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How To File A 1040 Ez

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How To File A 1040 Ez

How to file a 1040 ez Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. How to file a 1040 ez Hybrid method. How to file a 1040 ez Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). How to file a 1040 ez Accounting Periods You must use a tax year to figure your taxable income. How to file a 1040 ez A tax year is an annual accounting period for keeping records and reporting income and expenses. How to file a 1040 ez An annual accounting period does not include a short tax year (discussed later). How to file a 1040 ez You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). How to file a 1040 ez Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. How to file a 1040 ez A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. How to file a 1040 ez You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. How to file a 1040 ez This section discusses: A calendar year. How to file a 1040 ez A fiscal year (including a period of 52 or 53 weeks). How to file a 1040 ez A short tax year. How to file a 1040 ez An improper tax year. How to file a 1040 ez A change in tax year. How to file a 1040 ez Special situations that apply to individuals. How to file a 1040 ez Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. How to file a 1040 ez Special situations that apply to corporations. How to file a 1040 ez Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. How to file a 1040 ez If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. How to file a 1040 ez 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 obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. How to file a 1040 ez See Change in Tax Year, later. How to file a 1040 ez Generally, anyone can adopt the calendar year. How to file a 1040 ez However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. How to file a 1040 ez Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. How to file a 1040 ez If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. How to file a 1040 ez 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. How to file a 1040 ez If you make this election, your 52-53-week tax year must always end on the same day of the week. How to file a 1040 ez Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. How to file a 1040 ez For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. How to file a 1040 ez Election. How to file a 1040 ez   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. How to file a 1040 ez The month in which the new 52-53-week tax year ends. How to file a 1040 ez The day of the week on which the tax year always ends. How to file a 1040 ez The date the tax year ends. How to file a 1040 ez It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. How to file a 1040 ez   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. How to file a 1040 ez   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. How to file a 1040 ez Example. How to file a 1040 ez Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. How to file a 1040 ez For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. How to file a 1040 ez Short Tax Year A short tax year is a tax year of less than 12 months. How to file a 1040 ez A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. How to file a 1040 ez Tax on a short period tax return is figured differently for each situation. How to file a 1040 ez Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. How to file a 1040 ez Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. How to file a 1040 ez Example 1. How to file a 1040 ez XYZ Corporation was organized on July 1, 2012. How to file a 1040 ez It elected the calendar year as its tax year. How to file a 1040 ez Therefore, its first tax return was due March 15, 2013. How to file a 1040 ez This short period return will cover the period from July 1, 2012, through December 31, 2012. How to file a 1040 ez Example 2. How to file a 1040 ez A calendar year corporation dissolved on July 23, 2012. How to file a 1040 ez Its final return is due by October 15, 2012. How to file a 1040 ez It will cover the short period from January 1, 2012, through July 23, 2012. How to file a 1040 ez Death of individual. How to file a 1040 ez   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. How to file a 1040 ez The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. How to file a 1040 ez In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. How to file a 1040 ez Example. How to file a 1040 ez   Agnes Green was a single, calendar year taxpayer. How to file a 1040 ez She died on March 6, 2012. How to file a 1040 ez Her final income tax return must be filed by April 15, 2013. How to file a 1040 ez It will cover the short period from January 1, 2012, to March 6, 2012. How to file a 1040 ez Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. How to file a 1040 ez The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. How to file a 1040 ez Figure tax for a short year under the general rule, explained below. How to file a 1040 ez You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. How to file a 1040 ez General rule. How to file a 1040 ez   Income tax for a short tax year must be annualized. How to file a 1040 ez However, self-employment tax is figured on the actual self-employment income for the short period. How to file a 1040 ez Individuals. How to file a 1040 ez   An individual must figure income tax for the short tax year as follows. How to file a 1040 ez Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. How to file a 1040 ez You must itemize deductions when you file a short period tax return. How to file a 1040 ez Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. How to file a 1040 ez Subtract the amount in (2) from the amount in (1). How to file a 1040 ez The result is your modified taxable income. How to file a 1040 ez Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. How to file a 1040 ez The result is your annualized income. How to file a 1040 ez Figure the total tax on your annualized income using the appropriate tax rate schedule. How to file a 1040 ez Multiply the total tax by the number of months in the short tax year and divide the result by 12. How to file a 1040 ez The result is your tax for the short tax year. How to file a 1040 ez Relief procedure. How to file a 1040 ez   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. How to file a 1040 ez It may result in less tax. How to file a 1040 ez Under this procedure, the tax is figured by two separate methods. How to file a 1040 ez If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. How to file a 1040 ez For more information, see section 443(b)(2) of the Internal Revenue Code. How to file a 1040 ez Alternative minimum tax. How to file a 1040 ez   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. How to file a 1040 ez Multiply the AMTI by 12. How to file a 1040 ez Divide the result by the number of months in the short tax year. How to file a 1040 ez Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. How to file a 1040 ez The result is the annualized AMT. How to file a 1040 ez Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. How to file a 1040 ez   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. How to file a 1040 ez For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. How to file a 1040 ez Tax withheld from wages. How to file a 1040 ez   You can claim a credit against your income tax liability for federal income tax withheld from your wages. How to file a 1040 ez Federal income tax is withheld on a calendar year basis. How to file a 1040 ez The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. How to file a 1040 ez Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. How to file a 1040 ez For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. How to file a 1040 ez See Accounting Periods, earlier, for a description of permissible tax years. How to file a 1040 ez To change to a proper tax year, you must do one of the following. How to file a 1040 ez If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. How to file a 1040 ez Attach a completed Form 1128 to the amended tax return. How to file a 1040 ez Write “FILED UNDER REV. How to file a 1040 ez PROC. How to file a 1040 ez 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. How to file a 1040 ez If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. How to file a 1040 ez Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. How to file a 1040 ez See the Instructions for Form 1128 for exceptions. How to file a 1040 ez If you qualify for an automatic approval request, a user fee is not required. How to file a 1040 ez Individuals Generally, individuals must adopt the calendar year as their tax year. How to file a 1040 ez An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. How to file a 1040 ez Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. How to file a 1040 ez A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. How to file a 1040 ez The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). How to file a 1040 ez The following discussions provide the rules for partnerships, S corporations, and PSCs. How to file a 1040 ez Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. How to file a 1040 ez The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. How to file a 1040 ez The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. How to file a 1040 ez The partnership can establish a business purpose for a different tax year. How to file a 1040 ez The rules for the required tax year for partnerships are as follows. How to file a 1040 ez If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. How to file a 1040 ez If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. How to file a 1040 ez A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. How to file a 1040 ez If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. How to file a 1040 ez If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. How to file a 1040 ez Least aggregate deferral of income. How to file a 1040 ez   The tax year that results in the least aggregate deferral of income is determined as follows. How to file a 1040 ez Figure the number of months of deferral for each partner using one partner's tax year. How to file a 1040 ez Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. How to file a 1040 ez Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). How to file a 1040 ez Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). How to file a 1040 ez Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. How to file a 1040 ez   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. How to file a 1040 ez If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. How to file a 1040 ez However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. How to file a 1040 ez Example. How to file a 1040 ez A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. How to file a 1040 ez A uses the calendar year and B uses a fiscal year ending November 30. How to file a 1040 ez P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. How to file a 1040 ez Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. How to file a 1040 ez 5 -0- -0- B 11/30 0. How to file a 1040 ez 5 11 5. How to file a 1040 ez 5 Total Deferral 5. How to file a 1040 ez 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. How to file a 1040 ez 5 1 0. How to file a 1040 ez 5 B 11/30 0. How to file a 1040 ez 5 -0- -0- Total Deferral 0. How to file a 1040 ez 5 When determination is made. How to file a 1040 ez   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. How to file a 1040 ez However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. How to file a 1040 ez This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. How to file a 1040 ez Short period return. How to file a 1040 ez   When a partnership changes its tax year, a short period return must be filed. How to file a 1040 ez The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. How to file a 1040 ez   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. How to file a 1040 ez The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. How to file a 1040 ez 706-1. How to file a 1040 ez ” More information. How to file a 1040 ez   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. How to file a 1040 ez S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. How to file a 1040 ez A permitted tax year is any of the following. How to file a 1040 ez The calendar year. How to file a 1040 ez A tax year elected under section 444 of the Internal Revenue Code. How to file a 1040 ez See Section 444 Election, below for details. How to file a 1040 ez A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. How to file a 1040 ez Any other tax year for which the corporation establishes a business purpose. How to file a 1040 ez If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. How to file a 1040 ez For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. How to file a 1040 ez Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. How to file a 1040 ez The corporation makes an election under section 444 of the Internal Revenue Code. How to file a 1040 ez See Section 444 Election, below for details. How to file a 1040 ez The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. How to file a 1040 ez The corporation establishes a business purpose for a fiscal year. How to file a 1040 ez See the Instructions for Form 1120 for general information about PSCs. How to file a 1040 ez For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. How to file a 1040 ez Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. How to file a 1040 ez Certain restrictions apply to the election. How to file a 1040 ez A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). How to file a 1040 ez The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. How to file a 1040 ez A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. How to file a 1040 ez It is not a member of a tiered structure (defined in section 1. How to file a 1040 ez 444-2T of the regulations). How to file a 1040 ez It has not previously had a section 444 election in effect. How to file a 1040 ez It elects a year that meets the deferral period requirement. How to file a 1040 ez Deferral period. How to file a 1040 ez   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. How to file a 1040 ez Retaining tax year. How to file a 1040 ez   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. How to file a 1040 ez This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. How to file a 1040 ez Adopting or changing tax year. How to file a 1040 ez   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. How to file a 1040 ez The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. How to file a 1040 ez This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. How to file a 1040 ez If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. How to file a 1040 ez Example 1. How to file a 1040 ez BD Partnership uses a calendar year, which is also its required tax year. How to file a 1040 ez BD cannot make a section 444 election because the deferral period is zero. How to file a 1040 ez Example 2. How to file a 1040 ez E, a newly formed partnership, began operations on December 1. How to file a 1040 ez E is owned by calendar year partners. How to file a 1040 ez E wants to make a section 444 election to adopt a September 30 tax year. How to file a 1040 ez E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. How to file a 1040 ez Making the election. How to file a 1040 ez   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. How to file a 1040 ez Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. How to file a 1040 ez For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. How to file a 1040 ez Note. How to file a 1040 ez If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. How to file a 1040 ez   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. How to file a 1040 ez Example 1. How to file a 1040 ez AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. How to file a 1040 ez AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. How to file a 1040 ez Example 2. How to file a 1040 ez The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. How to file a 1040 ez AB must file Form 8716 by March 17, 2013. How to file a 1040 ez Example 3. How to file a 1040 ez B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. How to file a 1040 ez B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. How to file a 1040 ez B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. How to file a 1040 ez Note. How to file a 1040 ez The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. How to file a 1040 ez Extension of time for filing. How to file a 1040 ez   There is an automatic extension of 12 months to make this election. How to file a 1040 ez See the Form 8716 instructions for more information. How to file a 1040 ez Terminating the election. How to file a 1040 ez   The section 444 election remains in effect until it is terminated. How to file a 1040 ez If the election is terminated, another section 444 election cannot be made for any tax year. How to file a 1040 ez   The election ends when any of the following applies to the partnership, S corporation, or PSC. How to file a 1040 ez The entity changes to its required tax year. How to file a 1040 ez The entity liquidates. How to file a 1040 ez The entity becomes a member of a tiered structure. How to file a 1040 ez The IRS determines that the entity willfully failed to comply with the required payments or distributions. How to file a 1040 ez   The election will also end if either of the following events occur. How to file a 1040 ez An S corporation's S election is terminated. How to file a 1040 ez However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. How to file a 1040 ez A PSC ceases to be a PSC. How to file a 1040 ez If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. How to file a 1040 ez Required payment for partnership or S corporation. How to file a 1040 ez   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. How to file a 1040 ez The required payment for that year (or any preceding tax year) is more than $500. How to file a 1040 ez    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. How to file a 1040 ez   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. How to file a 1040 ez If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. How to file a 1040 ez If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. How to file a 1040 ez Applicable election year. How to file a 1040 ez   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. How to file a 1040 ez Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. How to file a 1040 ez Required distribution for PSC. How to file a 1040 ez   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. How to file a 1040 ez If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. How to file a 1040 ez The amount deferred is treated as paid or incurred in the following tax year. How to file a 1040 ez   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). How to file a 1040 ez Back-up election. How to file a 1040 ez   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. How to file a 1040 ez If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). How to file a 1040 ez Making back-up election. How to file a 1040 ez   The general rules for making a section 444 election, as discussed earlier, apply. How to file a 1040 ez When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. How to file a 1040 ez However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. How to file a 1040 ez Activating election. How to file a 1040 ez   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. How to file a 1040 ez The due date for filing Form 8752 and making the payment is the later of the following dates. How to file a 1040 ez May 15 of the calendar year following the calendar year in which the applicable election year begins. How to file a 1040 ez 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. How to file a 1040 ez   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. How to file a 1040 ez ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). How to file a 1040 ez A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. How to file a 1040 ez However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. How to file a 1040 ez Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. How to file a 1040 ez See the Instructions for Form 1128 for details. How to file a 1040 ez Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. How to file a 1040 ez A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. How to file a 1040 ez An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. How to file a 1040 ez Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. How to file a 1040 ez See the Instructions for Form 1128 for details. How to file a 1040 ez Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. How to file a 1040 ez Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. How to file a 1040 ez You choose an accounting method when you file your first tax return. How to file a 1040 ez If you later want to change your accounting method, you must get IRS approval. How to file a 1040 ez See Change in Accounting Method, later. How to file a 1040 ez No single accounting method is required of all taxpayers. How to file a 1040 ez You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. How to file a 1040 ez In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. How to file a 1040 ez You must use the same accounting method from year to year. How to file a 1040 ez An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. How to file a 1040 ez If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. How to file a 1040 ez Methods you can use. How to file a 1040 ez   In general, you can compute your taxable income under any of the following accounting methods. How to file a 1040 ez Cash method. How to file a 1040 ez Accrual method. How to file a 1040 ez Special methods of accounting for certain items of income and expenses. How to file a 1040 ez A hybrid method which combines elements of two or more of the above accounting methods. How to file a 1040 ez The cash and accrual methods of accounting are explained later. How to file a 1040 ez Special methods. How to file a 1040 ez   This publication does not discuss special methods of accounting for certain items of income or expenses. How to file a 1040 ez For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. How to file a 1040 ez The following publications also discuss special methods of reporting income or expenses. How to file a 1040 ez Publication 225, Farmer's Tax Guide. How to file a 1040 ez Publication 535, Business Expenses. How to file a 1040 ez Publication 537, Installment Sales. How to file a 1040 ez Publication 946, How To Depreciate Property. How to file a 1040 ez Hybrid method. How to file a 1040 ez   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. How to file a 1040 ez However, the following restrictions apply. How to file a 1040 ez If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. How to file a 1040 ez See Exceptions under Inventories, later. How to file a 1040 ez Generally, you can use the cash method for all other items of income and expenses. How to file a 1040 ez See Inventories, later. How to file a 1040 ez If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. How to file a 1040 ez If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. How to file a 1040 ez Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. How to file a 1040 ez Business and personal items. How to file a 1040 ez   You can account for business and personal items using different accounting methods. How to file a 1040 ez For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. How to file a 1040 ez Two or more businesses. How to file a 1040 ez   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. How to file a 1040 ez No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. How to file a 1040 ez Note. How to file a 1040 ez If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. How to file a 1040 ez Cash Method Most individuals and many small businesses use the cash method of accounting. How to file a 1040 ez Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. How to file a 1040 ez See Inventories, later, for exceptions to this rule. How to file a 1040 ez Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. How to file a 1040 ez If you receive property and services, you must include their fair market value (FMV) in income. How to file a 1040 ez Constructive receipt. How to file a 1040 ez   Income is constructively received when an amount is credited to your account or made available to you without restriction. How to file a 1040 ez You need not have possession of it. How to file a 1040 ez If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. How to file a 1040 ez Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. How to file a 1040 ez Example. How to file a 1040 ez You are a calendar year taxpayer. How to file a 1040 ez Your bank credited, and made available, interest to your bank account in December 2012. How to file a 1040 ez You did not withdraw it or enter it into your books until 2013. How to file a 1040 ez You must include the amount in gross income for 2012, the year you constructively received it. How to file a 1040 ez You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. How to file a 1040 ez You must report the income in the year the property is received or made available to you without restriction. How to file a 1040 ez Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. How to file a 1040 ez This includes business expenses for which you contest liability. How to file a 1040 ez However, you may not be able to deduct an expense paid in advance. How to file a 1040 ez Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. How to file a 1040 ez Expense paid in advance. How to file a 1040 ez   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. How to file a 1040 ez   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. How to file a 1040 ez 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. How to file a 1040 ez   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. How to file a 1040 ez See Change in Accounting Method, later. How to file a 1040 ez Example 1. How to file a 1040 ez You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. How to file a 1040 ez The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. How to file a 1040 ez Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. How to file a 1040 ez Example 2. How to file a 1040 ez You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. How to file a 1040 ez The 12-month rule applies. How to file a 1040 ez Therefore, the full $10,000 is deductible in 2012. How to file a 1040 ez Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. How to file a 1040 ez (See Special rules for farming businesses, later. How to file a 1040 ez ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. How to file a 1040 ez See Gross receipts test, below. How to file a 1040 ez A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. How to file a 1040 ez See Gross receipts test, below. How to file a 1040 ez A tax shelter. How to file a 1040 ez Exceptions The following entities are not prohibited from using the cash method of accounting. How to file a 1040 ez Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. How to file a 1040 ez A qualified personal service corporation (PSC). How to file a 1040 ez Gross receipts test. How to file a 1040 ez   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. How to file a 1040 ez A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. How to file a 1040 ez    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. How to file a 1040 ez See Gross receipts test for qualifying taxpayers, for more information. How to file a 1040 ez Generally, a partnership applies the test at the partnership level. How to file a 1040 ez Gross receipts for a short tax year are annualized. How to file a 1040 ez Aggregation rules. How to file a 1040 ez   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. How to file a 1040 ez Change to accrual method. How to file a 1040 ez   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. How to file a 1040 ez Special rules for farming businesses. How to file a 1040 ez   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. How to file a 1040 ez However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. How to file a 1040 ez For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). How to file a 1040 ez   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. How to file a 1040 ez For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. How to file a 1040 ez See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. How to file a 1040 ez Qualified PSC. How to file a 1040 ez   A PSC that meets the following function and ownership tests can use the cash method. How to file a 1040 ez Function test. How to file a 1040 ez   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. How to file a 1040 ez Ownership test. How to file a 1040 ez   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. How to file a 1040 ez Employees performing services for the corporation in a field qualifying under the function test. How to file a 1040 ez Retired employees who had performed services in those fields. How to file a 1040 ez The estate of an employee described in (1) or (2). How to file a 1040 ez Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. How to file a 1040 ez   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. How to file a 1040 ez Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. How to file a 1040 ez Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. How to file a 1040 ez   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. How to file a 1040 ez Change to accrual method. How to file a 1040 ez   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. How to file a 1040 ez A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. How to file a 1040 ez Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. How to file a 1040 ez The purpose of an accrual method of accounting is to match income and expenses in the correct year. How to file a 1040 ez Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. How to file a 1040 ez Under this rule, you report an amount in your gross income on the earliest of the following dates. How to file a 1040 ez When you receive payment. How to file a 1040 ez When the income amount is due to you. How to file a 1040 ez When you earn the income. How to file a 1040 ez When title has passed. How to file a 1040 ez Estimated income. How to file a 1040 ez   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. How to file a 1040 ez Change in payment schedule. How to file a 1040 ez   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. How to file a 1040 ez Continue this procedure until you complete the services, then account for the difference. How to file a 1040 ez Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. How to file a 1040 ez However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. How to file a 1040 ez However, you cannot postpone including any payment beyond that tax year. How to file a 1040 ez Service agreement. How to file a 1040 ez   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. How to file a 1040 ez This includes an agreement providing for incidental replacement of parts or materials. How to file a 1040 ez However, this applies only if you offer the property without a service agreement in the normal course of business. How to file a 1040 ez Postponement not allowed. How to file a 1040 ez   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. How to file a 1040 ez You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. How to file a 1040 ez You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. How to file a 1040 ez Examples. How to file a 1040 ez   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. How to file a 1040 ez Example 1. How to file a 1040 ez You manufacture, sell, and service computers. How to file a 1040 ez You received payment in 2012 for a one-year contingent service contract on a computer you sold. How to file a 1040 ez You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. How to file a 1040 ez Example 2. How to file a 1040 ez You are in the television repair business. How to file a 1040 ez You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. How to file a 1040 ez You include the payments in gross income as you earn them. How to file a 1040 ez Example 3. How to file a 1040 ez You own a dance studio. How to file a 1040 ez On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. How to file a 1040 ez You give eight lessons in 2012. How to file a 1040 ez Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. How to file a 1040 ez Example 4. How to file a 1040 ez Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. How to file a 1040 ez You must include the entire payment in income in 2012 since part of the services may be performed after the following year. How to file a 1040 ez Guarantee or warranty. How to file a 1040 ez   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. How to file a 1040 ez Prepaid rent. How to file a 1040 ez   You cannot postpone reporting income from prepaid rent. How to file a 1040 ez Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. How to file a 1040 ez You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. How to file a 1040 ez Books and records. How to file a 1040 ez   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. How to file a 1040 ez Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. How to file a 1040 ez IRS approval. How to file a 1040 ez   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. How to file a 1040 ez Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. How to file a 1040 ez However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. How to file a 1040 ez An agreement includes a gift certificate that can be redeemed for goods. How to file a 1040 ez Amounts due and payable are considered received. How to file a 1040 ez How to report payments. How to file a 1040 ez   Generally, include an advance payment in income in the year in which you receive it. How to file a 1040 ez However, you can use the alternative method, discussed next. How to file a 1040 ez Alternative method of reporting. How to file a 1040 ez   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. How to file a 1040 ez Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. How to file a 1040 ez Example 1. How to file a 1040 ez You are a retailer. How to file a 1040 ez You use an accrual method of accounting and account for the sale of goods when you ship the goods. How to file a 1040 ez You use this method for both tax and financial reporting purposes. How to file a 1040 ez You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. How to file a 1040 ez However, see Exception for inventory goods, later. How to file a 1040 ez Example 2. How to file a 1040 ez You are a calendar year taxpayer. How to file a 1040 ez You manufacture household furniture and use an accrual method of accounting. How to file a 1040 ez Under this method, you accrue income for your financial reports when you ship the furniture. How to file a 1040 ez For tax purposes, you do not accrue income until the furniture has been delivered and accepted. How to file a 1040 ez In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. How to file a 1040 ez You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. How to file a 1040 ez For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. How to file a 1040 ez Information schedule. How to file a 1040 ez   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. How to file a 1040 ez Total advance payments received in the current tax year. How to file a 1040 ez Total advance payments received in earlier tax years and not included in income before the current tax year. How to file a 1040 ez Total payments received in earlier tax years included in income for the current tax year. How to file a 1040 ez Exception for inventory goods. How to file a 1040 ez   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. How to file a 1040 ez You account for the advance payment under the alternative method (discussed earlier). How to file a 1040 ez You have received a substantial advance payment on the agreement (discussed next). How to file a 1040 ez You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. How to file a 1040 ez These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. How to file a 1040 ez   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. How to file a 1040 ez You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. How to file a 1040 ez If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. How to file a 1040 ez Note. How to file a 1040 ez You must report any advance payments you receive after the second year in the year received. How to file a 1040 ez No further deferral is allowed. How to file a 1040 ez Substantial advance payments. How to file a 1040 ez   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. How to file a 1040 ez Example. How to file a 1040 ez You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. How to file a 1040 ez In 2008, you entered into a contract for the sale of goods properly includible in your inventory. How to file a 1040 ez The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. How to file a 1040 ez You receive the following advance payments under the contract. How to file a 1040 ez 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. How to file a 1040 ez In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. How to file a 1040 ez Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. How to file a 1040 ez   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. How to file a 1040 ez You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. How to file a 1040 ez If no such goods are on hand, then estimate the cost necessary to satisfy the contract. How to file a 1040 ez   No further deferral is allowed. How to file a 1040 ez You must include in gross income the advance payment you receive each remaining year of the contract. How to file a 1040 ez Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. How to file a 1040 ez IRS approval. How to file a 1040 ez   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. How to file a 1040 ez Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. How to file a 1040 ez The all-events test has been met. How to file a 1040 ez The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. How to file a 1040 ez Economic performance has occurred. How to file a 1040 ez Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. How to file a 1040 ez If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. How to file a 1040 ez If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. How to file a 1040 ez Example. How to file a 1040 ez You are a calendar year taxpayer. How to file a 1040 ez You buy office supplies in December 2012. How to file a 1040 ez You receive the supplies and the bill in December, but you pay the bill in January 2013. How to file a 1040 ez You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. How to file a 1040 ez Your office supplies may qualify as a recurring item, discussed later. How to file a 1040 ez If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). How to file a 1040 ez Workers' compensation and tort liability. How to file a 1040 ez   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. How to file a 1040 ez If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. How to file a 1040 ez Taxes. How to file a 1040 ez   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. How to file a 1040 ez are paid. How to file a 1040 ez However, you can elect to treat taxes as a recurring item, discussed later. How to file a 1040 ez You can also elect to ratably accrue real estate taxes. How to file a 1040 ez See chapter 5 of Publication 535 for information about real estate taxes. How to file a 1040 ez Other liabilities. How to file a 1040 ez   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. How to file a 1040 ez Interest. How to file a 1040 ez   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. How to file a 1040 ez Compensation for services. How to file a 1040 ez   Generally, economic performance occurs as an employee renders service to the employer. How to file a 1040 ez However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. How to file a 1040 ez For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. How to file a 1040 ez Vacation pay. How to file a 1040 ez   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. How to file a 1040 ez If you pay it later than this, you must deduct it in the year actually paid. How to file a 1040 ez An amount is vested if your right to it cannot be nullified or cancelled. How to file a 1040 ez Exception for recurring items. How to file a 1040 ez   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. How to file a 1040 ez The exception applies if all the following requirements are met. How to file a 1040 ez The all-events test, discussed earlier, is met. How to file a 1040 ez Economic performance occurs by the earlier of the following dates. How to file a 1040 ez 8½ months after the close of the year. How to file a 1040 ez The date you file a timely return (including extensions) for the year. How to file a 1040 ez The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. How to file a 1040 ez Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. How to file a 1040 ez This exception does not apply to workers' compensation or tort liabilities. How to file a 1040 ez Amended return. How to file a 1040 ez   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. How to file a 1040 ez You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. How to file a 1040 ez Recurrence and consistency. How to file a 1040 ez   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. How to file a 1040 ez A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. How to file a 1040 ez Materiality. How to file a 1040 ez   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. How to file a 1040 ez   An item considered material for financial statement purposes is also considered material for tax purposes. How to file a 1040 ez However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. How to file a 1040 ez Matching expenses with income. How to file a 1040 ez   Costs directly associated with the revenue of a period are properly allocable to that period. How to file a 1040 ez To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. How to file a 1040 ez fasab. How to file a 1040 ez gov/accepted. How to file a 1040 ez html) are an important factor. How to file a 1040 ez   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. How to file a 1040 ez Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. How to file a 1040 ez However, the matching requirement is considered met for certain types of expenses. How to file a 1040 ez These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. How to file a 1040 ez Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. How to file a 1040 ez Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. How to file a 1040 ez 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. How to file a 1040 ez If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. How to file a 1040 ez See Change in Accounting Method, later, for information on how to get IRS approval. How to file a 1040 ez See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. How to file a 1040 ez Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. How to file a 1040 ez Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. How to file a 1040 ez See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. How to file a 1040 ez Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. How to file a 1040 ez If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. How to file a 1040 ez However, see Exceptions, next. How to file a 1040 ez See also Accrual Method, earlier. How to file a 1040 ez To figure taxable income, you must value your inventory at the beginning and end of each tax year. How to file a 1040 ez To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. How to file a 1040 ez See Identifying Cost and Valuing Inventory, later. How to file a 1040 ez The rules for valuing inventory are not the same for all businesses. How to file a 1040 ez The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. How to file a 1040 ez Your inventory practices must be consistent from year to year. How to file a 1040 ez The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. How to file a 1040 ez Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. How to file a 1040 ez These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). How to file a 1040 ez A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. How to file a 1040 ez irs. How to file a 1040 ez gov/pub/irs-irbs/irb01–02. How to file a 1040 ez pdf. How to file a 1040 ez A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. How to file a 1040 ez irs. How to file a 1040 ez gov/pub/irs-irbs/irb02–18. How to file a 1040 ez pdf. How to file a 1040 ez In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). How to file a 1040 ez Qualifying taxpayer. How to file a 1040 ez   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). How to file a 1040 ez Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. How to file a 1040 ez You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. How to file a 1040 ez Gross receipts test for qualifying taxpayers. How to file a 1040 ez   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. How to file a 1040 ez List each of the test years. How to file a 1040 ez For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. How to file a 1040 ez Step 2. How to file a 1040 ez Determine your average annual gross receipts for each test year listed in Step 1. How to file a 1040 ez Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. How to file a 1040 ez Step 3. How to file a 1040 ez You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. How to file a 1040 ez Qualifying small business taxpayer. How to file a 1040 ez   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). How to file a 1040 ez Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. How to file a 1040 ez You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. How to file a 1040 ez Your principle business activity is an eligible business. How to file a 1040 ez See Eligible business, later. How to file a 1040 ez You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. How to file a 1040 ez Note. How to file a 1040 ez Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. How to file a 1040 ez A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. How to file a 1040 ez See Special rules for farming businesses under Cash Method, earlier. How to file a 1040 ez Gross receipts test for qualifying small business taxpayers. How to file a 1040 ez   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. How to file a 1040 ez List each of the test years. How to file a 1040 ez For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. How to file a 1040 ez Step 2. How to file a 1040 ez Determine your average annual gross receipts for each test year listed in Step 1. How to file a 1040 ez Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. How to file a 1040 ez Step 3. How to file a 1040 ez You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. How to file a 1040 ez Eligible business. How to file a 1040 ez   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. How to file a 1040 ez You have an eligible business if you meet any of the following requirements. How to file a 1040 ez Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). How to file a 1040 ez NAICS codes 31-33 (manufacturing). How to file a 1040 ez NAICS code 42 (wholesale trade). How to file a 1040 ez NAICS codes 44-45 (retail trade). How to file a 1040 ez NAICS codes 5111 and 5122 (information industries). How to file a 1040 ez Your principal business activity is the provision of services, including the provision of property incident to those services. How to file a 1040 ez Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. How to file a 1040 ez   Information about the NAICS codes can be found at http://www. How to file a 1040 ez census. How to file a 1040 ez gov/naics or in the instructions for your federal income tax return. How to file a 1040 ez Gross receipts. How to file a 1040 ez   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. How to file a 1040 ez See the definit
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Managing Household Records

When was the last time you couldn't find an important paper you knew you had carefully put away? How do people decide where to store and keep such records? And how do they know what to keep, what to throw away, and when? Do you have a simple system or roadmap for important papers (PDF |download Adobe Reader) to which you or a loved one can refer to in case of an emergency?

Every household must work out its own records management system, but some general guidelines can help. A good system will provide an overview of what happens to property after a major life event occurs.

Active File

First, gather your important papers and important documents from throughout your home. Put these documents into three piles: an active file, dead storage, and items to discard or shred. The active file should include documents and financial records you deal with on a regular basis and need to refer to. Keep these readily accessible at home:

  • Appliance manuals, warranties and service contracts
  • Bank statements
  • Bill payment receipts
  • Bills awaiting payment
  • Credit card information
  • Education records, diploma, transcripts, etc.
  • Employment records
  • Family health records, including vaccination histories
  • Health benefit information
  • Household inventory
  • Income tax working papers
  • Insurance policies
  • Loan statements and payment books
  • Password list
  • Receipts for items under warranty
  • Safe deposit box inventory (and key)
  • Tax receipts, such as those received for charitable deductions


Dead Storage

All active file papers over 3-years-old are considered dead storage. This may not necessarily apply to everything—for example, appliance manuals that you use frequently should stay in the active file.

Items to Discard

  • Cancelled checks for cash or nondeductible expenses
  • Expired warranties
  • Pay stubs, after reconciling with W-2
  • Other records no longer needed, such as those that were replaced by newer versions, manuals of appliances that you've replaced, etc.
How Long to Keep Documents
Document How Long to Keep It
Bank statements 1 year, unless needed to support tax filings
Birth certificates, marriage licenses, divorce decrees, passports, education records, military service records Forever
Contracts Until updated
Credit card records Until paid, unless needed to support tax filings
Home purchase and improvement records As long as you own the property
Household inventory Forever; update as needed
Insurance, life Forever
Insurance, car, home, etc. Until you renew the policy
Investment statements Shred your monthly statements; keep annual statements until you sell the investments
Investment certificates Until you cash or sell the item
Loan documents Until you sell the item the loan was for
Real estate deeds As long as you own the property
Receipts for large purchases Until you sell or discard the item
Service contracts and warranties Until you sell or discard the item
Social Security card Forever
Social Security statement When you get your new statement online, shred the old one
Tax records 7 years from the filing date
Vehicle titles Until you sell or dispose of the car
Will Until updated

Create Your Filing System

Generally, your home file should include all the items you refer to frequently including bills, warranties, bank statements, etc. You’ll also need a secondary storage location for your more important, difficult to replace papers, such as passports, vehicle titles, birth certificates, etc. A fireproof/waterproof safe may be one possibility, but it's better to store those records in a location away from home, such as a bank safe deposit box.

Organize your home filing system (PDF | download Adobe Reader) in a way that you can understand and manage. Choose one member of your household as file manager who will take responsibility for keeping the filing up-to-date and consistent. However, in case of an emergency, everyone in the household needs to be familiar with the system, including children old enough to understand how to use it. Develop and stick to a regular filing and paperwork schedule to avoid having to deal with backlogged papers. A few minutes once or twice a week should be sufficient.

Consider scanning and storing some documents electronically since it's best to save your important documents and files in a way that can easily be carried away and accessed later. Scanning will give you easy access to your documents and allow you to transfer them via e-mail and easily make back-up copies. Investing in an external hard drive for your computer and regularly backing up important documents will allow you to carry away the external hard drive at a moment's notice.

If you don’t have the time or the desire to take these steps, or have realized that the task is too much to handle, consider asking a friend or family member to help you focus and give a fresh perspective. Or, you may want to consider hiring a professional organizer to provide structure, solutions, and systems, and help you gain a sense of control.

Safe Deposit Box

Once you have organized your documents, you’ll want to consider getting an off-site storage location, such as a safe deposit box. Use the safe deposit box for originals, but remember, you'll still need copies at home if something tragic should happen to you and your safe deposit box gets sealed. Always seal documents stored in a safe deposit box in airtight waterproof containers (like Ziploc bags) to ensure they don’t get damaged. If you'd rather keep your records at home, then get a fireproof/waterproof safe. A good rule of thumb is: Put documents in the box if you can't easily replace them or if you don't know what might happen if you don't have them.

If applicable, you should have official or certified copies of documents for your safe deposit box. "Official" means an original copy with all required signatures. Select documents, such as birth certificates, must also be certified or notarized to be considered valid. You can get most government records for free or at low cost from a government office or online at a government agency's website. If you are unsure whether you need a certified copy, or want more information about which local government office can give you originals of these documents, contact your local consumer protection office. Consult your attorney before you put an original copy of your will in a safe deposit box—some states don’t permit access after a person dies.

If you need to obtain documents regarding birth, death, marriage, or divorce, check out Where to Write for Vital Records for guidance. Be wary of companies that offer to sell you copies of official papers; you should check with the appropriate government agency to see if they will provide the same information free or at a lower price.

Consider keeping copies of the following documents in a safe deposit box or locked in a fireproof/waterproof safe in your home:

  • Adoption papers
  • Advance directives*
  • Birth and death certificates
  • Citizenship papers
  • Contracts of importance
  • Deeds and property titles
  • Household inventory
  • Life insurance policies
  • Marriage licenses and divorce decrees
  • Military discharge papers
  • Passports
  • Powers of attorney*
  • Social Security cards
  • Stock and bond certificates
  • Wills*

*Since the safe deposit box will be sealed at your death, keep a copy of your will somewhere accessible. The same goes for the advance directive and powers of attorney since you may not be able to give others access to the safe deposit box.

Grab and Go Kit for Emergencies

Disasters like floods, fires, earthquakes, and tornadoes strike without warning and can affect anyone. Your number one priority in these situations is making sure your family is safe—not finding your most recent copies of insurance policies or bank statements. An easy-to-grab emergency financial records kit (PDF | download Adobe Reader) will make sure you have access to important documents in case the unexpected happens to you.

What Documents Should You Have Ready?

Store the documents in an accordion file and keep it in your emergency supply kit so that everything you need is together. Items you should put in the kit include originals or copies of:

  • Birth and marriage certificates, divorce decrees
  • Social Security cards of household members
  • Driver's license and other wallet cards
  • Will and/or trust documents; powers of attorney
  • Recent income tax return
  • Passports and/or other identity documents
  • Military discharge papers
  • A list of your prescriptions: name of medication, dosage, pharmacy

Other important papers include:

  • Contacts for family members, employer, financial advisors, attorney, accountant, and banker
  • Insurance policy information
  • Bank, credit union, and credit card account list
  • Summary of personal, financial, property, and other vital information

Other items to consider including:

  • Safe deposit box keys and/or safe combination
  • Computer user names and passwords; CD with relevant personal, financial, legal files
  • Some emergency cash

Remember that these documents contain personal information like social security numbers and bank account information that could be used against you if it fell into the wrong hands. Be sure your emergency financial records kit is stored in a secure location in your home so it is easy for you to carry away in a disaster not for a thief to carry away in a robbery.

The How To File A 1040 Ez

How to file a 1040 ez Publication 557 - Additional Material Table of Contents Appendix. How to file a 1040 ez Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. How to file a 1040 ez Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. How to file a 1040 ez 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. How to file a 1040 ez No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. How to file a 1040 ez 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. How to file a 1040 ez Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. How to file a 1040 ez 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. How to file a 1040 ez , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. How to file a 1040 ez Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. How to file a 1040 ez Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. How to file a 1040 ez    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. How to file a 1040 ez Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). How to file a 1040 ez    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. How to file a 1040 ez    4Deductible as a business expense to the extent allowed by section 192. How to file a 1040 ez    5Deductible as a business expense to the extent allowed by section 194A. How to file a 1040 ez 6Application is by letter to the address shown on Form 8718. How to file a 1040 ez A copy of the organizing document should be attached and the letter should be signed by an officer. How to file a 1040 ez    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. How to file a 1040 ez    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). How to file a 1040 ez    9Although the organization files a partnership return, all distributions are deemed dividends. How to file a 1040 ez The members are not entitled to pass through treatment of the organization's income or expenses. How to file a 1040 ez    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). How to file a 1040 ez    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). How to file a 1040 ez    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). How to file a 1040 ez Use Form 1024 if applying for recognition under section 501(c)(4). How to file a 1040 ez    13See section 501(c)(29) for details. How to file a 1040 ez    14See Revenue Procedure 2012-11, sec. How to file a 1040 ez 4. How to file a 1040 ez 01, 2012-7 I. How to file a 1040 ez R. How to file a 1040 ez B. How to file a 1040 ez 368, for details. How to file a 1040 ez Appendix. How to file a 1040 ez Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. How to file a 1040 ez You should bear in mind that requirements for these instruments may vary under applicable state law. How to file a 1040 ez See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. How to file a 1040 ez DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . How to file a 1040 ez Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. How to file a 1040 ez Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file a 1040 ez Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. How to file a 1040 ez No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. How to file a 1040 ez Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file a 1040 ez   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. How to file a 1040 ez ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. How to file a 1040 ez Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. How to file a 1040 ez   In witness whereof, we have hereunto subscribed our names this day of , 20. How to file a 1040 ez Appendix. How to file a 1040 ez Sample Articles of Organization, continued Draft B The Charitable Trust. How to file a 1040 ez Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. How to file a 1040 ez ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file a 1040 ez Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. How to file a 1040 ez The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. How to file a 1040 ez Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. How to file a 1040 ez No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. How to file a 1040 ez No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. How to file a 1040 ez b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. How to file a 1040 ez On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. How to file a 1040 ez The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. How to file a 1040 ez Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. How to file a 1040 ez The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. How to file a 1040 ez c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. How to file a 1040 ez It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file a 1040 ez d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. How to file a 1040 ez Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. How to file a 1040 ez An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. How to file a 1040 ez All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. How to file a 1040 ez Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. How to file a 1040 ez The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. How to file a 1040 ez Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. How to file a 1040 ez Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. How to file a 1040 ez  None of the trustees shall be required to furnish any bond or surety. How to file a 1040 ez None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. How to file a 1040 ez  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. How to file a 1040 ez A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. How to file a 1040 ez  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. How to file a 1040 ez Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. How to file a 1040 ez a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. How to file a 1040 ez No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. How to file a 1040 ez b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. How to file a 1040 ez c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. How to file a 1040 ez d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. How to file a 1040 ez e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. How to file a 1040 ez f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. How to file a 1040 ez Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. How to file a 1040 ez Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. How to file a 1040 ez Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. How to file a 1040 ez Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. How to file a 1040 ez No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. How to file a 1040 ez No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. How to file a 1040 ez Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . How to file a 1040 ez Trustee Trustee Prev  Up  Next   Home   More Online Publications