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How Can I File 2011 Taxes

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How Can I File 2011 Taxes

How can i file 2011 taxes 5. How can i file 2011 taxes   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Prohibited Tax Shelter TransactionsEntity Level Tax Excess Benefit TransactionsTax on Disqualified Persons Tax on Organization Managers Excess Benefit Transaction Excess Business Holdings Taxable Distributions of Sponsoring Organizations Exception. How can i file 2011 taxes A donor advised fund does not include: Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Excise Taxes on Private Foundations Excise Taxes on Black Lung Benefit Trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements Introduction An excise tax may be imposed on certain tax-exempt organizations. How can i file 2011 taxes Topics - This chapter discusses: Prohibited tax shelter transactions Excess benefit transactions Excess business holdings Taxable distributions of sponsoring organizations Taxes on prohibited benefits distributed from donor advised funds Excise taxes on private foundations Excise taxes on 501(c)(21) black lung benefit trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements of Hospitals Useful Items - You may want to see: Forms (and Instructions) 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code See chapter 6 for more information about getting Form 4720. How can i file 2011 taxes Prohibited Tax Shelter Transactions Section 4965 imposes an excise tax on: Certain tax-exempt entities that are party to prohibited tax shelter transactions, and Any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows or has reason to know that the transaction is a prohibited tax shelter transaction. How can i file 2011 taxes  Additionally, section 6033 provides new disclosure requirements on a tax-exempt entity that is a party to a prohibited tax shelter transaction. How can i file 2011 taxes Tax-exempt entities. How can i file 2011 taxes   Tax-exempt entities that are subject to section 4965 include: Entities described in section 501(c), including but not limited to the following common types of entities: Instrumentalities of the United States described in section 501(c)(1); Churches, hospitals, museums, schools, scientific research organizations, and other charities described in section 501(c)(3); Civic leagues, social welfare organizations, and local associations of employees described in section 501(c)(4); Labor, agricultural, or horticultural organizations described in section 501(c)(5); Business leagues, chambers of commerce, trade associations, and other organizations described in section 501(c)(6); Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9); Credit unions described in section 501(c)(14); Insurance companies described in section 501(c)(15); and Veterans' organizations described in section 501(c)(19). How can i file 2011 taxes Religious or apostolic associations or corporations described in section 501(d). How can i file 2011 taxes Entities described in section 170(c), including states, possessions of the United States, the District of Columbia, political subdivisions of states and political subdivisions of possessions of the United States (but not including the United States). How can i file 2011 taxes Indian tribal governments within the meaning of section 7701(a)(40). How can i file 2011 taxes Entity manager. How can i file 2011 taxes    An entity manager is any person with authority or responsibility similar to that exercised by an officer, director, or trustee, and, for any act, the person that has authority or responsibility with respect to the prohibited transaction. How can i file 2011 taxes Prohibited tax shelter transaction. How can i file 2011 taxes   A prohibited tax shelter transaction is any listed transaction, within the meaning of section 6707A(c)(2), and any prohibited reportable transactions. How can i file 2011 taxes A prohibited reportable transaction is a confidential transaction within the meaning of Regulations section 1. How can i file 2011 taxes 6011-4(b)(3), and a transaction with contractual protection within the meaning of Regulations section 1. How can i file 2011 taxes 6011-4(b)(4). How can i file 2011 taxes See the Instructions for Form 8886 for more information on listed transactions and prohibited reportable transactions. How can i file 2011 taxes Subsequently listed transaction. How can i file 2011 taxes   Any transaction to which the tax-exempt entity is a party and is later determined to be a listed transaction after the entity has become a party to it, is a subsequently listed transaction. How can i file 2011 taxes Entity Level Tax Section 4965(a)(1) imposes an entity level excise tax on any tax-exempt entity described in 1, 2, 3, or 4 above that becomes a party to a prohibited tax shelter transaction or is a party to a subsequently listed transaction (defined earlier). How can i file 2011 taxes The excise tax imposed on a tax-exempt entity applies to tax years in which the entity becomes a party to the prohibited tax shelter transaction and any subsequent tax years. How can i file 2011 taxes The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction. How can i file 2011 taxes To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720. How can i file 2011 taxes For more information about this excise tax, including information about how it is figured, see the Instructions for Form 4720. How can i file 2011 taxes Manager Level Tax Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. How can i file 2011 taxes The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. How can i file 2011 taxes To report this tax, file Form 4720. How can i file 2011 taxes Excess Benefit Transactions Excise tax on excess benefit transactions. How can i file 2011 taxes   A disqualified person who benefits from an excess benefit transaction, such as compensation, fringe benefits, or contract payments from certain section 501(c)(3), 501(c)(4), or 501(c)(29) organizations, must correct the transaction and may have to pay an excise tax under section 4958. How can i file 2011 taxes A manager of the organization may also have to pay an excise tax under section 4958. How can i file 2011 taxes These taxes are reported on Form 4720. How can i file 2011 taxes   The excise taxes are imposed if an applicable tax-exempt organization provides an excess benefit to a disqualified person and that benefit exceeds the value of the benefit received in exchange. How can i file 2011 taxes   There are three taxes under section 4958. How can i file 2011 taxes Disqualified persons are liable for the first two taxes and certain organization managers are liable for the third tax. How can i file 2011 taxes    Taxes imposed on excess benefit transactions do not apply to a transaction under a written contract that was binding on September 13, 1995, and at all times thereafter before the transaction occurred. How can i file 2011 taxes Tax on Disqualified Persons An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person. How can i file 2011 taxes The disqualified person who benefited from the transaction is liable for the tax. How can i file 2011 taxes See definition of Disqualified person, later at Disqualified person. How can i file 2011 taxes Additional tax on the disqualified person. How can i file 2011 taxes   If the 25% tax is imposed and the excess benefit transaction is not corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed on any disqualified person involved. How can i file 2011 taxes   If a disqualified person makes a payment of less than the full correction amount, the 200% tax is imposed only on the unpaid portion of the correction amount. How can i file 2011 taxes If more than one disqualified person received an excess benefit from an excess benefit transaction, all such disqualified persons are jointly and severally liable for the taxes. How can i file 2011 taxes   To avoid the 200% tax, a disqualified person must correct the excess benefit transaction during the taxable period. How can i file 2011 taxes The 200% tax is abated (refunded if collected) if the excess benefit transaction is corrected within a 90-day correction period beginning on the date a statutory notice of deficiency is issued. How can i file 2011 taxes Taxable period. How can i file 2011 taxes   The taxable period means the period beginning with the date on which the excess benefit transaction occurs and ending on the earlier of: The date a notice of deficiency was mailed to the disqualified person for the initial tax on the excess benefit transaction, or The date on which the initial tax on the excess benefit transaction for the disqualified person is assessed. How can i file 2011 taxes Tax on Organization Managers If tax is imposed on a disqualified person for any excess benefit transaction, an excise tax equal to 10% of the excess benefit is imposed on an organization manager who knowingly participated in an excess benefit transaction, unless such participation was not willful and was due to reasonable cause. How can i file 2011 taxes This tax cannot exceed $20,000 ($10,000 for transactions entered in a tax year beginning before August 18, 2006), for each transaction. How can i file 2011 taxes There is also joint and several liability for this tax. How can i file 2011 taxes A person can be liable for both the tax paid by the disqualified person and the organization manager tax for a particular excess benefit transaction. How can i file 2011 taxes Organization Manager. How can i file 2011 taxes   An organization manager is any officer, director, or trustee of an applicable tax-exempt organization, or any individual having powers or responsibilities similar to officers, directors, or trustees of the organization, regardless of title. How can i file 2011 taxes An organization manager is not considered to have participated in an excess benefit transaction where the manager has opposed the transaction in a manner consistent with the fulfillment of the manager's responsibilities to the organization. How can i file 2011 taxes For example, a director who votes against giving an excess benefit would ordinarily not be subject to the 10% tax. How can i file 2011 taxes A person participates in a transaction knowingly if the person: Has actual knowledge of sufficient facts so that, based solely upon those facts, such transaction would be an excess benefit transaction; Is aware that such a transaction under these circumstances may violate the provisions of federal tax law governing excess benefit transactions; and Negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction, or the manager is in fact aware that it is such a transaction. How can i file 2011 taxes Knowing does not mean having reason to know. How can i file 2011 taxes The organization manager ordinarily will not be considered knowing if, after full disclosure of the factual situation to an appropriate professional, the organization manager relied on the professional's reasoned written opinion on matters within the professional's expertise or if the manager relied on the fact that the requirements for the rebuttable presumption of reasonableness have been satisfied. How can i file 2011 taxes Participation by an organization manager is willful if it is voluntary, conscious, and intentional. How can i file 2011 taxes An organization manager's participation is due to reasonable cause if the manager has exercised responsibility on behalf of the organization with ordinary business care and prudence. How can i file 2011 taxes Excess Benefit Transaction An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. How can i file 2011 taxes The excess benefit transaction rules apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined in whole or in part by the revenues of one or more activities of the organization. How can i file 2011 taxes To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account. How can i file 2011 taxes For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. How can i file 2011 taxes Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts. How can i file 2011 taxes Donor advised fund transactions occurring after August 17, 2006. How can i file 2011 taxes   For a donor advised fund, an excess benefit transaction includes a grant, loan, compensation, or other similar payment from the fund to a: Donor or donor advisor, Family member of a donor, or donor advisor, 35% controlled entity of a donor, or donor advisor, or 35% controlled entity of a family member of a donor, or donor advisor. How can i file 2011 taxes   The excess benefit in this transaction is the amount of the grant, loan, compensation, or other similar payment. How can i file 2011 taxes For additional information, see the Instructions for Form 4720. How can i file 2011 taxes Supporting organization transactions occurring after July 25, 2006. How can i file 2011 taxes   For any supporting organization, defined in section 509(a)(3), an excess benefit transaction includes grants, loans, compensation, or other similar payment provided by the supporting organization to a: Substantial contributor, Family member of a substantial contributor, 35% controlled entity of a substantial contributor, or 35% controlled entity of a family member of a substantial contributor. How can i file 2011 taxes   Additionally, an excess benefit transaction includes any loans provided by the supporting organization to a disqualified person (other than an organization described in section 509(a)(1), (2), or (4)). How can i file 2011 taxes   The excess benefit for substantial contributors and parties related to those contributors includes the amount of the grant, loan, compensation, or other similar payment. How can i file 2011 taxes For additional information, see the Instructions for Form 4720. How can i file 2011 taxes   Excess benefit transaction rules generally do not apply to transactions between a supporting organization and its supported organization described in section 501(c)(4), (5), or (6) in furtherance of charitable purposes. How can i file 2011 taxes Date of Occurrence An excess benefit transaction occurs on the date the disqualified person receives the economic benefit from the organization for federal income tax purposes. How can i file 2011 taxes However, when a single contractual arrangement provides for a series of compensation or other payments to or for the use of a disqualified person during the disqualified person's tax year, any excess benefit transaction with respect to these payments occurs on the last day of the taxpayer's tax year. How can i file 2011 taxes In the case of benefits provided to a qualified pension, profit-sharing, or stock bonus plan, the transaction occurs on the date the benefit is vested. How can i file 2011 taxes In the case of the transfer of property subject to a substantial risk of forfeiture, or in the case of rights to future compensation or property, the transaction occurs on the date the property, or the rights to future compensation or property, is not subject to a substantial risk of forfeiture. How can i file 2011 taxes Where the disqualified person elects to include an amount in gross income in the tax year of transfer under section 83(b), the excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. How can i file 2011 taxes Correcting the excess benefit. How can i file 2011 taxes   An excess benefit transaction is corrected by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than what it would have been if the disqualified person were dealing under the highest fiduciary standards. How can i file 2011 taxes   A disqualified person corrects an excess benefit by making a payment in cash or cash equivalents, excluding payment by a promissory note, equal to the correction amount to the applicable tax-exempt organization. How can i file 2011 taxes The correction amount equals the excess benefit plus the interest on the excess benefit. How can i file 2011 taxes The interest rate can be no lower than the applicable federal rate, compounded annually, for the month the transaction occurred. How can i file 2011 taxes   A disqualified person can, with the agreement of the applicable tax-exempt organization, make a payment by returning the specific property previously transferred in the excess transaction. How can i file 2011 taxes In this case, the disqualified person is treated as making a payment equal to the lesser of: The fair market value of the property on the date the property is returned to the organization, or The fair market value of the property on the date the excess benefit transaction occurred. How can i file 2011 taxes   If the payment resulting from the return of property is less than the correction amount, the disqualified person must make an additional cash payment to the organization equal to the difference. How can i file 2011 taxes   If the payment resulting from the return of the property exceeds the correction amount described above, the organization can make a cash payment to the disqualified person equal to the difference. How can i file 2011 taxes Exception. How can i file 2011 taxes   For a correction of an excess benefit transaction (discussed earlier), no amount repaid in a manner prescribed by the Secretary can be held in a donor advised fund. How can i file 2011 taxes Applicable Tax-Exempt Organization An applicable tax-exempt organization is a section 501(c)(3), 501(c)(4), or 501(c)(29) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction. How can i file 2011 taxes An applicable tax-exempt organization does not include: A private foundation as defined in section 509(a), A governmental entity that is: Exempt from (or not subject to) taxation without regard to section 501(a), or Not required to file an annual return, or A foreign organization, recognized by the IRS or by treaty, that receives substantially all of its support (other than gross investment income) from sources outside the United States. How can i file 2011 taxes An organization is not treated as a section 501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination that the organization was not tax-exempt under section 501(a), but only if the determination was not based on private inurement or one or more excess benefit transactions. How can i file 2011 taxes Disqualified Person A disqualified person is: Any person (at any time during the 5-year period ending on the date of the transaction) in a position to exercise substantial influence over the affairs of the organization, A family member of an individual described in 1, and A 35% controlled entity. How can i file 2011 taxes For donor advised funds, sponsoring organizations, and certain supporting organizations occurring after August 17, 2006. How can i file 2011 taxes   The following persons will be considered disqualified persons along with certain family members and 35% controlled entities associated with them. How can i file 2011 taxes Donors of donor advised funds, Investment advisors of sponsoring organizations, and Disqualified persons of a section 509(a)(3) supporting organization that supports the applicable tax-exempt organization. How can i file 2011 taxes For certain supporting organization transactions occurring after July 25, 2006. How can i file 2011 taxes   Substantial contributors to supporting organizations will also be considered disqualified persons with respect to the supporting organizations, along with their family members and 35% controlled entities. How can i file 2011 taxes Investment advisor. How can i file 2011 taxes   Investment advisor means for any sponsoring organization, any person compensated by such organization (but not an employee of such organization) for managing the investment of, or providing investment advice for, assets maintained in donor advised funds owned by such sponsoring organization. How can i file 2011 taxes Substantial contributor. How can i file 2011 taxes   In general, a substantial contributor means any person who contributed or bequeathed an aggregate of more than $5,000 to the organization, if that amount is more than 2% of the total contributions and bequests received by the end of the organization's tax year in which the contribution or bequest is received. How can i file 2011 taxes A substantial contributor includes the grantor of a trust. How can i file 2011 taxes Family members. How can i file 2011 taxes   Family members of a disqualified person include a disqualified person's spouse, brothers or sisters (whether by whole or half-blood), spouses of brothers or sisters (whether by whole or half-blood), ancestors, children (including a legally adopted child), grandchildren, great grandchildren, and spouses of children, grandchildren, and great grandchildren (whether by whole or half-blood). How can i file 2011 taxes 35% controlled entity. How can i file 2011 taxes   A 35% controlled entity is: A corporation in which disqualified persons own more than 35% of the total combined voting power, A partnership in which such persons own more than 35% of the profits interest, or A trust or estate in which such persons own more than 35% of the beneficial interest. How can i file 2011 taxes   In determining the holdings of a business enterprise, any stock or other interest owned directly or indirectly shall apply. How can i file 2011 taxes Persons having substantial influence. How can i file 2011 taxes   Among those who are in a position to exercise substantial influence over the affairs of the organization are, for example, voting members of the governing body, and persons holding the power of: Presidents, chief executives, or chief operating officers. How can i file 2011 taxes Treasurers and chief financial officers. How can i file 2011 taxes Persons with a material financial interest in a provider-sponsored organization. How can i file 2011 taxes Persons not considered to have substantial influence. How can i file 2011 taxes   Persons who are not considered to be in a position to exercise substantial influence over the affairs of an organization include: An employee who receives benefits that total less than the highly compensated amount in section 414(q)(1)(B)(i) and who does not hold the executive or voting powers mentioned earlier in the discussion on Disqualified Person, is not a family member of a disqualified person, and is not a substantial contributor, Tax-exempt organizations described in section 501(c)(3), and Section 501(c)(4) organizations with respect to transactions engaged in with other section 501(c)(4) organizations. How can i file 2011 taxes Facts and circumstances. How can i file 2011 taxes   The determination of whether a person has substantial influence over the affairs of an organization is based on all the facts and circumstances. How can i file 2011 taxes Facts and circumstances that tend to show a person has substantial influence over the affairs of an organization include, but are not limited to, the following. How can i file 2011 taxes The person founded the organization. How can i file 2011 taxes The person is a substantial contributor to the organization under the section 507(d)(2)(A) definition, only taking into account contributions to the organization for the past 5 years. How can i file 2011 taxes The person's compensation is primarily based on revenues derived from activities of the organization that the person controls. How can i file 2011 taxes The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees. How can i file 2011 taxes The person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. How can i file 2011 taxes The person owns a controlling interest (measured by either vote or value) in a corporation, partnership, or trust that is a disqualified person. How can i file 2011 taxes The person is a nonstock organization controlled directly or indirectly by one or more disqualified persons. How can i file 2011 taxes   Facts and circumstances tending to show that a person does not have substantial influence over the affairs of an organization include, but are not limited to, the following. How can i file 2011 taxes The person has taken a bona fide vow of poverty as an employee or agent of a religious organization or on its behalf. How can i file 2011 taxes The person is an independent contractor whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the independent contractor will not economically benefit either directly or indirectly aside from customary fees received for the professional advice rendered. How can i file 2011 taxes Any preferential treatment the person receives based on the size of the person's donation is also offered to others making comparable widely solicited donations. How can i file 2011 taxes The direct supervisor of the person is not a disqualified person. How can i file 2011 taxes The person does not participate in any management decisions affecting the organization as a whole or a discrete segment of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. How can i file 2011 taxes   In the case of multiple organizations affiliated by common control or governing documents, the determination of whether a person does or does not have substantial influence is made separately for each applicable tax-exempt organization. How can i file 2011 taxes A person may be a disqualified person with respect to transactions with more than one organization. How can i file 2011 taxes Reasonable Compensation. How can i file 2011 taxes    Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. How can i file 2011 taxes The section 162 standard will apply in determining the reasonableness of compensation. How can i file 2011 taxes The fact that a bonus or revenue-sharing arrangement is subject to a cap is a relevant factor in determining reasonableness of compensation. How can i file 2011 taxes   To determine the reasonableness of compensation, all items of compensation provided by an applicable tax-exempt organization in exchange for performance of services are taken into account in determining the value of compensation (except for economic benefits that are disregarded under the discussion Disregarded benefits , later). How can i file 2011 taxes Items of compensation include: All forms of cash and noncash compensation, including salary, fees, bonuses, severance payments, and deferred noncash compensation, The payment of liability insurance premiums for, or the payment or reimbursement by the organization of penalties, taxes, or certain expenses under section 4958, unless excludable from income as a de minimis fringe benefit under section 132(a)(4), All other compensatory benefits, whether or not included in gross income for income tax purposes, Taxable and nontaxable fringe benefits, except fringe benefits described in section 132, and Foregone interest on loans. How can i file 2011 taxes    Intent to treat benefits as compensation. How can i file 2011 taxes An economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid. How can i file 2011 taxes   An applicable tax-exempt organization (or entity that it controls) is treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the organization provides written substantiation that is contemporaneous with the transfer of the economic benefits under consideration. How can i file 2011 taxes Ways to provide contemporaneous written substantiation of its intent to provide an economic benefit as compensation include: The organization produces a signed written employment contract, The organization reports the benefit as compensation on an original Form W-2, Form 1099, or Form 990, or on an amended form filed before starting an IRS examination, or The disqualified person reports the benefit as income on the person's original Form 1040, or on an amended form filed before starting an IRS examination. How can i file 2011 taxes Exception. How can i file 2011 taxes   If the economic benefit is excluded from the disqualified person's gross income for income tax purposes, the applicable tax-exempt organization is not required to indicate its intent to provide an economic benefit as compensation for services. How can i file 2011 taxes Rebuttable presumption that a transaction is not an excess benefit transaction. How can i file 2011 taxes   Payments under a compensation arrangement are presumed to be reasonable and the transfer of property (or right to use property) is presumed to be at fair market value, if the following three conditions are met. How can i file 2011 taxes The transaction is approved in advance by an authorized body of the organization (or an entity it controls) which is composed of individuals who do not have a conflict of interest concerning the transaction. How can i file 2011 taxes Before making its determination, the authorized body obtained and relied upon appropriate data as to comparability. How can i file 2011 taxes (There is a special safe harbor for small organizations. How can i file 2011 taxes If the organization has gross receipts of less than $1 million, appropriate comparability data includes data on compensation paid by three comparable organizations in the same or similar communities for similar services. How can i file 2011 taxes ) The authorized body adequately documents the basis for its determination concurrently with making that determination. How can i file 2011 taxes The documentation should include: The terms of the approved transaction and the date approved, The members of the authorized body who were present during debate on the transaction that was approved and those who voted on it, The comparability data obtained and relied upon by the authorized body and how the data was obtained, Any actions by a member of the authorized body having conflict of interest, and Documentation of the basis of the determination before the later of the next meeting of the authorized body or 60 days after the final actions of the authorized body are taken, and approval of records as reasonable, accurate, and complete within a reasonable time thereafter. How can i file 2011 taxes Disregarded benefits. How can i file 2011 taxes   The following economic benefits are disregarded for section 4958 purposes. How can i file 2011 taxes Nontaxable fringe benefits that are excluded from income under section 132. How can i file 2011 taxes Benefits provided to a volunteer for the organization if the benefit is provided to the general public in exchange for a membership fee or contribution of $75 or less. How can i file 2011 taxes Benefits provided to a member of an organization due to the payment of a membership fee or to a donor as a result of a deductible contribution, if a significant number of disqualified persons make similar payments or contributions and are offered a similar economic benefit. How can i file 2011 taxes Benefits provided to a person solely as a member of a charitable class that the applicable tax-exempt organization intends to benefit as part of the accomplishment of its exempt purpose. How can i file 2011 taxes A transfer of an economic benefit to or for the use of a governmental unit, as defined in section 170(c)(1), if exclusively for public purposes. How can i file 2011 taxes Special Exception for Initial Contracts      Section 4958 does not apply to any fixed payment made to a person under an initial contract. How can i file 2011 taxes   A fixed payment is an amount of cash or other property specified in the contract, or determined by a fixed formula that is specified in the contract, which is to be paid or transferred in exchange for the provision of specified services or property. How can i file 2011 taxes   A fixed formula can, generally, incorporate an amount that depends upon future specified events or contingencies, as long as no one has discretion when calculating the amount of a payment or deciding whether to make a payment (such as a bonus). How can i file 2011 taxes   An initial contract is a binding written contract between an applicable tax-exempt organization and a person who was not a disqualified person immediately before entering into the contract. How can i file 2011 taxes   A binding written contract, providing it can be terminated or canceled by the applicable tax-exempt organization without the other party's consent (except as a result of substantial nonperformance) and without substantial penalty, is treated as a new contract, as of the earliest date any termination or cancellation would be effective. How can i file 2011 taxes Also, if the parties make a material change to a contract, which includes an extension or renewal of the contract (except for an extension or renewal resulting from the exercise of an option by the disqualified person), or a more than incidental change to the amount payable under the contract, it is treated as a new contract as of the effective date of the material change. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information, see the Instructions to Forms 990 and 4720. How can i file 2011 taxes Excess Business Holdings Private foundations are generally not permitted to hold more than a 20% interest in an unrelated business enterprise. How can i file 2011 taxes They may be subject to an excise tax on the amount of any excess business holdings. How can i file 2011 taxes For purposes of section 4943, for tax years beginning after August 17, 2006, donor advised funds and certain supporting organizations are considered private foundations. How can i file 2011 taxes Donor advised fund. How can i file 2011 taxes   In general, a donor advised fund is a fund or account separately identified by reference to contributions of a donor or donors that is owned and controlled by a sponsoring organization and for which the donor has or expects to have advisory privileges concerning the distribution or investment of the funds. How can i file 2011 taxes Supporting organizations. How can i file 2011 taxes   Only certain supporting organizations are subject to the excess business holdings tax under section 4943. How can i file 2011 taxes These include (1) Type III supporting organizations that are not functionally integrated and (2) Type II supporting organizations that accept any gift or contribution from a person who by himself or in connection with a related party controls the supported organization that the Type II supporting organization supports. How can i file 2011 taxes Taxes. How can i file 2011 taxes   A private foundation that has excess holdings in a business enterprise may become liable for an excise tax based on the amount of holdings. How can i file 2011 taxes The initial tax is 10% (5% for tax years beginning before August 18, 2006) of the value of the excess holdings and is imposed on the last day of each tax year that ends during the taxable period. How can i file 2011 taxes The excess holdings are determined on the day during the tax year when they were the largest. How can i file 2011 taxes   A foundation that fails to correct the excess business holdings becomes liable for an additional tax of 200% of the remaining excess business holdings as of the earlier of tax assessment or mailing of a notice of deficiency. How can i file 2011 taxes   For more information on the tax on excess business holdings, see the Instructions for Form 4720. How can i file 2011 taxes Taxable Distributions of Sponsoring Organizations An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. How can i file 2011 taxes An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution. How can i file 2011 taxes Taxable distribution. How can i file 2011 taxes   A taxable distribution is any distribution from a donor advised fund to any natural person or to any other person if: The distribution is for any purpose other than one specified in section 170(c)(2)(B), or The sponsoring organization maintaining the donor advised fund does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h). How can i file 2011 taxes    However, a taxable distribution does not include a distribution from a donor advised fund to: Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), The sponsoring organization of the donor advised fund, or Any other donor advised fund. How can i file 2011 taxes The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006. How can i file 2011 taxes Sponsoring organization. How can i file 2011 taxes   A sponsoring organization is a section 170(c) organization that is neither a government organization (as referred to in section 170(c)(1) and (2)(A)) nor a private foundation. How can i file 2011 taxes Donor advised fund. How can i file 2011 taxes    A donor advised fund is a fund or account: Which is separately identified by reference to contributions of a donor or donors, Which is owned and controlled by a sponsoring organization, and For which the donor (or any person appointed or designated by the donor) has or expects to have advisory privileges concerning the distribution or investment of the funds held in the donor advised funds or accounts because of the donor's status as a donor. How can i file 2011 taxes Exception. How can i file 2011 taxes A donor advised fund does not include:    A fund or account that makes distributions only to a single identified organization or governmental entity, or Any fund or account for a person described in 3 above that gives advice about which individuals receive grants for travel, study, or similar purposes, if the following three requirements are met: The person's advisory privileges are performed exclusively by such person in their capacity as a committee member of which all the committee members are appointed by the sponsoring organization, No combination of persons with advisory privileges, described in 3 above, or persons related to those in 3 above directly or indirectly control the committee, and All grants from the fund or account are awarded on an objective and nondiscriminatory basis according to a procedure approved in advance by the board of directors of the sponsoring organization. How can i file 2011 taxes The procedure must be designed to ensure that all grants meet the requirements of section 4945(g)(1), (2), or (3). How can i file 2011 taxes Disqualified supporting organization. How can i file 2011 taxes   A disqualified supporting organization includes (1) a Type III supporting organization that is not functionally integrated and (2) any supporting organization where the donor or donor advisor (and any related parties) directly or indirectly controls a supported organization of the supporting organization. How can i file 2011 taxes Tax on sponsoring organization. How can i file 2011 taxes   A tax of 20% of the amount of each taxable distribution is imposed on the sponsoring organization. How can i file 2011 taxes Tax on fund manager. How can i file 2011 taxes   If a tax is imposed on a taxable distribution of the sponsoring organization, a tax of 5% of the distribution will be imposed on any fund manager who agreed to the distribution knowing that it was a taxable distribution. How can i file 2011 taxes Any fund manager who took part in the distribution and is liable for the tax must pay the tax. How can i file 2011 taxes The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. How can i file 2011 taxes If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. How can i file 2011 taxes   For more information on the tax on taxable distributions of sponsoring organizations, see the Instructions for Form 4720. How can i file 2011 taxes Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Prohibited benefit. How can i file 2011 taxes   If any donor, donor advisor, or related party advises the sponsoring organization about making a distribution which results in a donor, donor advisor, or related party receiving (either directly or indirectly) a more than incidental benefit, then such benefit is a prohibited benefit. How can i file 2011 taxes The tax on prohibited benefits applies to distributions occurring in tax years beginning after August 17, 2006. How can i file 2011 taxes Donor advisor. How can i file 2011 taxes   A donor advisor is any person appointed or designated by a donor to advise a sponsoring organization on the distribution or investment of amounts held in the donor's fund or account. How can i file 2011 taxes Related party. How can i file 2011 taxes   A related party includes any family member or 35% controlled entity. How can i file 2011 taxes See the definition of those terms under Disqualified Person , earlier. How can i file 2011 taxes Tax on donor, donor advisor, or related person. How can i file 2011 taxes    A tax of 125% of the benefit resulting from the distribution is imposed on both the party who advised as to the distribution (which might be a donor, donor advisor, or related party) and the party who received such benefit (which might be a donor, donor advisor, or related party). How can i file 2011 taxes The advisor and the party who received the benefit are jointly and severally liable for the tax. How can i file 2011 taxes Tax on fund managers. How can i file 2011 taxes   If a tax is imposed on a prohibited benefit received by a donor, donor advisor, or related person, a tax of 10% of the amount of the prohibited benefit is imposed on any fund manager who agreed to the distribution knowing that it would confer a prohibited benefit. How can i file 2011 taxes Any fund manager who took part in the distribution and is liable for the tax must pay the tax. How can i file 2011 taxes The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. How can i file 2011 taxes If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. How can i file 2011 taxes Exception. How can i file 2011 taxes   If a person engaged in an excess benefit transaction and received a prohibited benefit for the same transaction, the person is taxed under section 4958, and no tax is imposed under section 4967 for a prohibited benefit. How can i file 2011 taxes   For more information on taxes on prohibited benefits distributed from donor advised funds, see the Instructions for Form 4720. How can i file 2011 taxes Excise Taxes on Private Foundations There is an excise tax on the net investment income of most domestic private foundations. How can i file 2011 taxes Capital gains from appreciation are included in the tax base on private foundation net investment income. How can i file 2011 taxes This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. How can i file 2011 taxes Form 990-W is used to calculate the estimated tax. How can i file 2011 taxes In addition, there are several other rules that apply to excise taxes on private foundations. How can i file 2011 taxes These include: Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons, Requirements that the foundation annually distribute income for charitable purposes, Limits on their holdings in any business enterprise (see Excess Business Holdings, earlier), Provisions that investments must not jeopardize the carrying out of exempt purposes, and Provisions to assure that expenditures further the organization's exempt purposes. How can i file 2011 taxes Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons. How can i file 2011 taxes For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF. How can i file 2011 taxes Excise Taxes on Black Lung Benefit Trusts A black lung benefit trust that makes any expenditures, payments, or investments other than those described in chapter 4 under 501(c)(21) - Black Lung Benefit Trusts must pay a tax equal to 10% of the amount of such expenditures. How can i file 2011 taxes If there are any acts of self-dealing between the trust and a disqualified person, a tax equal to 10% of the amount involved is imposed on the disqualified person. How can i file 2011 taxes Both of these excise taxes are reported on Schedule A (Form 990-BL). How can i file 2011 taxes See the Form 990-BL instructions for more information on these taxes and what has to be filed, even if the trust is excepted from filing. How can i file 2011 taxes Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements For tax years beginning after March 23, 2012, new section 4959 imposes an excise tax on hospital organizations which fail to meet certain section 501(r) requirements for each of their hospital facilities. How can i file 2011 taxes These entities must meet section 501(r)(3) requirements at all times during their tax year. How can i file 2011 taxes Section 501(r)(3) requirements pertain to a hospital organization preparing a community health needs assessment (CHNA). How can i file 2011 taxes See Schedule H, Hospitals (Form 990), for details. How can i file 2011 taxes Prev  Up  Next   Home   More Online Publications
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How can i file 2011 taxes Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. How can i file 2011 taxes More information. How can i file 2011 taxes Exception—Community Income. How can i file 2011 taxes Exception—Qualified joint venture. How can i file 2011 taxes More information. How can i file 2011 taxes More information. How can i file 2011 taxes Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. How can i file 2011 taxes Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. How can i file 2011 taxes Table 1 can help you learn what those responsibilities are. How can i file 2011 taxes Ask yourself each question listed in the table, then see the related discussion to find the answer. How can i file 2011 taxes In addition to knowing about federal taxes, you need to make some basic business decisions. How can i file 2011 taxes Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. How can i file 2011 taxes For information on how to contact the SBA, see How to Get More Information, later. How can i file 2011 taxes Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. How can i file 2011 taxes When beginning a business, you must decide which form of business to use. How can i file 2011 taxes Legal and tax considerations enter into this decision. How can i file 2011 taxes Only tax considerations are discussed in this publication. How can i file 2011 taxes Your form of business determines which income tax return form you have to file. How can i file 2011 taxes See Table 2 to find out which form you have to file. How can i file 2011 taxes Sole proprietorships. How can i file 2011 taxes   A sole proprietorship is an unincorporated business that is owned by one individual. How can i file 2011 taxes It is the simplest form of business organization to start and maintain. How can i file 2011 taxes The business has no existence apart from you, the owner. How can i file 2011 taxes Its liabilities are your personal liabilities. How can i file 2011 taxes You undertake the risks of the business for all assets owned, whether or not used in the business. How can i file 2011 taxes You include the income and expenses of the business on your personal tax return. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. How can i file 2011 taxes If you are a farmer, see Publication 225, Farmer's Tax Guide. How can i file 2011 taxes Partnerships. How can i file 2011 taxes   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. How can i file 2011 taxes Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. How can i file 2011 taxes   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. How can i file 2011 taxes , from its operations, but it does not pay income tax. How can i file 2011 taxes Instead, it “passes through” any profits or losses to its partners. How can i file 2011 taxes Each partner includes his or her share of the partnership's items on his or her tax return. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information on partnerships, see Publication 541, Partnerships. How can i file 2011 taxes Husband and wife business. How can i file 2011 taxes   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. How can i file 2011 taxes Do not use Schedule C or C-EZ. How can i file 2011 taxes Instead, file Form 1065, U. How can i file 2011 taxes S. How can i file 2011 taxes Return of Partnership Income. How can i file 2011 taxes For more information, see Publication 541, Partnerships. How can i file 2011 taxes Exception—Community Income. How can i file 2011 taxes   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. How can i file 2011 taxes S. How can i file 2011 taxes possession, you can treat the business either as a sole proprietorship or a partnership. How can i file 2011 taxes The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. How can i file 2011 taxes A change in your reporting position will be treated as a conversion of the entity. How can i file 2011 taxes Exception—Qualified joint venture. How can i file 2011 taxes   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. How can i file 2011 taxes Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. How can i file 2011 taxes For an explanation of "material participation," see the Instructions for Schedule C, line G. How can i file 2011 taxes   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. How can i file 2011 taxes Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. How can i file 2011 taxes For more information, see Qualified Joint Venture in the Instructions for Schedule SE. How can i file 2011 taxes Corporations. How can i file 2011 taxes   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. How can i file 2011 taxes A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. How can i file 2011 taxes A corporation can also take special deductions. How can i file 2011 taxes   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. How can i file 2011 taxes However, shareholders cannot deduct any loss of the corporation. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information on corporations, see Publication 542, Corporations. How can i file 2011 taxes S corporations. How can i file 2011 taxes   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. How can i file 2011 taxes Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. How can i file 2011 taxes On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. How can i file 2011 taxes S. How can i file 2011 taxes Income Tax Return for an S Corporation. How can i file 2011 taxes Limited liability company. How can i file 2011 taxes   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. How can i file 2011 taxes The members of an LLC are not personally liable for its debts. How can i file 2011 taxes An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. How can i file 2011 taxes 7701-3. How can i file 2011 taxes For more information, see the instructions for Form 8832, Entity Classification Election. How can i file 2011 taxes Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. How can i file 2011 taxes The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). How can i file 2011 taxes An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. How can i file 2011 taxes An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. How can i file 2011 taxes You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. How can i file 2011 taxes You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. How can i file 2011 taxes This includes returns or documents filed to report the following information. How can i file 2011 taxes Interest, dividends, royalties, etc. How can i file 2011 taxes , paid to you. How can i file 2011 taxes Any amount paid to you as a dependent care provider. How can i file 2011 taxes Certain other amounts paid to you that total $600 or more for the year. How can i file 2011 taxes If you do not furnish your identification number as required, you may be subject to penalties. How can i file 2011 taxes See Penalties, later. How can i file 2011 taxes Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. How can i file 2011 taxes If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. How can i file 2011 taxes Applying for an EIN. How can i file 2011 taxes   You may apply for an EIN: Online—Click on the EIN link at www. How can i file 2011 taxes irs. How can i file 2011 taxes gov/businesses/small. How can i file 2011 taxes The EIN is issued immediately once the application information is validated. How can i file 2011 taxes By telephone at 1-800-829-4933. How can i file 2011 taxes By mailing or faxing Form SS-4, Application for Employer Identification Number. How can i file 2011 taxes When to apply. How can i file 2011 taxes   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. How can i file 2011 taxes If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. How can i file 2011 taxes If you apply by telephone or through the IRS website, you can get an EIN immediately. How can i file 2011 taxes If you apply by fax, you can get an EIN within 4 business days. How can i file 2011 taxes   If you do not receive your EIN by the time a return is due, file your return anyway. How can i file 2011 taxes Write “Applied for” and the date you applied for the number in the space for the EIN. How can i file 2011 taxes Do not use your social security number as a substitute for an EIN on your tax returns. How can i file 2011 taxes More than one EIN. How can i file 2011 taxes   You should have only one EIN. How can i file 2011 taxes If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. How can i file 2011 taxes Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. How can i file 2011 taxes The IRS will tell you which number to use. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information about EINs, see Publication 1635, Understanding Your EIN. How can i file 2011 taxes Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). How can i file 2011 taxes The forms used to report these payments must include the payee's identification number. How can i file 2011 taxes Employee. How can i file 2011 taxes   If you have employees, you must get an SSN from each of them. How can i file 2011 taxes Record the name and SSN of each employee exactly as they are shown on the employee's social security card. How can i file 2011 taxes If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. How can i file 2011 taxes This may occur, for example, if the employee's name has changed due to marriage or divorce. How can i file 2011 taxes   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. How can i file 2011 taxes This form is available at SSA offices or by calling 1-800-772-1213. How can i file 2011 taxes It is also available from the SSA website at www. How can i file 2011 taxes ssa. How can i file 2011 taxes gov. How can i file 2011 taxes Other payee. How can i file 2011 taxes   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. How can i file 2011 taxes If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. How can i file 2011 taxes   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. How can i file 2011 taxes This form is available from IRS offices or by calling 1-800-829-3676. How can i file 2011 taxes It is also available from the IRS website at IRS. How can i file 2011 taxes gov. How can i file 2011 taxes    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. How can i file 2011 taxes For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. How can i file 2011 taxes Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. How can i file 2011 taxes A tax year is usually 12 consecutive months. How can i file 2011 taxes There are two kinds of tax years. How can i file 2011 taxes Calendar tax year. How can i file 2011 taxes A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. How can i file 2011 taxes Fiscal tax year. How can i file 2011 taxes A fiscal tax year is 12 consecutive months ending on the last day of any month except December. How can i file 2011 taxes 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. How can i file 2011 taxes If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. How can i file 2011 taxes You must use a calendar tax year if: You keep no books. How can i file 2011 taxes You have no annual accounting period. How can i file 2011 taxes Your present tax year does not qualify as a fiscal year. How can i file 2011 taxes You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. How can i file 2011 taxes For more information, see Publication 538, Accounting Periods and Methods. How can i file 2011 taxes First-time filer. How can i file 2011 taxes   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. How can i file 2011 taxes You adopt a tax year by filing your first income tax return using that tax year. How can i file 2011 taxes You have not adopted a tax year if you merely did any of the following. How can i file 2011 taxes Filed an application for an extension of time to file an income tax return. How can i file 2011 taxes Filed an application for an employer identification number. How can i file 2011 taxes Paid estimated taxes for that tax year. How can i file 2011 taxes Changing your tax year. How can i file 2011 taxes   Once you have adopted your tax year, you may have to get IRS approval to change it. How can i file 2011 taxes To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. How can i file 2011 taxes You may have to pay a fee. How can i file 2011 taxes For more information, see Publication 538. How can i file 2011 taxes Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. How can i file 2011 taxes You choose an accounting method for your business when you file your first income tax return. How can i file 2011 taxes There are two basic accounting methods. How can i file 2011 taxes Cash method. How can i file 2011 taxes Under the cash method, you report income in the tax year you receive it. How can i file 2011 taxes You usually deduct or capitalize expenses in the tax year you pay them. How can i file 2011 taxes Accrual method. How can i file 2011 taxes Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. How can i file 2011 taxes You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. How can i file 2011 taxes For other methods, see Publication 538. How can i file 2011 taxes If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. How can i file 2011 taxes Inventories include goods held for sale in the normal course of business. How can i file 2011 taxes They also include raw materials and supplies that will physically become a part of merchandise intended for sale. How can i file 2011 taxes Inventories are explained in Publication 538. How can i file 2011 taxes Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. How can i file 2011 taxes For more information, see Publication 538. How can i file 2011 taxes You must use the same accounting method to figure your taxable income and to keep your books. How can i file 2011 taxes Also, you must use an accounting method that clearly shows your income. How can i file 2011 taxes In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. How can i file 2011 taxes An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. How can i file 2011 taxes More than one business. How can i file 2011 taxes   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. How can i file 2011 taxes You must keep a complete and separate set of books and records for each business. How can i file 2011 taxes Changing your method of accounting. How can i file 2011 taxes   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. How can i file 2011 taxes A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. How can i file 2011 taxes For examples of changes that require approval and information on how to get approval for the change, see Publication 538. How can i file 2011 taxes Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. How can i file 2011 taxes The following are the four general kinds of business taxes. How can i file 2011 taxes Income tax. How can i file 2011 taxes Self-employment tax. How can i file 2011 taxes Employment taxes. How can i file 2011 taxes Excise taxes. How can i file 2011 taxes See Table 2 for the forms you file to report these taxes. How can i file 2011 taxes You may want to get Publication 509. How can i file 2011 taxes It has tax calendars that tell you when to file returns and make tax payments. How can i file 2011 taxes Income Tax All businesses except partnerships must file an annual income tax return. How can i file 2011 taxes Partnerships file an information return. How can i file 2011 taxes Which form you use depends on how your business is organized. How can i file 2011 taxes See Table 2 to find out which return you have to file. How can i file 2011 taxes The federal income tax is a pay-as-you-go tax. How can i file 2011 taxes You must pay the tax as you earn or receive income during the year. How can i file 2011 taxes An employee usually has income tax withheld from his or her pay. How can i file 2011 taxes If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. How can i file 2011 taxes If you are not required to make estimated tax payments, you may pay any tax due when you file your return. How can i file 2011 taxes Table 2. How can i file 2011 taxes Which Forms Must I File? IF you are a. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes   THEN you may be liable for. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes   Use Form. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. How can i file 2011 taxes 2 Various other schedules may be needed. How can i file 2011 taxes Estimated tax. How can i file 2011 taxes   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. How can i file 2011 taxes Sole proprietors, partners, and S corporation shareholders. How can i file 2011 taxes   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. How can i file 2011 taxes Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. How can i file 2011 taxes For more information, see Publication 505, Tax Withholding and Estimated Tax. How can i file 2011 taxes Corporations. How can i file 2011 taxes   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. How can i file 2011 taxes Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. How can i file 2011 taxes You must deposit the payments as explained later under Depositing Taxes. How can i file 2011 taxes For more information, see Publication 542. How can i file 2011 taxes Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. How can i file 2011 taxes Your payments of SE tax contribute to your coverage under the social security system. How can i file 2011 taxes Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. How can i file 2011 taxes You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. How can i file 2011 taxes Your net earnings from self-employment were $400 or more. How can i file 2011 taxes You had church employee income of $108. How can i file 2011 taxes 28 or more. How can i file 2011 taxes Use Schedule SE (Form 1040) to figure your SE tax. How can i file 2011 taxes For more information, see Publication 334, Tax Guide for Small Business. How can i file 2011 taxes You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. How can i file 2011 taxes The Social Security Administration (SSA) time limit for posting self-employment income. How can i file 2011 taxes   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. How can i file 2011 taxes If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. How can i file 2011 taxes The SSA will not change its records to increase your self-employment income. How can i file 2011 taxes Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. How can i file 2011 taxes Employment taxes include the following. How can i file 2011 taxes Social security and Medicare taxes. How can i file 2011 taxes Federal income tax withholding. How can i file 2011 taxes Federal unemployment (FUTA) tax. How can i file 2011 taxes If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. How can i file 2011 taxes If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. How can i file 2011 taxes These publications explain your tax responsibilities as an employer. How can i file 2011 taxes If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. How can i file 2011 taxes That publication has information to help you determine whether an individual is an employee or an independent contractor. How can i file 2011 taxes If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. How can i file 2011 taxes An independent contractor is someone who is self-employed. How can i file 2011 taxes Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. How can i file 2011 taxes Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. How can i file 2011 taxes To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. How can i file 2011 taxes Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). How can i file 2011 taxes Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. How can i file 2011 taxes Medicare tax pays for benefits under the hospital insurance part of FICA. How can i file 2011 taxes You withhold part of these taxes from your employee's wages and you pay a part yourself. How can i file 2011 taxes To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. How can i file 2011 taxes Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. How can i file 2011 taxes (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. How can i file 2011 taxes ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. How can i file 2011 taxes You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. How can i file 2011 taxes You pay FUTA tax only from your own funds. How can i file 2011 taxes Employees do not pay this tax or have it withheld from their pay. How can i file 2011 taxes Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. How can i file 2011 taxes See Publication 15 to find out if you can use this form. How can i file 2011 taxes Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. How can i file 2011 taxes Form I-9. How can i file 2011 taxes   You must verify that each new employee is legally eligible to work in the United States. How can i file 2011 taxes Both you and the employee must complete the U. How can i file 2011 taxes S. How can i file 2011 taxes Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. How can i file 2011 taxes You can get the form from USCIS offices or from the USCIS website at www. How can i file 2011 taxes uscis. How can i file 2011 taxes gov. How can i file 2011 taxes Call the USCIS at 1-800-375-5283 for more information about your responsibilities. How can i file 2011 taxes Form W-4. How can i file 2011 taxes   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. How can i file 2011 taxes You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. How can i file 2011 taxes For more information, see Publication 15. How can i file 2011 taxes Employees claiming more than 10 withholding allowances. How can i file 2011 taxes   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. How can i file 2011 taxes See section 16 of Publication 15. How can i file 2011 taxes Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. How can i file 2011 taxes You must also send copies to the Social Security Administration. How can i file 2011 taxes See Information Returns, later, for more information on Form W-2. How can i file 2011 taxes Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. How can i file 2011 taxes Manufacture or sell certain products. How can i file 2011 taxes Operate certain kinds of businesses. How can i file 2011 taxes Use various kinds of equipment, facilities, or products. How can i file 2011 taxes Receive payment for certain services. How can i file 2011 taxes For more information on excise taxes, see Publication 510, Excise Taxes. How can i file 2011 taxes Form 720. How can i file 2011 taxes   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. How can i file 2011 taxes Environmental taxes. How can i file 2011 taxes Communications and air transportation taxes. How can i file 2011 taxes Fuel taxes. How can i file 2011 taxes Tax on the first retail sale of heavy trucks, trailers, and tractors. How can i file 2011 taxes Manufacturers taxes on the sale or use of a variety of different articles. How can i file 2011 taxes Form 2290. How can i file 2011 taxes   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. How can i file 2011 taxes The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. How can i file 2011 taxes Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. How can i file 2011 taxes For more information, see the instructions for Form 2290. How can i file 2011 taxes Form 730. How can i file 2011 taxes   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. How can i file 2011 taxes Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. How can i file 2011 taxes Form 11-C. How can i file 2011 taxes   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. How can i file 2011 taxes Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. How can i file 2011 taxes Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). How can i file 2011 taxes Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. How can i file 2011 taxes Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. How can i file 2011 taxes Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. How can i file 2011 taxes The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. How can i file 2011 taxes You must give a copy of each information return you are required to file to the recipient or payer. How can i file 2011 taxes In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. How can i file 2011 taxes For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. How can i file 2011 taxes Form 1099-MISC. How can i file 2011 taxes   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. How can i file 2011 taxes These payments include the following items. How can i file 2011 taxes Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. How can i file 2011 taxes Rent payments of $600 or more, other than rents paid to real estate agents. How can i file 2011 taxes Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. How can i file 2011 taxes Royalty payments of $10 or more. How can i file 2011 taxes Payments to certain crew members by operators of fishing boats. How can i file 2011 taxes You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. How can i file 2011 taxes Form W-2. How can i file 2011 taxes   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. How can i file 2011 taxes For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. How can i file 2011 taxes Form 8300. How can i file 2011 taxes   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. How can i file 2011 taxes Cash includes U. How can i file 2011 taxes S. How can i file 2011 taxes and foreign coin and currency. How can i file 2011 taxes It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. How can i file 2011 taxes For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). How can i file 2011 taxes Penalties The law provides penalties for not filing returns or paying taxes as required. How can i file 2011 taxes Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. How can i file 2011 taxes Failure to file tax returns. How can i file 2011 taxes   If you do not file your tax return by the due date, you may have to pay a penalty. How can i file 2011 taxes The penalty is based on the tax not paid by the due date. How can i file 2011 taxes See your tax return instructions for more information about this penalty. How can i file 2011 taxes Failure to pay tax. How can i file 2011 taxes   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. How can i file 2011 taxes For more information, see your tax return instructions. How can i file 2011 taxes Failure to withhold, deposit, or pay taxes. How can i file 2011 taxes   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. How can i file 2011 taxes You may also be subject to penalties if you deposit the taxes late. How can i file 2011 taxes For more information, see Publication 15. How can i file 2011 taxes Failure to follow information reporting requirements. How can i file 2011 taxes   The following penalties apply if you are required to file information returns. How can i file 2011 taxes For more information, see the General Instructions for Certain Information Returns. How can i file 2011 taxes Failure to file information returns. How can i file 2011 taxes A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. How can i file 2011 taxes Failure to furnish correct payee statements. How can i file 2011 taxes A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. How can i file 2011 taxes Waiver of penalty. How can i file 2011 taxes   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. How can i file 2011 taxes   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. How can i file 2011 taxes (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. How can i file 2011 taxes ) Failure to supply taxpayer identification number. How can i file 2011 taxes   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. How can i file 2011 taxes You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. How can i file 2011 taxes Business Expenses You can deduct business expenses on your income tax return. How can i file 2011 taxes These are the current operating costs of running your business. How can i file 2011 taxes To be deductible, a business expense must be both ordinary and necessary. How can i file 2011 taxes An ordinary expense is one that is common and accepted in your field of business, trade, or profession. How can i file 2011 taxes A necessary expense is one that is helpful and appropriate for your business, trade, or profession. How can i file 2011 taxes An expense does not have to be indispensable to be considered necessary. How can i file 2011 taxes The following are brief explanations of some expenses that are of interest to people starting a business. How can i file 2011 taxes There are many other expenses that you may be able to deduct. How can i file 2011 taxes See your form instructions and Publication 535, Business Expenses. How can i file 2011 taxes Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. How can i file 2011 taxes Your business start-up costs will depend on the type of business you are starting. How can i file 2011 taxes They may include costs for advertising, travel, surveys, and training. How can i file 2011 taxes These costs are generally capital expenses. How can i file 2011 taxes You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). How can i file 2011 taxes You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. How can i file 2011 taxes The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. How can i file 2011 taxes Any remaining cost must be amortized. How can i file 2011 taxes For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. How can i file 2011 taxes Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. How can i file 2011 taxes You must spread the cost over more than one tax year and deduct part of it each year. How can i file 2011 taxes This method of deducting the cost of business property is called depreciation. How can i file 2011 taxes Business property you must depreciate includes the following items. How can i file 2011 taxes Office furniture. How can i file 2011 taxes Buildings. How can i file 2011 taxes Machinery and equipment. How can i file 2011 taxes You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. How can i file 2011 taxes This deduction is known as the “section 179 deduction. How can i file 2011 taxes ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. How can i file 2011 taxes Depreciation must be taken in the year it is allowable. How can i file 2011 taxes Allowable depreciation not taken in a prior year cannot be taken in the current year. How can i file 2011 taxes If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. How can i file 2011 taxes S. How can i file 2011 taxes Individual Income Tax Return, or by changing your accounting method. How can i file 2011 taxes For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. How can i file 2011 taxes Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. How can i file 2011 taxes Even then, your deduction may be limited. How can i file 2011 taxes To qualify to claim expenses for business use of your home, you must meet both the following tests. How can i file 2011 taxes Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. How can i file 2011 taxes Exclusive use. How can i file 2011 taxes   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. How can i file 2011 taxes The area used for business can be a room or other separately identifiable space. How can i file 2011 taxes The space does not need to be marked off by a permanent partition. How can i file 2011 taxes   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. How can i file 2011 taxes Exceptions to exclusive use. How can i file 2011 taxes   You do not have to meet the exclusive use test if either of the following applies. How can i file 2011 taxes You use part of your home for the storage of inventory or product samples. How can i file 2011 taxes You use part of your home as a daycare facility. How can i file 2011 taxes For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). How can i file 2011 taxes Principal place of business. How can i file 2011 taxes   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. How can i file 2011 taxes You use it exclusively and regularly for administrative or management activities of your trade or business. How can i file 2011 taxes You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. How can i file 2011 taxes   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. How can i file 2011 taxes The relative importance of the activities performed at each location. How can i file 2011 taxes If the relative importance factor does not determine your principal place of business, the time spent at each location. How can i file 2011 taxes    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. How can i file 2011 taxes However, for other ways to qualify to deduct home office expenses, see Publication 587. How can i file 2011 taxes Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. How can i file 2011 taxes If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. How can i file 2011 taxes More information. How can i file 2011 taxes   For more information about business use of your home, see Publication 587. How can i file 2011 taxes Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. How can i file 2011 taxes You generally can deduct either your actual expenses or the standard mileage rate. How can i file 2011 taxes Actual expenses. How can i file 2011 taxes   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. How can i file 2011 taxes You can divide your expenses based on the miles driven for each purpose. How can i file 2011 taxes Example. How can i file 2011 taxes You are the sole proprietor of a flower shop. How can i file 2011 taxes You drove your van 20,000 miles during the year. How can i file 2011 taxes 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. How can i file 2011 taxes You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. How can i file 2011 taxes Standard mileage rate. How can i file 2011 taxes   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. How can i file 2011 taxes You can use the standard mileage rate for a vehicle you own or lease. How can i file 2011 taxes The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. How can i file 2011 taxes It is announced annually by the IRS. How can i file 2011 taxes To figure your deduction, multiply your business miles by the standard mileage rate for the year. How can i file 2011 taxes    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. How can i file 2011 taxes However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. How can i file 2011 taxes Choosing the standard mileage rate. How can i file 2011 taxes   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How can i file 2011 taxes In later years, you can choose to use either the standard mileage rate or actual expenses. How can i file 2011 taxes   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). How can i file 2011 taxes Additional information. How can i file 2011 taxes   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. How can i file 2011 taxes Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. How can i file 2011 taxes It also explains how long you must keep your records for federal tax purposes. How can i file 2011 taxes A sample recordkeeping system is illustrated at the end of this part. How can i file 2011 taxes Why Keep Records? Everyone in business must keep records. How can i file 2011 taxes Good records will help you do the following. How can i file 2011 taxes Monitor the progress of your business. How can i file 2011 taxes   You need good records to monitor the progress of your business. How can i file 2011 taxes Records can show whether your business is improving, which items are selling, or what changes you need to make. How can i file 2011 taxes Good records can increase the likelihood of business success. How can i file 2011 taxes Prepare your financial statements. How can i file 2011 taxes   You need good records to prepare accurate financial statements. How can i file 2011 taxes These include income (profit and loss) statements and balance sheets. How can i file 2011 taxes These statements can help you in dealing with your bank or creditors and help you manage your business. How can i file 2011 taxes An income statement shows the income and expenses of the business for a given period of time. How can i file 2011 taxes A balance sheet shows the assets, liabilities, and your equity in the business on a given date. How can i file 2011 taxes Identify source of receipts. How can i file 2011 taxes   You will receive money or property from many sources. How can i file 2011 taxes Your records can identify the source of your receipts. How can i file 2011 taxes You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. How can i file 2011 taxes Keep track of deductible expenses. How can i file 2011 taxes   You may forget expenses when you prepare your tax return unless you record them when they occur. How can i file 2011 taxes Prepare your tax returns. How can i file 2011 taxes   You need good records to prepare your tax returns. How can i file 2011 taxes These records must support the income, expenses, and credits you report. How can i file 2011 taxes Generally, these are the same records you use to monitor your business and prepare your financial statements. How can i file 2011 taxes Support items reported on tax returns. How can i file 2011 taxes   You must keep your business records available at all times for inspection by the IRS. How can i file 2011 taxes If the IRS examines any of your tax returns, you may be asked to explain the items reported. How can i file 2011 taxes A complete set of records will speed up the examination. How can i file 2011 taxes Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. How can i file 2011 taxes You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. How can i file 2011 taxes The business you are in affects the type of records you need to keep for federal tax purposes. How can i file 2011 taxes You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. How can i file 2011 taxes See Accounting Method, earlier. How can i file 2011 taxes If you are in more than one business, you should keep a complete and separate set of records for each business. How can i file 2011 taxes A corporation should keep minutes of board of directors' meetings. How can i file 2011 taxes Your recordkeeping system should include a summary of your business transactions. How can i file 2011 taxes This summary is ordinarily made in your books (for example, accounting journals and ledgers). How can i file 2011 taxes Your books must show your gross income, as well as your deductions and credits. How can i file 2011 taxes For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. How can i file 2011 taxes In addition, you must keep supporting documents, explained later. How can i file 2011 taxes Electronic records. How can i file 2011 taxes   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. How can i file 2011 taxes When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. How can i file 2011 taxes An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. How can i file 2011 taxes The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. How can i file 2011 taxes All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. How can i file 2011 taxes Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. How can i file 2011 taxes   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. How can i file 2011 taxes You still have the responsibility of retaining any other books and records that are required to be retained. How can i file 2011 taxes   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. How can i file 2011 taxes This test is not considered an examination and the results must be shared with you. How can i file 2011 taxes If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. How can i file 2011 taxes If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. How can i file 2011 taxes For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. How can i file 2011 taxes Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. How can i file 2011 taxes Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. How can i file 2011 taxes These documents contain information you need to record in your books. How can i file 2011 taxes It is important to keep these documents because they support the entries in your books and on your tax return. How can i file 2011 taxes Keep them in an orderly fashion and in a safe place. How can i file 2011 taxes For instance, organize them by year and type of income or expense. How can i file 2011 taxes Gross receipts. How can i file 2011 taxes   Gross receipts are the income you receive from your business. How can i file 2011 taxes You should keep supporting documents that show the amounts and sources of your gross receipts. How can i file 2011 taxes Documents that show gross receipts include the following. How can i file 2011 taxes Cash register tapes. How can i file 2011 taxes Bank deposit slips. How can i file 2011 taxes Receipt books. How can i file 2011 taxes Invoices. How can i file 2011 taxes Credit card charge slips. How can i file 2011 taxes Forms 1099-MISC. How can i file 2011 taxes Purchases. How can i file 2011 taxes   Purchases are the items you buy and resell to customers. How can i file 2011 taxes If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. How can i file 2011 taxes Your supporting documents should show the amount paid and that the amount was for purchases. How can i file 2011 taxes Documents for purchases include the following. How can i file 2011 taxes Canceled checks. How can i file 2011 taxes Cash register tape receipts. How can i file 2011 taxes Credit card sales slips. How can i file 2011 taxes Invoices. How can i file 2011 taxes These records will help you determine the value of your inventory at the end of the year. How can i file 2011 taxes See Publication 538 for information on methods for valuing inventory. How can i file 2011 taxes Expenses. How can i file 2011 taxes   Expenses are the costs you incur (other than purchases) to carry on your business. How can i file 2011 taxes Your supporting documents should show the amount paid and that the amount was for a business expense. How can i file 2011 taxes Documents for expenses include the following. How can i file 2011 taxes Canceled checks. How can i file 2011 taxes Cash register tapes. How can i file 2011 taxes Account statements. How can i file 2011 taxes Credit card sales slips. How can i file 2011 taxes Invoices. How can i file 2011 taxes Petty cash slips for small cash payments. How can i file 2011 taxes    A petty cash fund allows you to make small payments without having to write checks for small amounts. How can i file 2011 taxes Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. How can i file 2011 taxes Travel, transportation, entertainment, and gift expenses. How can i file 2011 taxes   Specific recordkeeping rules apply to these expenses. How can i file 2011 taxes For more information, see Publication 463. How can i file 2011 taxes Employment taxes. How can i file 2011 taxes   There are specific employment tax records you must keep. How can i file 2011 taxes For a list, see Publication 15. How can i file 2011 taxes Assets. How can i file 2011 taxes   Assets are the property, such as machinery and furniture you own and use in your business. How can i file 2011 taxes You must keep records to verify certain information about your business assets. How can i file 2011 taxes You need records to figure the annual depreciation and the gain or loss when you sell the assets. How can i file 2011 taxes Your records should show the following information. How can i file 2011 taxes When and how you acquired the asset. How can i file 2011 taxes Purchase price. How can i file 2011 taxes Cost of any improvements. How can i file 2011 taxes Section 179 deduction taken. How can i file 2011 taxes Deductions taken for depreciation. How can i file 2011 taxes Deductions taken for casualty losses, such as losses resulting from fires or storms. How can i file 2011 taxes How you used the asset. How can i file 2011 taxes When and how you disposed of the asset. How can i file 2011 taxes Selling price. How can i file 2011 taxes Expenses of sale. How can i file 2011 taxes   The following documents may show this information. How can i file 2011 taxes Purchase and sales invoices. How can i file 2011 taxes Real estate closing statements. How can i file 2011 taxes Canceled checks. How can i file 2011 taxes What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. How can i file 2011 taxes These include account statements prepared for the financial institution by a third party. How can i file 2011 taxes These account statements must be highly legible. How can i file 2011 taxes The following table lists acceptable account statements. How can i file 2011 taxes  IF payment is by. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes THEN the statement must show the. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes Check Check number. How can i file 2011 taxes Amount. How can i file 2011 taxes Payee's name. How can i file 2011 taxes Date the check amount was posted to the account by the financial institution. How can i file 2011 taxes Electronic funds transfer Amount transferred. How can i file 2011 taxes Payee's name. How can i file 2011 taxes Date the transfer was posted to the account by the financial institution. How can i file 2011 taxes Credit card Amount charged. How can i file 2011 taxes Payee's name. How can i file 2011 taxes Transaction date. How can i file 2011 taxes    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. How can i file 2011 taxes You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. How can i file 2011 taxes Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. How can i file 2011 taxes (Your business transactions are shown on the supporting documents just discussed. How can i file 2011 taxes ) Business transactions are ordinarily summarized in books called journals and ledgers. How can i file 2011 taxes You can buy them at your local stationery or office supply store. How can i file 2011 taxes A journal is a book where you record each business transaction shown on your supporting documents. How can i file 2011 taxes You may have to keep separate journals for transactions that occur frequently. How can i file 2011 taxes A ledger is a book that contains the totals from all of your journals. How can i file 2011 taxes It is organized into different accounts. How can i file 2011 taxes Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. How can i file 2011 taxes For example, a recordkeeping system for a small business might include the following items. How can i file 2011 taxes Business checkbook. How can i file 2011 taxes Daily summary of cash receipts. How can i file 2011 taxes Monthly summary of cash receipts. How can i file 2011 taxes Check disbursements journal. How can i file 2011 taxes Depreciation worksheet. How can i file 2011 taxes Employee compensation record. How can i file 2011 taxes The business checkbook is explained next. How can i file 2011 taxes The other items are illustrated later under Sample Record System. How can i file 2011 taxes The system you use to record business transactions will be more effective if you follow good recordkeeping practices. How can i file 2011 taxes For example, record expenses when they occur, and identify the source of recorded receipts. How can i file 2011 taxes Generally, it is best to record transactions on a daily basis. How can i file 2011 taxes Business checkbook. How can i file 2011 taxes   One of the first things you should do when you start a business is open a business checking account. How can i file 2011 taxes You should keep your business account separate from your personal checking account. How can i file 2011 taxes   The business checkbook is your basic source of information for recording your business expenses. How can i file 2011 taxes You should deposit all daily receipts in your business checking account. How can i file 2011 taxes You should check your account for errors by reconciling it. How can i file 2011 taxes See Reconciling the checking account, later. How can i file 2011 taxes   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. How can i file 2011 taxes You should also note on the deposit slip the source of the deposit and keep copies of all slips. How can i file 2011 taxes   You should make all payments by check to document business expenses. How can i file 2011 taxes Write checks payable to yourself only when making withdrawals from your business for personal use. How can i file 2011 taxes Avoid writing checks payable to cash. How can i file 2011 taxes If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. How can i file 2011 taxes If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. How can i file 2011 taxes    Use the business account for business purposes only. How can i file 2011 taxes Indicate the source of deposits and the type of expense in the checkbook. How can i file 2011 taxes Reconciling the checking account. How can i file 2011 taxes   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. How can i file 2011 taxes The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. How can i file 2011 taxes   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. How can i file 2011 taxes    You should reconcile your checking account each month. How can i file 2011 taxes     Before you reconcile your monthly bank statement, check your own figures. How can i file 2011 taxes Begin with the balance shown in your checkbook at the end of the previous month. How can i file 2011 taxes To this balance, add the total cash deposited during the month and subtract the total cash disbursements. How can i file 2011 taxes   After checking your figures, the result should agree with your checkbook balance at the end of the month. How can i file 2011 taxes If the result does not agree, you may have made an error in recording a check or deposit. How can i file 2011 taxes You can find the error by doing the following. How can i file 2011 taxes Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. How can i file 2011 taxes If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. How can i file 2011 taxes Adding the deposit amounts in your checkbook. How can i file 2011 taxes Compare that total with the monthly total in your cash receipt book, if you have one. How can i file 2011 taxes If the totals do not agree, check the individual amounts to find any errors. How can i file 2011 taxes   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. How can i file 2011 taxes   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. How can i file 2011 taxes Many banks print a reconciliation worksheet on the back of the statement. How can i file 2011 taxes   To reconcile your account, follow these steps. How can i file 2011 taxes Compare the deposits listed on the bank statement with the deposits shown in your checkbook. How can i file 2011 taxes Note all differences in the dollar amounts. How can i file 2011 taxes Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. How can i file 2011 taxes Note all differences in the dollar amounts. How can i file 2011 taxes Mark the check number in the checkbook as having cleared the bank. How can i file 2011 taxes After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. How can i file 2011 taxes Prepare a bank reconciliation. How can i file 2011 taxes One is illustrated later under Sample Record System. How can i file 2011 taxes Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. How can i file 2011 taxes At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. How can i file 2011 taxes If you still have differences, check the previous steps to find the errors. How can i file 2011 taxes   Table 3. How can i file 2011 taxes Period of Limitations IF you. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes   THEN the period is. How can i file 2011 taxes . How can i file 2011 taxes . How can i file 2011 taxes 1. How can i file 2011 taxes Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. How can i file 2011 taxes Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. How can i file 2011 taxes File a fraudulent return   Not limited 4. How can i file 2011 taxes Do not file a return   Not limited 5. How can i file 2011 taxes File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. How can i file 2011 taxes File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. How can i file 2011 taxes The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. How can i file 2011 taxes You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. How can i file 2011 taxes Single-entry. How can i file 2011 taxes   A single-entry system is based on the income statement (profit or loss statement). How can i file 2011 taxes It can be a simple and practical system if you are starting a small business. How can i file 2011 taxes The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. How can i file 2011 taxes Double-entry. How can i file 2011 taxes   A double-entry bookkeeping system uses journals and ledgers. How can i file 2011 taxes Transactions are first entered in a journal and then posted to ledger accounts. How can i file 2011 taxes These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). How can i file 2011 taxes You close income and expense accounts at the end of each tax year. How can i file 2011 taxes You keep asset, liability, and net worth accounts open on a permanent basis. How can i file 2011 taxes   In the double-entry system, each account has a left side for debits and a right side for credits. How can i file 2011 taxes It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. How can i file 2011 taxes   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. How can i file 2011 taxes If the amounts do not balance, you have made an error and you must find and correct it. How can i file 2011 taxes   An example of a journal entry exhibiting a payment of rent in October is shown next. How can i file 2011 taxes General Journal Date Description of Entry Debit  Credit Oct. How can i file 2011 taxes 5 Rent expense 780. How can i file 2011 taxes 00     Cash   780. How can i file 2011 taxes 00                 Computerized System There are computer software packages you can use for recordkeeping. How can i file 2011 taxes They can be purchased in many retail stores. How can i file 2011 taxes These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. How can i file 2011 taxes If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. How can i file 2011 taxes To meet this qualification, the machine-sensible records must reconcile with your books and return. How can i file 2011 taxes These records must provide enough detail to identify the underlying source documents. How can i file 2011 taxes You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. How can i file 2011 taxes This documentation must be sufficiently detailed to show all of the following items. How can i file 2011 taxes Functions being performed as the data flows through the system. How can i file 2011 taxes Controls used to ensure accurate and reliable processing. How can i file 2011 taxes Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. How can i file 2011 taxes Charts of accounts and detailed account descriptions. How can i file 2011 taxes See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. How can i file 2011 taxes How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. How can i file 2011 taxes Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. How can i file 2011 taxes The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. How can i file 2011 taxes Table 3 contains the periods of limitations that apply to income tax returns. How can i file 2011 taxes Unless otherwise stated, the years refer to the period after the return was filed. How can i file 2011 taxes Returns filed before the due date are treated as filed on the due date. How can i file 2011 taxes Keep copies of your filed tax returns. How can i file 2011 taxes They help in preparing future tax returns and making computations if you file an amended return. How can i file 2011 taxes Employment taxes. How can i file 2011 taxes   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. How can i file 2011 taxes For more information about recordkeeping for employment taxes, see Publication 15. How can i file 2011 taxes Assets. How can i file 2011 taxes   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. How can i file 2011 taxes You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. How can i file 2011 taxes   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. How can i file 2011 taxes You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. How can i file 2011 taxes Records for nontax purposes. How can i file 2011 taxes   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. How can i file 2011 taxes For example, your insurance company or creditors may require you to keep them longer than the IRS does. How can i file 2011 taxes Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. How can i file 2011 taxes Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. How can i file 2011 taxes These sample records should not be viewed as a recommendation of how to keep your records. How can i file 2011 taxes They are intended only to show how one business keeps its records. How can i file 2011 taxes 1. How can i file 2011 taxes Daily Summary of Cash Receipts This summary is a record of cash sales for the day. How can i file 2011 taxes It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. How can i file 2011 taxes Henry takes the cash sales entry from his cash register tape. How can i file 2011 taxes If he had no cash register, he would simply total his cash sale slips and any other cash received that day. How can i file 2011 taxes He carries the total receipts shown in this summary for January 3 ($267. How can i file 2011 taxes 80), including cash sales ($263. How can i file 2011 taxes 60) and sales tax ($4. How can i file 2011 taxes 20), to the Monthly Summary of Cash Receipts. How can i file 2011 taxes Petty cash fund. How can i file 2011 taxes   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. How can i file 2011 taxes Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. How can i file 2011 taxes He sets up a fixed amount ($50) in his petty cash fund. How can i file 2011 taxes The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. How can i file 2011 taxes When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. How can i file 2011 taxes (See the Check Disbursements Journal entry for check number 92. How can i file 2011 taxes ) This restores the fund to its fixed amount of $50. How can i file 2011 taxes He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. How can i file 2011 taxes 2. How can i file 2011 taxes Monthly Summary of Cash Receipts This shows the income activity for the month. How can i file 2011 taxes Henry carries the total monthly net sales shown in this summary for January ($4,865. How can i file 2011 taxes 05) to his Annual Summary. How can i file 2011 taxes To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. How can i file 2011 taxes He cannot take a deduction for sales tax turned over to the state because he only collected the tax. How can i file 2011 taxes He does not include the tax in his income. How can i file 2011 taxes 3. How can i file 2011 taxes Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. How can i file 2011 taxes All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. How can i file 2011 taxes Frequent expenses have their own headings across the sheet. How can i file 2011 taxes He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. How can i file 2011 taxes Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. How can i file 2011 taxes Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. How can i file 2011 taxes If he did, he would record them in the journal, even though he could not deduct them as business expenses. How can i file 2011 taxes Henry carries the January total of expenses for materials ($1,083. How can i file 2011 taxes 50) to the Annual Summary. How can i file 2011 taxes Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. How can i file 2011 taxes , in the appropriate columns of that summary. How can i file 2011 taxes 4. How can i file 2011 taxes Employee Compensation Record This record shows the following information. How can i file 2011 taxes The number of hours Henry's employee worked in a pay period. How can i file 2011 taxes The employee's total pay for the period. How can i file 2011 taxes The deductions Henry withheld in figuring the employee's net pay. How can i file 2011 taxes The monthly gross payroll. How can i file 2011 taxes Henry carries the January gross payroll ($520) to the Annual Summary. How can i file 2011 taxes 5. How can i file 2011 taxes Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. How can i file 2011 taxes He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. How can i file 2011 taxes He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. How can i file 2011 taxes As in the journal, he keeps each major expense in a separate column. How can i file 2011 taxes Henry carries the cash receipts total shown in the annual summary ($47,440. 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