part of Pell grants (see chapter 1 of Pub. H&r block online filing 970), The tax-free part of employer-provided educational assistance (see Pub. H&r block online filing 970), Veterans' educational assistance (see chapter 1 of Pub. H&r block online filing 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. H&r block online filing Generally, any scholarship or fellowship is treated as tax-free educational assistance. H&r block online filing However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. H&r block online filing 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. H&r block online filing 970, chapter 1. H&r block online filing You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. H&r block online filing For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. H&r block online filing 970. H&r block online filing Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. H&r block online filing This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). H&r block online filing If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. H&r block online filing If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. H&r block online filing Refunds. H&r block online filing   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. H&r block online filing Some tax-free educational assistance received after 2013 may be treated as a refund. H&r block online filing See Tax-free educational assistance, earlier. H&r block online filing Refunds received in 2013. H&r block online filing   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. H&r block online filing Refunds received after 2013 but before your income tax return is filed. H&r block online filing   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. H&r block online filing Refunds received after 2013 and after your income tax return is filed. H&r block online filing   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. H&r block online filing See Credit recapture, next. H&r block online filing Credit recapture. H&r block online filing    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. H&r block online filing You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. H&r block online filing You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). H&r block online filing Include that amount as an additional tax for the year the refund or tax-free assistance was received. H&r block online filing Example. H&r block online filing    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. H&r block online filing You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . H&r block online filing 20). H&r block online filing You claimed no other tax credits. H&r block online filing After you filed your return, your child withdrew from two courses and you received a refund of $1,400. H&r block online filing You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). H&r block online filing The refigured credit is $1,320 and your tax liability increased by $280. H&r block online filing You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. H&r block online filing See the instructions for your 2014 income tax return to determine where to include this tax. H&r block online filing If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. H&r block online filing Amounts that do not reduce qualified education expenses. H&r block online filing   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. H&r block online filing   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. H&r block online filing The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. H&r block online filing 970. H&r block online filing The use of the money is not restricted. H&r block online filing   For examples, see chapter 2 in Pub. H&r block online filing 970. H&r block online filing Figure 35-A. H&r block online filing Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. H&r block online filing Please click the link to view the image. H&r block online filing Figure 35-A. H&r block online filing Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

IRS - Taxpayer Compliance Research

Return to Tax Stats home page


The IRS seeks to help taxpayers comply with their tax obligations voluntarily and timely. The articles and publications on this page contain research related to taxpayer compliance. Compliance measurement research, also known as the tax gap, examines how much tax is not paid voluntarily and timely. Another set of research looks at the causes of taxpayer compliance.

All files on this page are available in Adobe® PDF format, which requires the free Adobe Acrobat® reader to view and print the file.


Tax Gap

Federal Tax Compliance Research: Individual Income Tax Gap Estimates for 1985, 1988, and 1992

Author:

IRS, Compliance Research

Publication date: April 1996, revised
Written for:

Publication 1415

Federal Tax Compliance Research: Gross and Net Employment Tax Gap Estimates for 1984-1997

Author:

IRS, Research Division

Publication date: October 1993, revised
Written for: Publication 1415-E

Income Tax Compliance Research: Net Tax Gap and Remittance Gap Estimates

Author:

IRS Research Division

Publication date: April 1990, revised
Written for:

Publication 1415


Compliance Analysis

Statistical Analysis of Compliance Using the NRP Data: Detection Controlled Models

Author:

Jonathan Feinstein
Yale University

Publication date: June 2004
Written for: 2004 IRS Research Conference
       
Trends as Changes in Variance: The Case of Tax Noncompliance
Author: Kim M. Bloomquist
IRS
Publication date: June 2003
Written for: 2003 IRS Research Conference
                                                   
IRS's Comprehensive Approach to Compliance Measurement
Authors: Robert E. Brown, IRS, National Research Program,
Mark J. Mazur, IRS, Research, Analysis, and Statistics
Publication date: June 2003
Written for: 2003 National Tax Association Spring Symposium
                                                  
Developing an Econometric Model for Measuring Tax Noncompliance Using Operational Audit Data
Authors: Brian Erard, B. Erard and Associates,
Chih-Chin Ho, IRS
Publication date: August 2002
Written for: 2002 American Statistical Association Conference
                                                                 
Compliance Estimates for Earned Income Tax Credit Claimed on 1999 Returns
Author: IRS
Publication date: June 2002
Written for: 2002 IRS Research Conference
                                                  
Compliance Measurement and Workload Selection with Operational Audit Data
Author: Brian Erard, B. Erard and Associates
Publication date: June 2002
Written for: 2002 IRS Research Conference
                                  
Trends in Book-Tax Income and Balance Sheet Differences
Authors:

Lillian Mills and Kaye Newberry, University of Arizona,
William B. Trautman, IRS, Large and Mid-Size Business Division

Publication date: June 2002
Written for: 2002 IRS Research Conference
                                        
Nonfiler Profiles, Fiscal Year 1993: A Focus on Repeaters
Author: Laura R. Rosage
IRS
Publication date: 1996
Written for: SOI Bulletin, Summer Issue
                                                


Determinants of Taxpayer Compliance

Audit Information Dissemination, Taxpayer Communication, and Compliance: An Experimental Approach
Authors:

James Alm, Georgia State University,
Betty Jackson, University of Colorado at Boulder,
Michael McKee, University of Tennessee at Knoxville

Publication date: June 2004 
Written for: 2004 IRS Research Conference 
    
                          
Criminal Investigation Enforcement Activities and Taxpayer Noncompliance
Author:

Jeffrey Dubin
California Institute of Technology

Publication date: June 2004
Written for: 2004 IRS Research Conference
                                                   
Tax Evasion, Income Inequality and Opportunity Costs of Compliance
Author: Kim M. Bloomquist,
IRS, Office of Research
Publication date: November 2003
Written for: 2003 National Tax Association Annual Conference
                                                  
Economic and Behavioral Determinants of Tax Compliance: Evidence from the 1997 Arkansas Tax Penalty Amnesty Program
Authors: Christina M. Ritsema, Hope College,
Deborah W. Thomas and Gary D. Ferrier, University of Arkansas
Publication date: June 2003
Written for: 2003 IRS Research Conference
                                                                 
The Impact of the IRS on Voluntary Tax Compliance: Preliminary Empirical Results
Author: Alan H. Plumley, Technical Advisor,
IRS, Office of Research
Publication date: November 2002
Written for: 2002 National Tax Association Conference
                                                  
The Determinants of Individual Income Tax Compliance: Estimating the Impacts of Tax Policy, Enforcement and IRS Responsiveness
Author: Alan H. Plumley, Technical Advisor,
IRS, Office of Research
Publication date: November 1996, revised
Written for: IRS Publication 1916



 

 

 

  

Return to Tax Stats home page

Page Last Reviewed or Updated: 12-Mar-2014

The H&r Block Online Filing

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