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How To Fill Out Tax Form 1040x

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How To Fill Out Tax Form 1040x

How to fill out tax form 1040x 5. How to fill out tax form 1040x   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. How to fill out tax form 1040x Short-term lease. How to fill out tax form 1040x Retail space. How to fill out tax form 1040x Qualified long-term real property. How to fill out tax form 1040x Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. How to fill out tax form 1040x If there is a connection between any income you receive and your business, the income is business income. How to fill out tax form 1040x A connection exists if it is clear that the payment of income would not have been made if you did not have the business. How to fill out tax form 1040x You can have business income even if you are not involved in the activity on a regular full-time basis. How to fill out tax form 1040x Income from work you do on the side in addition to your regular job can be business income. How to fill out tax form 1040x You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. How to fill out tax form 1040x But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. How to fill out tax form 1040x For information on selling business assets, see chapter 3. How to fill out tax form 1040x Nonemployee compensation. How to fill out tax form 1040x Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. How to fill out tax form 1040x This includes amounts reported as nonemployee compensation in box 7 of the form. How to fill out tax form 1040x You can find more information in the instructions on the back of the Form 1099-MISC you received. How to fill out tax form 1040x Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. How to fill out tax form 1040x In most cases, your business income will be in the form of cash, checks, and credit card charges. How to fill out tax form 1040x But business income can be in other forms, such as property or services. How to fill out tax form 1040x These and other types of income are explained next. How to fill out tax form 1040x If you are a U. How to fill out tax form 1040x S. How to fill out tax form 1040x citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. How to fill out tax form 1040x S. How to fill out tax form 1040x law. How to fill out tax form 1040x If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. How to fill out tax form 1040x For details, see Publication 54, Tax Guide for U. How to fill out tax form 1040x S. How to fill out tax form 1040x Citizens and Resident Aliens Abroad. How to fill out tax form 1040x Bartering for Property or Services Bartering is an exchange of property or services. How to fill out tax form 1040x You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. How to fill out tax form 1040x If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. How to fill out tax form 1040x Example 1. How to fill out tax form 1040x You are a self-employed lawyer. How to fill out tax form 1040x You perform legal services for a client, a small corporation. How to fill out tax form 1040x In payment for your services, you receive shares of stock in the corporation. How to fill out tax form 1040x You must include the fair market value of the shares in income. How to fill out tax form 1040x Example 2. How to fill out tax form 1040x You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. How to fill out tax form 1040x You must include the fair rental value of the apartment in your gross receipts. How to fill out tax form 1040x Your landlord must include the fair market value of the work of art in his or her rental income. How to fill out tax form 1040x Example 3. How to fill out tax form 1040x You are a self-employed accountant. How to fill out tax form 1040x Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. How to fill out tax form 1040x Members get in touch with other members directly and bargain for the value of the services to be performed. How to fill out tax form 1040x In return for accounting services you provided for the house painter's business, the house painter painted your home. How to fill out tax form 1040x You must include in gross receipts the fair market value of the services you received from the house painter. How to fill out tax form 1040x The house painter must include the fair market value of your accounting services in his or her gross receipts. How to fill out tax form 1040x Example 4. How to fill out tax form 1040x You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. How to fill out tax form 1040x As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. How to fill out tax form 1040x You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. How to fill out tax form 1040x The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. How to fill out tax form 1040x It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. How to fill out tax form 1040x See Publication 15 (Circular E), Employer's Tax Guide. How to fill out tax form 1040x Example 5. How to fill out tax form 1040x You operate a plumbing business and use the cash method of accounting. How to fill out tax form 1040x You join a barter club and agree to provide plumbing services to any member for a specified number of hours. How to fill out tax form 1040x Each member has access to a directory that lists the members of the club and the services available. How to fill out tax form 1040x Members contact each other directly and request services to be performed. How to fill out tax form 1040x You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. How to fill out tax form 1040x You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. How to fill out tax form 1040x Information returns. How to fill out tax form 1040x   If you are involved in a bartering transaction, you may have to file either of the following forms. How to fill out tax form 1040x Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. How to fill out tax form 1040x Form 1099-MISC, Miscellaneous Income. How to fill out tax form 1040x For information about these forms, see the General Instructions for Certain Information Returns. How to fill out tax form 1040x Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. How to fill out tax form 1040x , who provides services (maid services, etc. How to fill out tax form 1040x ) for guests, report the rental income and expenses on Schedule C or C-EZ. How to fill out tax form 1040x If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. How to fill out tax form 1040x For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). How to fill out tax form 1040x Real estate dealer. How to fill out tax form 1040x   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. How to fill out tax form 1040x Rent you receive from real estate held for sale to customers is subject to SE tax. How to fill out tax form 1040x However, rent you receive from real estate held for speculation or investment is not subject to SE tax. How to fill out tax form 1040x Trailer park owner. How to fill out tax form 1040x   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. How to fill out tax form 1040x    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. How to fill out tax form 1040x Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. How to fill out tax form 1040x   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. How to fill out tax form 1040x   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. How to fill out tax form 1040x Hotels, boarding houses, and apartments. How to fill out tax form 1040x   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. How to fill out tax form 1040x   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. How to fill out tax form 1040x An example of a service that is not normally provided for the convenience of the occupants is maid service. How to fill out tax form 1040x However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. How to fill out tax form 1040x Prepaid rent. How to fill out tax form 1040x   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. How to fill out tax form 1040x This is true no matter what accounting method or period you use. How to fill out tax form 1040x Lease bonus. How to fill out tax form 1040x   A bonus you receive from a lessee for granting a lease is an addition to the rent. How to fill out tax form 1040x Include it in your gross receipts in the year received. How to fill out tax form 1040x Lease cancellation payments. How to fill out tax form 1040x   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. How to fill out tax form 1040x Payments to third parties. How to fill out tax form 1040x   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. How to fill out tax form 1040x A common example of this kind of income is a lessee's payment of your property taxes on leased real property. How to fill out tax form 1040x Settlement payments. How to fill out tax form 1040x   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. How to fill out tax form 1040x Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. How to fill out tax form 1040x ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. How to fill out tax form 1040x Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. How to fill out tax form 1040x If you receive any of those payments, include them in your gross receipts as explained in that discussion. How to fill out tax form 1040x Interest and Dividend Income Interest and dividends may be considered business income. How to fill out tax form 1040x Interest. How to fill out tax form 1040x   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. How to fill out tax form 1040x Interest received on loans is business income if you are in the business of lending money. How to fill out tax form 1040x Uncollectible loans. How to fill out tax form 1040x   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. How to fill out tax form 1040x If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. How to fill out tax form 1040x See Bad Debts in chapter 8. How to fill out tax form 1040x Unstated interest. How to fill out tax form 1040x   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. How to fill out tax form 1040x See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. How to fill out tax form 1040x Dividends. How to fill out tax form 1040x   Generally, dividends are business income to dealers in securities. How to fill out tax form 1040x For most sole proprietors and statutory employees, however, dividends are nonbusiness income. How to fill out tax form 1040x If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. How to fill out tax form 1040x   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. How to fill out tax form 1040x To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. How to fill out tax form 1040x Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. How to fill out tax form 1040x General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. How to fill out tax form 1040x Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. How to fill out tax form 1040x If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. How to fill out tax form 1040x Exceptions The following discussion covers some exceptions to the general rule for canceled debt. How to fill out tax form 1040x Price reduced after purchase. How to fill out tax form 1040x   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. How to fill out tax form 1040x Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. How to fill out tax form 1040x Deductible debt. How to fill out tax form 1040x   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. How to fill out tax form 1040x Example. How to fill out tax form 1040x You get accounting services for your business on credit. How to fill out tax form 1040x Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. How to fill out tax form 1040x Your accountant forgives part of the amount you owe for the accounting services. How to fill out tax form 1040x How you treat the canceled debt depends on your method of accounting. How to fill out tax form 1040x Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. How to fill out tax form 1040x Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. How to fill out tax form 1040x   For information on the cash and accrual methods of accounting, see chapter 2. How to fill out tax form 1040x Exclusions Do not include canceled debt in income in the following situations. How to fill out tax form 1040x However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. How to fill out tax form 1040x For more information, see Form 982. How to fill out tax form 1040x The cancellation takes place in a bankruptcy case under title 11 of the U. How to fill out tax form 1040x S. How to fill out tax form 1040x Code (relating to bankruptcy). How to fill out tax form 1040x See Publication 908, Bankruptcy Tax Guide. How to fill out tax form 1040x The cancellation takes place when you are insolvent. How to fill out tax form 1040x You can exclude the canceled debt to the extent you are insolvent. How to fill out tax form 1040x See Publication 908. How to fill out tax form 1040x The canceled debt is a qualified farm debt owed to a qualified person. How to fill out tax form 1040x See chapter 3 in Publication 225, Farmer's Tax Guide. How to fill out tax form 1040x The canceled debt is a qualified real property business debt. How to fill out tax form 1040x This situation is explained later. How to fill out tax form 1040x The canceled debt is qualified principal residence indebtedness which is discharged after 2006. How to fill out tax form 1040x See Form 982. How to fill out tax form 1040x If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. How to fill out tax form 1040x If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. How to fill out tax form 1040x Debt. How to fill out tax form 1040x   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. How to fill out tax form 1040x Qualified real property business debt. How to fill out tax form 1040x   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. How to fill out tax form 1040x If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. How to fill out tax form 1040x Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. How to fill out tax form 1040x However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. How to fill out tax form 1040x Cancellation of qualified real property business debt. How to fill out tax form 1040x   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. How to fill out tax form 1040x It was incurred or assumed in connection with real property used in a trade or business. How to fill out tax form 1040x It was secured by such real property. How to fill out tax form 1040x It was incurred or assumed at either of the following times. How to fill out tax form 1040x Before January 1, 1993. How to fill out tax form 1040x After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. How to fill out tax form 1040x It is debt to which you choose to apply these rules. How to fill out tax form 1040x   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. How to fill out tax form 1040x   You cannot exclude more than either of the following amounts. How to fill out tax form 1040x The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. How to fill out tax form 1040x The total adjusted bases of depreciable real property held by you immediately before the cancellation. How to fill out tax form 1040x These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. How to fill out tax form 1040x Do not take into account depreciable real property acquired in contemplation of the cancellation. How to fill out tax form 1040x Election. How to fill out tax form 1040x   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. How to fill out tax form 1040x You must file your return by the due date (including extensions). How to fill out tax form 1040x If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). How to fill out tax form 1040x For more information, see When To File in the form instructions. How to fill out tax form 1040x Other Income The following discussion explains how to treat other types of business income you may receive. How to fill out tax form 1040x Restricted property. How to fill out tax form 1040x   Restricted property is property that has certain restrictions that affect its value. How to fill out tax form 1040x If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. How to fill out tax form 1040x However, you can choose to be taxed in the year you receive the property. How to fill out tax form 1040x For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. How to fill out tax form 1040x Gains and losses. How to fill out tax form 1040x   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. How to fill out tax form 1040x Instead, you must report these gains and losses on other forms. How to fill out tax form 1040x For more information, see chapter 3. How to fill out tax form 1040x Promissory notes. How to fill out tax form 1040x   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. How to fill out tax form 1040x In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. How to fill out tax form 1040x Lost income payments. How to fill out tax form 1040x   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. How to fill out tax form 1040x Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. How to fill out tax form 1040x Damages. How to fill out tax form 1040x   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. How to fill out tax form 1040x Patent infringement. How to fill out tax form 1040x Breach of contract or fiduciary duty. How to fill out tax form 1040x Antitrust injury. How to fill out tax form 1040x Economic injury. How to fill out tax form 1040x   You may be entitled to a deduction against the income if it compensates you for actual economic injury. How to fill out tax form 1040x Your deduction is the smaller of the following amounts. How to fill out tax form 1040x The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. How to fill out tax form 1040x Your loss from the injury that you have not yet deducted. How to fill out tax form 1040x Punitive damages. How to fill out tax form 1040x   You must also include punitive damages in income. How to fill out tax form 1040x Kickbacks. How to fill out tax form 1040x   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. How to fill out tax form 1040x However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. How to fill out tax form 1040x Recovery of items previously deducted. How to fill out tax form 1040x   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. How to fill out tax form 1040x However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. How to fill out tax form 1040x If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. How to fill out tax form 1040x Example. How to fill out tax form 1040x Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. How to fill out tax form 1040x He also had 2 personal exemptions for a total of $7,800. How to fill out tax form 1040x He would not pay income tax even if he did not deduct the bad debt. How to fill out tax form 1040x Therefore, he will not report as income any part of the $300 he may recover in any future year. How to fill out tax form 1040x Exception for depreciation. How to fill out tax form 1040x   This rule does not apply to depreciation. How to fill out tax form 1040x You recover depreciation using the rules explained next. How to fill out tax form 1040x Recapture of depreciation. How to fill out tax form 1040x   In the following situations, you have to recapture the depreciation deduction. How to fill out tax form 1040x This means you include in income part or all of the depreciation you deducted in previous years. How to fill out tax form 1040x Listed property. How to fill out tax form 1040x   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. How to fill out tax form 1040x You do this by including in income on Schedule C part of the depreciation you deducted in previous years. How to fill out tax form 1040x Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. How to fill out tax form 1040x For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. How to fill out tax form 1040x That chapter explains how to determine whether property is used more than 50% in your business. How to fill out tax form 1040x Section 179 property. How to fill out tax form 1040x   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. How to fill out tax form 1040x You do this by including in income on Schedule C part of the deduction you took. How to fill out tax form 1040x Use Part IV of Form 4797 to figure the amount to include on Schedule C. How to fill out tax form 1040x See chapter 2 in Publication 946 to find out when you recapture the deduction. How to fill out tax form 1040x Sale or exchange of depreciable property. How to fill out tax form 1040x   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. How to fill out tax form 1040x You figure the income due to depreciation recapture in Part III of Form 4797. How to fill out tax form 1040x For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. How to fill out tax form 1040x Items That Are Not Income In some cases the property or money you receive is not income. How to fill out tax form 1040x Appreciation. How to fill out tax form 1040x   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. How to fill out tax form 1040x Consignments. How to fill out tax form 1040x   Consignments of merchandise to others to sell for you are not sales. How to fill out tax form 1040x The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. How to fill out tax form 1040x Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. How to fill out tax form 1040x Merchandise you have shipped out on consignment is included in your inventory until it is sold. How to fill out tax form 1040x   Do not include merchandise you receive on consignment in your inventory. How to fill out tax form 1040x Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. How to fill out tax form 1040x Construction allowances. How to fill out tax form 1040x   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. How to fill out tax form 1040x Under a short-term lease of retail space. How to fill out tax form 1040x For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. How to fill out tax form 1040x Amount you can exclude. How to fill out tax form 1040x   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. How to fill out tax form 1040x Short-term lease. How to fill out tax form 1040x   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. How to fill out tax form 1040x The following rules apply in determining whether the lease is for 15 years or less. How to fill out tax form 1040x Take into account options to renew when figuring whether the lease is for 15 years or less. How to fill out tax form 1040x But do not take into account any option to renew at fair market value determined at the time of renewal. How to fill out tax form 1040x Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. How to fill out tax form 1040x Retail space. How to fill out tax form 1040x   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. How to fill out tax form 1040x Qualified long-term real property. How to fill out tax form 1040x   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. How to fill out tax form 1040x Exchange of like-kind property. How to fill out tax form 1040x   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. How to fill out tax form 1040x This means that the gain is not taxable and the loss is not deductible. How to fill out tax form 1040x A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. How to fill out tax form 1040x For more information, see Form 8824. How to fill out tax form 1040x Leasehold improvements. How to fill out tax form 1040x   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. How to fill out tax form 1040x However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. How to fill out tax form 1040x Loans. How to fill out tax form 1040x   Money borrowed through a bona fide loan is not income. How to fill out tax form 1040x Sales tax. How to fill out tax form 1040x   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. How to fill out tax form 1040x Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). How to fill out tax form 1040x Direct seller. How to fill out tax form 1040x   You must report all income you receive as a direct seller on Schedule C or C-EZ. How to fill out tax form 1040x This includes any of the following. How to fill out tax form 1040x Income from sales—payments you receive from customers for products they buy from you. How to fill out tax form 1040x Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. How to fill out tax form 1040x Prizes, awards, and gifts you receive from your selling business. How to fill out tax form 1040x You must report this income regardless of whether it is reported to you on an information return. How to fill out tax form 1040x   You are a direct seller if you meet all the following conditions. How to fill out tax form 1040x You are engaged in one of the following trades or businesses. How to fill out tax form 1040x Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. How to fill out tax form 1040x Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). How to fill out tax form 1040x Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. How to fill out tax form 1040x Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. How to fill out tax form 1040x Executor or administrator. How to fill out tax form 1040x   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. How to fill out tax form 1040x A nonprofessional fiduciary (personal representative) and both of the following apply. How to fill out tax form 1040x The estate includes an active trade or business in which you actively participate. How to fill out tax form 1040x Your fees are related to the operation of that trade or business. How to fill out tax form 1040x A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. How to fill out tax form 1040x    If the fees do not meet the above requirements, report them on line 21 of Form 1040. How to fill out tax form 1040x Fishing crew member. How to fill out tax form 1040x    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . How to fill out tax form 1040x Insurance agent, former. How to fill out tax form 1040x   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. How to fill out tax form 1040x You received payments after your agreement to perform services for the company ended. How to fill out tax form 1040x You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. How to fill out tax form 1040x You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. How to fill out tax form 1040x The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. How to fill out tax form 1040x The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). How to fill out tax form 1040x Insurance agent, retired. How to fill out tax form 1040x   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. How to fill out tax form 1040x Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. How to fill out tax form 1040x   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. How to fill out tax form 1040x Newspaper carrier or distributor. How to fill out tax form 1040x   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. How to fill out tax form 1040x You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). How to fill out tax form 1040x Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. How to fill out tax form 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. How to fill out tax form 1040x   This rule applies whether or not you hire others to help you make deliveries. How to fill out tax form 1040x It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. How to fill out tax form 1040x Newspaper or magazine vendor. How to fill out tax form 1040x   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. How to fill out tax form 1040x You sell newspapers or magazines to ultimate consumers. How to fill out tax form 1040x You sell them at a fixed price. How to fill out tax form 1040x Your earnings are based on the difference between the sales price and your cost of goods sold. How to fill out tax form 1040x   This rule applies whether or not you are guaranteed a minimum amount of earnings. How to fill out tax form 1040x It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. How to fill out tax form 1040x Notary public. How to fill out tax form 1040x   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. How to fill out tax form 1040x These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). How to fill out tax form 1040x Public official. How to fill out tax form 1040x   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. How to fill out tax form 1040x This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. How to fill out tax form 1040x Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. How to fill out tax form 1040x   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. How to fill out tax form 1040x Real estate agent or direct seller. How to fill out tax form 1040x   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. How to fill out tax form 1040x Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. How to fill out tax form 1040x You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. How to fill out tax form 1040x Securities dealer. How to fill out tax form 1040x   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. How to fill out tax form 1040x For more information, see sections 1256 and 1402(i). How to fill out tax form 1040x Securities trader. How to fill out tax form 1040x   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. How to fill out tax form 1040x As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. How to fill out tax form 1040x However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. How to fill out tax form 1040x For more information about securities traders, see Publication 550, Investment Income and Expenses. How to fill out tax form 1040x Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. How to fill out tax form 1040x This section discusses some of the more common differences that may affect business transactions. How to fill out tax form 1040x Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). How to fill out tax form 1040x If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. How to fill out tax form 1040x Dealers in real estate are not allowed to use inventories. How to fill out tax form 1040x For more information on inventories, see chapter 2. How to fill out tax form 1040x Income paid to a third party. How to fill out tax form 1040x   All income you earn is taxable to you. How to fill out tax form 1040x You cannot avoid tax by having the income paid to a third party. How to fill out tax form 1040x Example. How to fill out tax form 1040x You rent out your property and the rental agreement directs the lessee to pay the rent to your son. How to fill out tax form 1040x The amount paid to your son is gross income to you. How to fill out tax form 1040x Cash discounts. How to fill out tax form 1040x   These are amounts the seller permits you to deduct from the invoice price for prompt payment. How to fill out tax form 1040x For income tax purposes, you can use either of the following two methods to account for cash discounts. How to fill out tax form 1040x Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). How to fill out tax form 1040x Credit the cash discount to a discount income account. How to fill out tax form 1040x You must use the chosen method every year for all your purchase discounts. How to fill out tax form 1040x   If you use the second method, the credit balance in the account at the end of your tax year is business income. How to fill out tax form 1040x Under this method, you do not reduce the cost of goods sold by the cash discounts you received. How to fill out tax form 1040x When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. How to fill out tax form 1040x Trade discounts. How to fill out tax form 1040x   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. How to fill out tax form 1040x Do not enter these discounts on your books of account. How to fill out tax form 1040x Instead, use only the net amount as the cost of the merchandise purchased. How to fill out tax form 1040x For more information, see Trade discounts in chapter 6. How to fill out tax form 1040x Payment placed in escrow. How to fill out tax form 1040x   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. How to fill out tax form 1040x However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. How to fill out tax form 1040x Sales returns and allowances. How to fill out tax form 1040x   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. How to fill out tax form 1040x Advance payments. How to fill out tax form 1040x   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. How to fill out tax form 1040x Insurance proceeds. How to fill out tax form 1040x   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. How to fill out tax form 1040x You cannot deduct the reimbursed part of a casualty or theft loss. How to fill out tax form 1040x   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. 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Understanding Your CP123 Notice

We made changes to your excise tax return because we believe there was a miscalculation. As a result of these changes, you have a balance due of less than $1.


What you need to do

  • Read the notice carefully.
  • Compare the figures on the notice with your railroad retirement tax return.
  • Contact us within 30 days of the date of your notice if you disagree with the changes we made.
  • Correct the copy of your railroad retirement tax return that you kept for your records if you agree with our changes.
  • You don’t have to pay if you owe less than $1.

You may want to

  • Download copies of the following materials (if they weren’t included with your notice).
  • Call 1-800-829-FORM to have forms and publications mailed to you.

 


Answers to Common Questions

Q. How can I find out what caused my tax return to change?

A. You can contact us at the number listed on your notice for specific information about your tax return.

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll-free number listed on the top right corner of your notice or respond in writing within 30 days of the date of the notice. If your response provides additional information that justifies a reversal of the change, we’ll reverse the change we made to your account. If you agree with the change, update your records. No further action is required.

 


Tips for next year

Review your return for accuracy before mailing it to us.

Page Last Reviewed or Updated: 23-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The How To Fill Out Tax Form 1040x

How to fill out tax form 1040x Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. How to fill out tax form 1040x More information. How to fill out tax form 1040x Exception—Community Income. How to fill out tax form 1040x Exception—Qualified joint venture. How to fill out tax form 1040x More information. How to fill out tax form 1040x More information. How to fill out tax form 1040x Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. How to fill out tax form 1040x Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. How to fill out tax form 1040x Table 1 can help you learn what those responsibilities are. How to fill out tax form 1040x Ask yourself each question listed in the table, then see the related discussion to find the answer. How to fill out tax form 1040x In addition to knowing about federal taxes, you need to make some basic business decisions. How to fill out tax form 1040x Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. How to fill out tax form 1040x For information on how to contact the SBA, see How to Get More Information, later. How to fill out tax form 1040x Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. How to fill out tax form 1040x When beginning a business, you must decide which form of business to use. How to fill out tax form 1040x Legal and tax considerations enter into this decision. How to fill out tax form 1040x Only tax considerations are discussed in this publication. How to fill out tax form 1040x Your form of business determines which income tax return form you have to file. How to fill out tax form 1040x See Table 2 to find out which form you have to file. How to fill out tax form 1040x Sole proprietorships. How to fill out tax form 1040x   A sole proprietorship is an unincorporated business that is owned by one individual. How to fill out tax form 1040x It is the simplest form of business organization to start and maintain. How to fill out tax form 1040x The business has no existence apart from you, the owner. How to fill out tax form 1040x Its liabilities are your personal liabilities. How to fill out tax form 1040x You undertake the risks of the business for all assets owned, whether or not used in the business. How to fill out tax form 1040x You include the income and expenses of the business on your personal tax return. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. How to fill out tax form 1040x If you are a farmer, see Publication 225, Farmer's Tax Guide. How to fill out tax form 1040x Partnerships. How to fill out tax form 1040x   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. How to fill out tax form 1040x Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. How to fill out tax form 1040x   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. How to fill out tax form 1040x , from its operations, but it does not pay income tax. How to fill out tax form 1040x Instead, it “passes through” any profits or losses to its partners. How to fill out tax form 1040x Each partner includes his or her share of the partnership's items on his or her tax return. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information on partnerships, see Publication 541, Partnerships. How to fill out tax form 1040x Husband and wife business. How to fill out tax form 1040x   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. How to fill out tax form 1040x Do not use Schedule C or C-EZ. How to fill out tax form 1040x Instead, file Form 1065, U. How to fill out tax form 1040x S. How to fill out tax form 1040x Return of Partnership Income. How to fill out tax form 1040x For more information, see Publication 541, Partnerships. How to fill out tax form 1040x Exception—Community Income. How to fill out tax form 1040x   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. How to fill out tax form 1040x S. How to fill out tax form 1040x possession, you can treat the business either as a sole proprietorship or a partnership. How to fill out tax form 1040x The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. How to fill out tax form 1040x A change in your reporting position will be treated as a conversion of the entity. How to fill out tax form 1040x Exception—Qualified joint venture. How to fill out tax form 1040x   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. How to fill out tax form 1040x Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. How to fill out tax form 1040x For an explanation of "material participation," see the Instructions for Schedule C, line G. How to fill out tax form 1040x   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. How to fill out tax form 1040x Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. How to fill out tax form 1040x For more information, see Qualified Joint Venture in the Instructions for Schedule SE. How to fill out tax form 1040x Corporations. How to fill out tax form 1040x   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. How to fill out tax form 1040x A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. How to fill out tax form 1040x A corporation can also take special deductions. How to fill out tax form 1040x   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. How to fill out tax form 1040x However, shareholders cannot deduct any loss of the corporation. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information on corporations, see Publication 542, Corporations. How to fill out tax form 1040x S corporations. How to fill out tax form 1040x   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. How to fill out tax form 1040x Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. How to fill out tax form 1040x On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. How to fill out tax form 1040x S. How to fill out tax form 1040x Income Tax Return for an S Corporation. How to fill out tax form 1040x Limited liability company. How to fill out tax form 1040x   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. How to fill out tax form 1040x The members of an LLC are not personally liable for its debts. How to fill out tax form 1040x An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. How to fill out tax form 1040x 7701-3. How to fill out tax form 1040x For more information, see the instructions for Form 8832, Entity Classification Election. How to fill out tax form 1040x Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. How to fill out tax form 1040x The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). How to fill out tax form 1040x An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. How to fill out tax form 1040x An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. How to fill out tax form 1040x You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. How to fill out tax form 1040x You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. How to fill out tax form 1040x This includes returns or documents filed to report the following information. How to fill out tax form 1040x Interest, dividends, royalties, etc. How to fill out tax form 1040x , paid to you. How to fill out tax form 1040x Any amount paid to you as a dependent care provider. How to fill out tax form 1040x Certain other amounts paid to you that total $600 or more for the year. How to fill out tax form 1040x If you do not furnish your identification number as required, you may be subject to penalties. How to fill out tax form 1040x See Penalties, later. How to fill out tax form 1040x Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. How to fill out tax form 1040x If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. How to fill out tax form 1040x Applying for an EIN. How to fill out tax form 1040x   You may apply for an EIN: Online—Click on the EIN link at www. How to fill out tax form 1040x irs. How to fill out tax form 1040x gov/businesses/small. How to fill out tax form 1040x The EIN is issued immediately once the application information is validated. How to fill out tax form 1040x By telephone at 1-800-829-4933. How to fill out tax form 1040x By mailing or faxing Form SS-4, Application for Employer Identification Number. How to fill out tax form 1040x When to apply. How to fill out tax form 1040x   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. How to fill out tax form 1040x If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. How to fill out tax form 1040x If you apply by telephone or through the IRS website, you can get an EIN immediately. How to fill out tax form 1040x If you apply by fax, you can get an EIN within 4 business days. How to fill out tax form 1040x   If you do not receive your EIN by the time a return is due, file your return anyway. How to fill out tax form 1040x Write “Applied for” and the date you applied for the number in the space for the EIN. How to fill out tax form 1040x Do not use your social security number as a substitute for an EIN on your tax returns. How to fill out tax form 1040x More than one EIN. How to fill out tax form 1040x   You should have only one EIN. How to fill out tax form 1040x If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. How to fill out tax form 1040x Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. How to fill out tax form 1040x The IRS will tell you which number to use. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information about EINs, see Publication 1635, Understanding Your EIN. How to fill out tax form 1040x Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). How to fill out tax form 1040x The forms used to report these payments must include the payee's identification number. How to fill out tax form 1040x Employee. How to fill out tax form 1040x   If you have employees, you must get an SSN from each of them. How to fill out tax form 1040x Record the name and SSN of each employee exactly as they are shown on the employee's social security card. How to fill out tax form 1040x If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. How to fill out tax form 1040x This may occur, for example, if the employee's name has changed due to marriage or divorce. How to fill out tax form 1040x   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. How to fill out tax form 1040x This form is available at SSA offices or by calling 1-800-772-1213. How to fill out tax form 1040x It is also available from the SSA website at www. How to fill out tax form 1040x ssa. How to fill out tax form 1040x gov. How to fill out tax form 1040x Other payee. How to fill out tax form 1040x   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. How to fill out tax form 1040x If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. How to fill out tax form 1040x   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. How to fill out tax form 1040x This form is available from IRS offices or by calling 1-800-829-3676. How to fill out tax form 1040x It is also available from the IRS website at IRS. How to fill out tax form 1040x gov. How to fill out tax form 1040x    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. How to fill out tax form 1040x For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. How to fill out tax form 1040x Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. How to fill out tax form 1040x A tax year is usually 12 consecutive months. How to fill out tax form 1040x There are two kinds of tax years. How to fill out tax form 1040x Calendar tax year. How to fill out tax form 1040x A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. How to fill out tax form 1040x Fiscal tax year. How to fill out tax form 1040x A fiscal tax year is 12 consecutive months ending on the last day of any month except December. How to fill out tax form 1040x A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. How to fill out tax form 1040x If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. How to fill out tax form 1040x You must use a calendar tax year if: You keep no books. How to fill out tax form 1040x You have no annual accounting period. How to fill out tax form 1040x Your present tax year does not qualify as a fiscal year. How to fill out tax form 1040x You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. How to fill out tax form 1040x For more information, see Publication 538, Accounting Periods and Methods. How to fill out tax form 1040x First-time filer. How to fill out tax form 1040x   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. How to fill out tax form 1040x You adopt a tax year by filing your first income tax return using that tax year. How to fill out tax form 1040x You have not adopted a tax year if you merely did any of the following. How to fill out tax form 1040x Filed an application for an extension of time to file an income tax return. How to fill out tax form 1040x Filed an application for an employer identification number. How to fill out tax form 1040x Paid estimated taxes for that tax year. How to fill out tax form 1040x Changing your tax year. How to fill out tax form 1040x   Once you have adopted your tax year, you may have to get IRS approval to change it. How to fill out tax form 1040x To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. How to fill out tax form 1040x You may have to pay a fee. How to fill out tax form 1040x For more information, see Publication 538. How to fill out tax form 1040x Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. How to fill out tax form 1040x You choose an accounting method for your business when you file your first income tax return. How to fill out tax form 1040x There are two basic accounting methods. How to fill out tax form 1040x Cash method. How to fill out tax form 1040x Under the cash method, you report income in the tax year you receive it. How to fill out tax form 1040x You usually deduct or capitalize expenses in the tax year you pay them. How to fill out tax form 1040x Accrual method. How to fill out tax form 1040x Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. How to fill out tax form 1040x You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. How to fill out tax form 1040x For other methods, see Publication 538. How to fill out tax form 1040x If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. How to fill out tax form 1040x Inventories include goods held for sale in the normal course of business. How to fill out tax form 1040x They also include raw materials and supplies that will physically become a part of merchandise intended for sale. How to fill out tax form 1040x Inventories are explained in Publication 538. How to fill out tax form 1040x Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. How to fill out tax form 1040x For more information, see Publication 538. How to fill out tax form 1040x You must use the same accounting method to figure your taxable income and to keep your books. How to fill out tax form 1040x Also, you must use an accounting method that clearly shows your income. How to fill out tax form 1040x In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. How to fill out tax form 1040x An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. How to fill out tax form 1040x More than one business. How to fill out tax form 1040x   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. How to fill out tax form 1040x You must keep a complete and separate set of books and records for each business. How to fill out tax form 1040x Changing your method of accounting. How to fill out tax form 1040x   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. How to fill out tax form 1040x A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. How to fill out tax form 1040x For examples of changes that require approval and information on how to get approval for the change, see Publication 538. How to fill out tax form 1040x Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. How to fill out tax form 1040x The following are the four general kinds of business taxes. How to fill out tax form 1040x Income tax. How to fill out tax form 1040x Self-employment tax. How to fill out tax form 1040x Employment taxes. How to fill out tax form 1040x Excise taxes. How to fill out tax form 1040x See Table 2 for the forms you file to report these taxes. How to fill out tax form 1040x You may want to get Publication 509. How to fill out tax form 1040x It has tax calendars that tell you when to file returns and make tax payments. How to fill out tax form 1040x Income Tax All businesses except partnerships must file an annual income tax return. How to fill out tax form 1040x Partnerships file an information return. How to fill out tax form 1040x Which form you use depends on how your business is organized. How to fill out tax form 1040x See Table 2 to find out which return you have to file. How to fill out tax form 1040x The federal income tax is a pay-as-you-go tax. How to fill out tax form 1040x You must pay the tax as you earn or receive income during the year. How to fill out tax form 1040x An employee usually has income tax withheld from his or her pay. How to fill out tax form 1040x If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. How to fill out tax form 1040x If you are not required to make estimated tax payments, you may pay any tax due when you file your return. How to fill out tax form 1040x Table 2. How to fill out tax form 1040x Which Forms Must I File? IF you are a. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x   THEN you may be liable for. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x   Use Form. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. How to fill out tax form 1040x 2 Various other schedules may be needed. How to fill out tax form 1040x Estimated tax. How to fill out tax form 1040x   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. How to fill out tax form 1040x Sole proprietors, partners, and S corporation shareholders. How to fill out tax form 1040x   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. How to fill out tax form 1040x Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. How to fill out tax form 1040x For more information, see Publication 505, Tax Withholding and Estimated Tax. How to fill out tax form 1040x Corporations. How to fill out tax form 1040x   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. How to fill out tax form 1040x Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. How to fill out tax form 1040x You must deposit the payments as explained later under Depositing Taxes. How to fill out tax form 1040x For more information, see Publication 542. How to fill out tax form 1040x Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. How to fill out tax form 1040x Your payments of SE tax contribute to your coverage under the social security system. How to fill out tax form 1040x Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. How to fill out tax form 1040x You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. How to fill out tax form 1040x Your net earnings from self-employment were $400 or more. How to fill out tax form 1040x You had church employee income of $108. How to fill out tax form 1040x 28 or more. How to fill out tax form 1040x Use Schedule SE (Form 1040) to figure your SE tax. How to fill out tax form 1040x For more information, see Publication 334, Tax Guide for Small Business. How to fill out tax form 1040x You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. How to fill out tax form 1040x The Social Security Administration (SSA) time limit for posting self-employment income. How to fill out tax form 1040x   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. How to fill out tax form 1040x If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. How to fill out tax form 1040x The SSA will not change its records to increase your self-employment income. How to fill out tax form 1040x Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. How to fill out tax form 1040x Employment taxes include the following. How to fill out tax form 1040x Social security and Medicare taxes. How to fill out tax form 1040x Federal income tax withholding. How to fill out tax form 1040x Federal unemployment (FUTA) tax. How to fill out tax form 1040x If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. How to fill out tax form 1040x If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. How to fill out tax form 1040x These publications explain your tax responsibilities as an employer. How to fill out tax form 1040x If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. How to fill out tax form 1040x That publication has information to help you determine whether an individual is an employee or an independent contractor. How to fill out tax form 1040x If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. How to fill out tax form 1040x An independent contractor is someone who is self-employed. How to fill out tax form 1040x Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. How to fill out tax form 1040x Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. How to fill out tax form 1040x To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. How to fill out tax form 1040x Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). How to fill out tax form 1040x Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. How to fill out tax form 1040x Medicare tax pays for benefits under the hospital insurance part of FICA. How to fill out tax form 1040x You withhold part of these taxes from your employee's wages and you pay a part yourself. How to fill out tax form 1040x To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. How to fill out tax form 1040x Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. How to fill out tax form 1040x (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. How to fill out tax form 1040x ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. How to fill out tax form 1040x You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. How to fill out tax form 1040x You pay FUTA tax only from your own funds. How to fill out tax form 1040x Employees do not pay this tax or have it withheld from their pay. How to fill out tax form 1040x Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. How to fill out tax form 1040x See Publication 15 to find out if you can use this form. How to fill out tax form 1040x Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. How to fill out tax form 1040x Form I-9. How to fill out tax form 1040x   You must verify that each new employee is legally eligible to work in the United States. How to fill out tax form 1040x Both you and the employee must complete the U. How to fill out tax form 1040x S. How to fill out tax form 1040x Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. How to fill out tax form 1040x You can get the form from USCIS offices or from the USCIS website at www. How to fill out tax form 1040x uscis. How to fill out tax form 1040x gov. How to fill out tax form 1040x Call the USCIS at 1-800-375-5283 for more information about your responsibilities. How to fill out tax form 1040x Form W-4. How to fill out tax form 1040x   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. How to fill out tax form 1040x You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. How to fill out tax form 1040x For more information, see Publication 15. How to fill out tax form 1040x Employees claiming more than 10 withholding allowances. How to fill out tax form 1040x   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. How to fill out tax form 1040x See section 16 of Publication 15. How to fill out tax form 1040x Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. How to fill out tax form 1040x You must also send copies to the Social Security Administration. How to fill out tax form 1040x See Information Returns, later, for more information on Form W-2. How to fill out tax form 1040x Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. How to fill out tax form 1040x Manufacture or sell certain products. How to fill out tax form 1040x Operate certain kinds of businesses. How to fill out tax form 1040x Use various kinds of equipment, facilities, or products. How to fill out tax form 1040x Receive payment for certain services. How to fill out tax form 1040x For more information on excise taxes, see Publication 510, Excise Taxes. How to fill out tax form 1040x Form 720. How to fill out tax form 1040x   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. How to fill out tax form 1040x Environmental taxes. How to fill out tax form 1040x Communications and air transportation taxes. How to fill out tax form 1040x Fuel taxes. How to fill out tax form 1040x Tax on the first retail sale of heavy trucks, trailers, and tractors. How to fill out tax form 1040x Manufacturers taxes on the sale or use of a variety of different articles. How to fill out tax form 1040x Form 2290. How to fill out tax form 1040x   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. How to fill out tax form 1040x The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. How to fill out tax form 1040x Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. How to fill out tax form 1040x For more information, see the instructions for Form 2290. How to fill out tax form 1040x Form 730. How to fill out tax form 1040x   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. How to fill out tax form 1040x Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. How to fill out tax form 1040x Form 11-C. How to fill out tax form 1040x   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. How to fill out tax form 1040x Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. How to fill out tax form 1040x Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). How to fill out tax form 1040x Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. How to fill out tax form 1040x Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. How to fill out tax form 1040x Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. How to fill out tax form 1040x The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. How to fill out tax form 1040x You must give a copy of each information return you are required to file to the recipient or payer. How to fill out tax form 1040x In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. How to fill out tax form 1040x For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. How to fill out tax form 1040x Form 1099-MISC. How to fill out tax form 1040x   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. How to fill out tax form 1040x These payments include the following items. How to fill out tax form 1040x Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. How to fill out tax form 1040x Rent payments of $600 or more, other than rents paid to real estate agents. How to fill out tax form 1040x Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. How to fill out tax form 1040x Royalty payments of $10 or more. How to fill out tax form 1040x Payments to certain crew members by operators of fishing boats. How to fill out tax form 1040x You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. How to fill out tax form 1040x Form W-2. How to fill out tax form 1040x   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. How to fill out tax form 1040x For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. How to fill out tax form 1040x Form 8300. How to fill out tax form 1040x   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. How to fill out tax form 1040x Cash includes U. How to fill out tax form 1040x S. How to fill out tax form 1040x and foreign coin and currency. How to fill out tax form 1040x It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. How to fill out tax form 1040x For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). How to fill out tax form 1040x Penalties The law provides penalties for not filing returns or paying taxes as required. How to fill out tax form 1040x Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. How to fill out tax form 1040x Failure to file tax returns. How to fill out tax form 1040x   If you do not file your tax return by the due date, you may have to pay a penalty. How to fill out tax form 1040x The penalty is based on the tax not paid by the due date. How to fill out tax form 1040x See your tax return instructions for more information about this penalty. How to fill out tax form 1040x Failure to pay tax. How to fill out tax form 1040x   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. How to fill out tax form 1040x For more information, see your tax return instructions. How to fill out tax form 1040x Failure to withhold, deposit, or pay taxes. How to fill out tax form 1040x   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. How to fill out tax form 1040x You may also be subject to penalties if you deposit the taxes late. How to fill out tax form 1040x For more information, see Publication 15. How to fill out tax form 1040x Failure to follow information reporting requirements. How to fill out tax form 1040x   The following penalties apply if you are required to file information returns. How to fill out tax form 1040x For more information, see the General Instructions for Certain Information Returns. How to fill out tax form 1040x Failure to file information returns. How to fill out tax form 1040x A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. How to fill out tax form 1040x Failure to furnish correct payee statements. How to fill out tax form 1040x A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. How to fill out tax form 1040x Waiver of penalty. How to fill out tax form 1040x   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. How to fill out tax form 1040x   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. How to fill out tax form 1040x (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. How to fill out tax form 1040x ) Failure to supply taxpayer identification number. How to fill out tax form 1040x   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. How to fill out tax form 1040x You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. How to fill out tax form 1040x Business Expenses You can deduct business expenses on your income tax return. How to fill out tax form 1040x These are the current operating costs of running your business. How to fill out tax form 1040x To be deductible, a business expense must be both ordinary and necessary. How to fill out tax form 1040x An ordinary expense is one that is common and accepted in your field of business, trade, or profession. How to fill out tax form 1040x A necessary expense is one that is helpful and appropriate for your business, trade, or profession. How to fill out tax form 1040x An expense does not have to be indispensable to be considered necessary. How to fill out tax form 1040x The following are brief explanations of some expenses that are of interest to people starting a business. How to fill out tax form 1040x There are many other expenses that you may be able to deduct. How to fill out tax form 1040x See your form instructions and Publication 535, Business Expenses. How to fill out tax form 1040x Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. How to fill out tax form 1040x Your business start-up costs will depend on the type of business you are starting. How to fill out tax form 1040x They may include costs for advertising, travel, surveys, and training. How to fill out tax form 1040x These costs are generally capital expenses. How to fill out tax form 1040x You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). How to fill out tax form 1040x You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. How to fill out tax form 1040x The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. How to fill out tax form 1040x Any remaining cost must be amortized. How to fill out tax form 1040x For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. How to fill out tax form 1040x Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. How to fill out tax form 1040x You must spread the cost over more than one tax year and deduct part of it each year. How to fill out tax form 1040x This method of deducting the cost of business property is called depreciation. How to fill out tax form 1040x Business property you must depreciate includes the following items. How to fill out tax form 1040x Office furniture. How to fill out tax form 1040x Buildings. How to fill out tax form 1040x Machinery and equipment. How to fill out tax form 1040x You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. How to fill out tax form 1040x This deduction is known as the “section 179 deduction. How to fill out tax form 1040x ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. How to fill out tax form 1040x Depreciation must be taken in the year it is allowable. How to fill out tax form 1040x Allowable depreciation not taken in a prior year cannot be taken in the current year. How to fill out tax form 1040x If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. How to fill out tax form 1040x S. How to fill out tax form 1040x Individual Income Tax Return, or by changing your accounting method. How to fill out tax form 1040x For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. How to fill out tax form 1040x Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. How to fill out tax form 1040x Even then, your deduction may be limited. How to fill out tax form 1040x To qualify to claim expenses for business use of your home, you must meet both the following tests. How to fill out tax form 1040x Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. How to fill out tax form 1040x Exclusive use. How to fill out tax form 1040x   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. How to fill out tax form 1040x The area used for business can be a room or other separately identifiable space. How to fill out tax form 1040x The space does not need to be marked off by a permanent partition. How to fill out tax form 1040x   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. How to fill out tax form 1040x Exceptions to exclusive use. How to fill out tax form 1040x   You do not have to meet the exclusive use test if either of the following applies. How to fill out tax form 1040x You use part of your home for the storage of inventory or product samples. How to fill out tax form 1040x You use part of your home as a daycare facility. How to fill out tax form 1040x For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). How to fill out tax form 1040x Principal place of business. How to fill out tax form 1040x   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. How to fill out tax form 1040x You use it exclusively and regularly for administrative or management activities of your trade or business. How to fill out tax form 1040x You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. How to fill out tax form 1040x   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. How to fill out tax form 1040x The relative importance of the activities performed at each location. How to fill out tax form 1040x If the relative importance factor does not determine your principal place of business, the time spent at each location. How to fill out tax form 1040x    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. How to fill out tax form 1040x However, for other ways to qualify to deduct home office expenses, see Publication 587. How to fill out tax form 1040x Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. How to fill out tax form 1040x If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. How to fill out tax form 1040x More information. How to fill out tax form 1040x   For more information about business use of your home, see Publication 587. How to fill out tax form 1040x Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. How to fill out tax form 1040x You generally can deduct either your actual expenses or the standard mileage rate. How to fill out tax form 1040x Actual expenses. How to fill out tax form 1040x   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. How to fill out tax form 1040x You can divide your expenses based on the miles driven for each purpose. How to fill out tax form 1040x Example. How to fill out tax form 1040x You are the sole proprietor of a flower shop. How to fill out tax form 1040x You drove your van 20,000 miles during the year. How to fill out tax form 1040x 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. How to fill out tax form 1040x You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. How to fill out tax form 1040x Standard mileage rate. How to fill out tax form 1040x   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. How to fill out tax form 1040x You can use the standard mileage rate for a vehicle you own or lease. How to fill out tax form 1040x The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. How to fill out tax form 1040x It is announced annually by the IRS. How to fill out tax form 1040x To figure your deduction, multiply your business miles by the standard mileage rate for the year. How to fill out tax form 1040x    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. How to fill out tax form 1040x However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. How to fill out tax form 1040x Choosing the standard mileage rate. How to fill out tax form 1040x   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How to fill out tax form 1040x In later years, you can choose to use either the standard mileage rate or actual expenses. How to fill out tax form 1040x   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). How to fill out tax form 1040x Additional information. How to fill out tax form 1040x   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. How to fill out tax form 1040x Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. How to fill out tax form 1040x It also explains how long you must keep your records for federal tax purposes. How to fill out tax form 1040x A sample recordkeeping system is illustrated at the end of this part. How to fill out tax form 1040x Why Keep Records? Everyone in business must keep records. How to fill out tax form 1040x Good records will help you do the following. How to fill out tax form 1040x Monitor the progress of your business. How to fill out tax form 1040x   You need good records to monitor the progress of your business. How to fill out tax form 1040x Records can show whether your business is improving, which items are selling, or what changes you need to make. How to fill out tax form 1040x Good records can increase the likelihood of business success. How to fill out tax form 1040x Prepare your financial statements. How to fill out tax form 1040x   You need good records to prepare accurate financial statements. How to fill out tax form 1040x These include income (profit and loss) statements and balance sheets. How to fill out tax form 1040x These statements can help you in dealing with your bank or creditors and help you manage your business. How to fill out tax form 1040x An income statement shows the income and expenses of the business for a given period of time. How to fill out tax form 1040x A balance sheet shows the assets, liabilities, and your equity in the business on a given date. How to fill out tax form 1040x Identify source of receipts. How to fill out tax form 1040x   You will receive money or property from many sources. How to fill out tax form 1040x Your records can identify the source of your receipts. How to fill out tax form 1040x You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. How to fill out tax form 1040x Keep track of deductible expenses. How to fill out tax form 1040x   You may forget expenses when you prepare your tax return unless you record them when they occur. How to fill out tax form 1040x Prepare your tax returns. How to fill out tax form 1040x   You need good records to prepare your tax returns. How to fill out tax form 1040x These records must support the income, expenses, and credits you report. How to fill out tax form 1040x Generally, these are the same records you use to monitor your business and prepare your financial statements. How to fill out tax form 1040x Support items reported on tax returns. How to fill out tax form 1040x   You must keep your business records available at all times for inspection by the IRS. How to fill out tax form 1040x If the IRS examines any of your tax returns, you may be asked to explain the items reported. How to fill out tax form 1040x A complete set of records will speed up the examination. How to fill out tax form 1040x Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. How to fill out tax form 1040x You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. How to fill out tax form 1040x The business you are in affects the type of records you need to keep for federal tax purposes. How to fill out tax form 1040x You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. How to fill out tax form 1040x See Accounting Method, earlier. How to fill out tax form 1040x If you are in more than one business, you should keep a complete and separate set of records for each business. How to fill out tax form 1040x A corporation should keep minutes of board of directors' meetings. How to fill out tax form 1040x Your recordkeeping system should include a summary of your business transactions. How to fill out tax form 1040x This summary is ordinarily made in your books (for example, accounting journals and ledgers). How to fill out tax form 1040x Your books must show your gross income, as well as your deductions and credits. How to fill out tax form 1040x For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. How to fill out tax form 1040x In addition, you must keep supporting documents, explained later. How to fill out tax form 1040x Electronic records. How to fill out tax form 1040x   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. How to fill out tax form 1040x When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. How to fill out tax form 1040x An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. How to fill out tax form 1040x The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. How to fill out tax form 1040x All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. How to fill out tax form 1040x Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. How to fill out tax form 1040x   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. How to fill out tax form 1040x You still have the responsibility of retaining any other books and records that are required to be retained. How to fill out tax form 1040x   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. How to fill out tax form 1040x This test is not considered an examination and the results must be shared with you. How to fill out tax form 1040x If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. How to fill out tax form 1040x If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. How to fill out tax form 1040x For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. How to fill out tax form 1040x Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. How to fill out tax form 1040x Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. How to fill out tax form 1040x These documents contain information you need to record in your books. How to fill out tax form 1040x It is important to keep these documents because they support the entries in your books and on your tax return. How to fill out tax form 1040x Keep them in an orderly fashion and in a safe place. How to fill out tax form 1040x For instance, organize them by year and type of income or expense. How to fill out tax form 1040x Gross receipts. How to fill out tax form 1040x   Gross receipts are the income you receive from your business. How to fill out tax form 1040x You should keep supporting documents that show the amounts and sources of your gross receipts. How to fill out tax form 1040x Documents that show gross receipts include the following. How to fill out tax form 1040x Cash register tapes. How to fill out tax form 1040x Bank deposit slips. How to fill out tax form 1040x Receipt books. How to fill out tax form 1040x Invoices. How to fill out tax form 1040x Credit card charge slips. How to fill out tax form 1040x Forms 1099-MISC. How to fill out tax form 1040x Purchases. How to fill out tax form 1040x   Purchases are the items you buy and resell to customers. How to fill out tax form 1040x If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. How to fill out tax form 1040x Your supporting documents should show the amount paid and that the amount was for purchases. How to fill out tax form 1040x Documents for purchases include the following. How to fill out tax form 1040x Canceled checks. How to fill out tax form 1040x Cash register tape receipts. How to fill out tax form 1040x Credit card sales slips. How to fill out tax form 1040x Invoices. How to fill out tax form 1040x These records will help you determine the value of your inventory at the end of the year. How to fill out tax form 1040x See Publication 538 for information on methods for valuing inventory. How to fill out tax form 1040x Expenses. How to fill out tax form 1040x   Expenses are the costs you incur (other than purchases) to carry on your business. How to fill out tax form 1040x Your supporting documents should show the amount paid and that the amount was for a business expense. How to fill out tax form 1040x Documents for expenses include the following. How to fill out tax form 1040x Canceled checks. How to fill out tax form 1040x Cash register tapes. How to fill out tax form 1040x Account statements. How to fill out tax form 1040x Credit card sales slips. How to fill out tax form 1040x Invoices. How to fill out tax form 1040x Petty cash slips for small cash payments. How to fill out tax form 1040x    A petty cash fund allows you to make small payments without having to write checks for small amounts. How to fill out tax form 1040x Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. How to fill out tax form 1040x Travel, transportation, entertainment, and gift expenses. How to fill out tax form 1040x   Specific recordkeeping rules apply to these expenses. How to fill out tax form 1040x For more information, see Publication 463. How to fill out tax form 1040x Employment taxes. How to fill out tax form 1040x   There are specific employment tax records you must keep. How to fill out tax form 1040x For a list, see Publication 15. How to fill out tax form 1040x Assets. How to fill out tax form 1040x   Assets are the property, such as machinery and furniture you own and use in your business. How to fill out tax form 1040x You must keep records to verify certain information about your business assets. How to fill out tax form 1040x You need records to figure the annual depreciation and the gain or loss when you sell the assets. How to fill out tax form 1040x Your records should show the following information. How to fill out tax form 1040x When and how you acquired the asset. How to fill out tax form 1040x Purchase price. How to fill out tax form 1040x Cost of any improvements. How to fill out tax form 1040x Section 179 deduction taken. How to fill out tax form 1040x Deductions taken for depreciation. How to fill out tax form 1040x Deductions taken for casualty losses, such as losses resulting from fires or storms. How to fill out tax form 1040x How you used the asset. How to fill out tax form 1040x When and how you disposed of the asset. How to fill out tax form 1040x Selling price. How to fill out tax form 1040x Expenses of sale. How to fill out tax form 1040x   The following documents may show this information. How to fill out tax form 1040x Purchase and sales invoices. How to fill out tax form 1040x Real estate closing statements. How to fill out tax form 1040x Canceled checks. How to fill out tax form 1040x What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. How to fill out tax form 1040x These include account statements prepared for the financial institution by a third party. How to fill out tax form 1040x These account statements must be highly legible. How to fill out tax form 1040x The following table lists acceptable account statements. How to fill out tax form 1040x  IF payment is by. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x THEN the statement must show the. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x Check Check number. How to fill out tax form 1040x Amount. How to fill out tax form 1040x Payee's name. How to fill out tax form 1040x Date the check amount was posted to the account by the financial institution. How to fill out tax form 1040x Electronic funds transfer Amount transferred. How to fill out tax form 1040x Payee's name. How to fill out tax form 1040x Date the transfer was posted to the account by the financial institution. How to fill out tax form 1040x Credit card Amount charged. How to fill out tax form 1040x Payee's name. How to fill out tax form 1040x Transaction date. How to fill out tax form 1040x    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. How to fill out tax form 1040x You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. How to fill out tax form 1040x Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. How to fill out tax form 1040x (Your business transactions are shown on the supporting documents just discussed. How to fill out tax form 1040x ) Business transactions are ordinarily summarized in books called journals and ledgers. How to fill out tax form 1040x You can buy them at your local stationery or office supply store. How to fill out tax form 1040x A journal is a book where you record each business transaction shown on your supporting documents. How to fill out tax form 1040x You may have to keep separate journals for transactions that occur frequently. How to fill out tax form 1040x A ledger is a book that contains the totals from all of your journals. How to fill out tax form 1040x It is organized into different accounts. How to fill out tax form 1040x Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. How to fill out tax form 1040x For example, a recordkeeping system for a small business might include the following items. How to fill out tax form 1040x Business checkbook. How to fill out tax form 1040x Daily summary of cash receipts. How to fill out tax form 1040x Monthly summary of cash receipts. How to fill out tax form 1040x Check disbursements journal. How to fill out tax form 1040x Depreciation worksheet. How to fill out tax form 1040x Employee compensation record. How to fill out tax form 1040x The business checkbook is explained next. How to fill out tax form 1040x The other items are illustrated later under Sample Record System. How to fill out tax form 1040x The system you use to record business transactions will be more effective if you follow good recordkeeping practices. How to fill out tax form 1040x For example, record expenses when they occur, and identify the source of recorded receipts. How to fill out tax form 1040x Generally, it is best to record transactions on a daily basis. How to fill out tax form 1040x Business checkbook. How to fill out tax form 1040x   One of the first things you should do when you start a business is open a business checking account. How to fill out tax form 1040x You should keep your business account separate from your personal checking account. How to fill out tax form 1040x   The business checkbook is your basic source of information for recording your business expenses. How to fill out tax form 1040x You should deposit all daily receipts in your business checking account. How to fill out tax form 1040x You should check your account for errors by reconciling it. How to fill out tax form 1040x See Reconciling the checking account, later. How to fill out tax form 1040x   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. How to fill out tax form 1040x You should also note on the deposit slip the source of the deposit and keep copies of all slips. How to fill out tax form 1040x   You should make all payments by check to document business expenses. How to fill out tax form 1040x Write checks payable to yourself only when making withdrawals from your business for personal use. How to fill out tax form 1040x Avoid writing checks payable to cash. How to fill out tax form 1040x If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. How to fill out tax form 1040x If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. How to fill out tax form 1040x    Use the business account for business purposes only. How to fill out tax form 1040x Indicate the source of deposits and the type of expense in the checkbook. How to fill out tax form 1040x Reconciling the checking account. How to fill out tax form 1040x   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. How to fill out tax form 1040x The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. How to fill out tax form 1040x   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. How to fill out tax form 1040x    You should reconcile your checking account each month. How to fill out tax form 1040x     Before you reconcile your monthly bank statement, check your own figures. How to fill out tax form 1040x Begin with the balance shown in your checkbook at the end of the previous month. How to fill out tax form 1040x To this balance, add the total cash deposited during the month and subtract the total cash disbursements. How to fill out tax form 1040x   After checking your figures, the result should agree with your checkbook balance at the end of the month. How to fill out tax form 1040x If the result does not agree, you may have made an error in recording a check or deposit. How to fill out tax form 1040x You can find the error by doing the following. How to fill out tax form 1040x Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. How to fill out tax form 1040x If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. How to fill out tax form 1040x Adding the deposit amounts in your checkbook. How to fill out tax form 1040x Compare that total with the monthly total in your cash receipt book, if you have one. How to fill out tax form 1040x If the totals do not agree, check the individual amounts to find any errors. How to fill out tax form 1040x   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. How to fill out tax form 1040x   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. How to fill out tax form 1040x Many banks print a reconciliation worksheet on the back of the statement. How to fill out tax form 1040x   To reconcile your account, follow these steps. How to fill out tax form 1040x Compare the deposits listed on the bank statement with the deposits shown in your checkbook. How to fill out tax form 1040x Note all differences in the dollar amounts. How to fill out tax form 1040x Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. How to fill out tax form 1040x Note all differences in the dollar amounts. How to fill out tax form 1040x Mark the check number in the checkbook as having cleared the bank. How to fill out tax form 1040x After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. How to fill out tax form 1040x Prepare a bank reconciliation. How to fill out tax form 1040x One is illustrated later under Sample Record System. How to fill out tax form 1040x Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. How to fill out tax form 1040x At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. How to fill out tax form 1040x If you still have differences, check the previous steps to find the errors. How to fill out tax form 1040x   Table 3. How to fill out tax form 1040x Period of Limitations IF you. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x   THEN the period is. How to fill out tax form 1040x . How to fill out tax form 1040x . How to fill out tax form 1040x 1. How to fill out tax form 1040x Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. How to fill out tax form 1040x Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. How to fill out tax form 1040x File a fraudulent return   Not limited 4. How to fill out tax form 1040x Do not file a return   Not limited 5. How to fill out tax form 1040x File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. How to fill out tax form 1040x File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. How to fill out tax form 1040x The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. How to fill out tax form 1040x You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. How to fill out tax form 1040x Single-entry. How to fill out tax form 1040x   A single-entry system is based on the income statement (profit or loss statement). How to fill out tax form 1040x It can be a simple and practical system if you are starting a small business. How to fill out tax form 1040x The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. How to fill out tax form 1040x Double-entry. How to fill out tax form 1040x   A double-entry bookkeeping system uses journals and ledgers. How to fill out tax form 1040x Transactions are first entered in a journal and then posted to ledger accounts. How to fill out tax form 1040x These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). How to fill out tax form 1040x You close income and expense accounts at the end of each tax year. How to fill out tax form 1040x You keep asset, liability, and net worth accounts open on a permanent basis. How to fill out tax form 1040x   In the double-entry system, each account has a left side for debits and a right side for credits. How to fill out tax form 1040x It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. How to fill out tax form 1040x   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. How to fill out tax form 1040x If the amounts do not balance, you have made an error and you must find and correct it. How to fill out tax form 1040x   An example of a journal entry exhibiting a payment of rent in October is shown next. How to fill out tax form 1040x General Journal Date Description of Entry Debit  Credit Oct. How to fill out tax form 1040x 5 Rent expense 780. How to fill out tax form 1040x 00     Cash   780. How to fill out tax form 1040x 00                 Computerized System There are computer software packages you can use for recordkeeping. How to fill out tax form 1040x They can be purchased in many retail stores. How to fill out tax form 1040x These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. How to fill out tax form 1040x If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. How to fill out tax form 1040x To meet this qualification, the machine-sensible records must reconcile with your books and return. How to fill out tax form 1040x These records must provide enough detail to identify the underlying source documents. How to fill out tax form 1040x You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. How to fill out tax form 1040x This documentation must be sufficiently detailed to show all of the following items. How to fill out tax form 1040x Functions being performed as the data flows through the system. How to fill out tax form 1040x Controls used to ensure accurate and reliable processing. How to fill out tax form 1040x Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. How to fill out tax form 1040x Charts of accounts and detailed account descriptions. How to fill out tax form 1040x See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. How to fill out tax form 1040x How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. How to fill out tax form 1040x Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. How to fill out tax form 1040x The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. How to fill out tax form 1040x Table 3 contains the periods of limitations that apply to income tax returns. How to fill out tax form 1040x Unless otherwise stated, the years refer to the period after the return was filed. How to fill out tax form 1040x Returns filed before the due date are treated as filed on the due date. How to fill out tax form 1040x Keep copies of your filed tax returns. How to fill out tax form 1040x They help in preparing future tax returns and making computations if you file an amended return. How to fill out tax form 1040x Employment taxes. How to fill out tax form 1040x   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. How to fill out tax form 1040x For more information about recordkeeping for employment taxes, see Publication 15. How to fill out tax form 1040x Assets. How to fill out tax form 1040x   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. How to fill out tax form 1040x You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. How to fill out tax form 1040x   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. How to fill out tax form 1040x You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. How to fill out tax form 1040x Records for nontax purposes. How to fill out tax form 1040x   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. How to fill out tax form 1040x For example, your insurance company or creditors may require you to keep them longer than the IRS does. How to fill out tax form 1040x Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. How to fill out tax form 1040x Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. How to fill out tax form 1040x These sample records should not be viewed as a recommendation of how to keep your records. How to fill out tax form 1040x They are intended only to show how one business keeps its records. How to fill out tax form 1040x 1. How to fill out tax form 1040x Daily Summary of Cash Receipts This summary is a record of cash sales for the day. How to fill out tax form 1040x It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. How to fill out tax form 1040x Henry takes the cash sales entry from his cash register tape. How to fill out tax form 1040x If he had no cash register, he would simply total his cash sale slips and any other cash received that day. How to fill out tax form 1040x He carries the total receipts shown in this summary for January 3 ($267. How to fill out tax form 1040x 80), including cash sales ($263. How to fill out tax form 1040x 60) and sales tax ($4. How to fill out tax form 1040x 20), to the Monthly Summary of Cash Receipts. How to fill out tax form 1040x Petty cash fund. How to fill out tax form 1040x   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. How to fill out tax form 1040x Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. How to fill out tax form 1040x He sets up a fixed amount ($50) in his petty cash fund. How to fill out tax form 1040x The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. How to fill out tax form 1040x When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. How to fill out tax form 1040x (See the Check Disbursements Journal entry for check number 92. How to fill out tax form 1040x ) This restores the fund to its fixed amount of $50. How to fill out tax form 1040x He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. How to fill out tax form 1040x 2. How to fill out tax form 1040x Monthly Summary of Cash Receipts This shows the income activity for the month. How to fill out tax form 1040x Henry carries the total monthly net sales shown in this summary for January ($4,865. How to fill out tax form 1040x 05) to his Annual Summary. How to fill out tax form 1040x To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. How to fill out tax form 1040x He cannot take a deduction for sales tax turned over to the state because he only collected the tax. How to fill out tax form 1040x He does not include the tax in his income. How to fill out tax form 1040x 3. How to fill out tax form 1040x Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. How to fill out tax form 1040x All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. How to fill out tax form 1040x Frequent expenses have their own headings across the sheet. How to fill out tax form 1040x He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. How to fill out tax form 1040x Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. How to fill out tax form 1040x Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. How to fill out tax form 1040x If he did, he would record them in the journal, even though he could not deduct them as business expenses. How to fill out tax form 1040x Henry carries the January total of expenses for materials ($1,083. How to fill out tax form 1040x 50) to the Annual Summary. How to fill out tax form 1040x Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. How to fill out tax form 1040x , in the appropriate columns of that summary. How to fill out tax form 1040x 4. How to fill out tax form 1040x Employee Compensation Record This record shows the following information. How to fill out tax form 1040x The number of hours Henry's employee worked in a pay period. How to fill out tax form 1040x The employee's total pay for the period. How to fill out tax form 1040x The deductions Henry withheld in figuring the employee's net pay. How to fill out tax form 1040x The monthly gross payroll. How to fill out tax form 1040x Henry carries the January gross payroll ($520) to the Annual Summary. How to fill out tax form 1040x 5. How to fill out tax form 1040x Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. How to fill out tax form 1040x He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. How to fill out tax form 1040x He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. How to fill out tax form 1040x As in the journal, he keeps each major expense in a separate column. How to fill out tax form 1040x Henry carries the cash receipts total shown in the annual summary ($47,440. How to fill out tax form 1040x 9