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Instructions On How To Fill Out 1040ez

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Instructions On How To Fill Out 1040ez

Instructions on how to fill out 1040ez Publication 547 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Instructions on how to fill out 1040ez Tax questions. Instructions on how to fill out 1040ez Useful Items - You may want to see: What's New Section C of Form 4684 for Ponzi-type investment schemes. Instructions on how to fill out 1040ez  Section C of Form 4684 is new for 2013. Instructions on how to fill out 1040ez You must complete Section C if you are claiming a theft loss deduction due to a Ponzi-type investment scheme and are using Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58. Instructions on how to fill out 1040ez Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. Instructions on how to fill out 1040ez You do not need to complete Appendix A. Instructions on how to fill out 1040ez For details, see Losses from Ponzi-type investment schemes , later. Instructions on how to fill out 1040ez Reminders Future developments. Instructions on how to fill out 1040ez   For the latest information about developments related to Publication 547, such as legislation enacted after it was published, go to www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov/pub547. Instructions on how to fill out 1040ez Photographs of missing children. Instructions on how to fill out 1040ez  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Instructions on how to fill out 1040ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Instructions on how to fill out 1040ez You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Instructions on how to fill out 1040ez Introduction This publication explains the tax treatment of casualties, thefts, and losses on deposits. Instructions on how to fill out 1040ez A casualty occurs when your property is damaged as a result of a disaster such as a storm, fire, car accident, or similar event. Instructions on how to fill out 1040ez A theft occurs when someone steals your property. Instructions on how to fill out 1040ez A loss on deposits occurs when your financial institution becomes insolvent or bankrupt. Instructions on how to fill out 1040ez This publication discusses the following topics. Instructions on how to fill out 1040ez Definitions of a casualty, theft, and loss on deposits. Instructions on how to fill out 1040ez How to figure the amount of your gain or loss. Instructions on how to fill out 1040ez How to treat insurance and other reimbursements you receive. Instructions on how to fill out 1040ez The deduction limits. Instructions on how to fill out 1040ez When and how to report a casualty or theft. Instructions on how to fill out 1040ez The special rules for disaster area losses. Instructions on how to fill out 1040ez Forms to file. Instructions on how to fill out 1040ez   Generally, when you have a casualty or theft, you have to file Form 4684. Instructions on how to fill out 1040ez You may also have to file one or more of the following forms. Instructions on how to fill out 1040ez Schedule A (Form 1040). Instructions on how to fill out 1040ez Form 1040NR, Schedule A (for nonresident aliens). Instructions on how to fill out 1040ez Schedule D. Instructions on how to fill out 1040ez Form 4797. Instructions on how to fill out 1040ez For details on which form to use, see How To Report Gains and Losses , later. Instructions on how to fill out 1040ez Condemnations. Instructions on how to fill out 1040ez   For information on condemnations of property, see Involuntary Conversions in chapter 1 of Publication 544, Sales and Other Dispositions of Assets. Instructions on how to fill out 1040ez Workbooks for casualties and thefts. Instructions on how to fill out 1040ez   Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property), is available to help you make a list of your stolen or damaged personal-use property and figure your loss. Instructions on how to fill out 1040ez It includes schedules to help you figure the loss on your home and its contents, and your motor vehicles. Instructions on how to fill out 1040ez   Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook, is available to help you make a list of your stolen or damaged business or income-producing property and figure your loss. Instructions on how to fill out 1040ez Comments and suggestions. Instructions on how to fill out 1040ez   We welcome your comments about this publication and your suggestions for future editions. Instructions on how to fill out 1040ez   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Instructions on how to fill out 1040ez NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Instructions on how to fill out 1040ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Instructions on how to fill out 1040ez   You can send your comments from www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov/formspubs/. Instructions on how to fill out 1040ez Click on “More Information” and then on “Comment on Tax Forms and Publications”. Instructions on how to fill out 1040ez   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Instructions on how to fill out 1040ez Ordering forms and publications. Instructions on how to fill out 1040ez   Visit www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Instructions on how to fill out 1040ez Internal Revenue Service 1201 N. Instructions on how to fill out 1040ez Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Instructions on how to fill out 1040ez   If you have a tax question, check the information available on IRS. Instructions on how to fill out 1040ez gov or call 1-800-829-1040. Instructions on how to fill out 1040ez We cannot answer tax questions sent to either of the above addresses. Instructions on how to fill out 1040ez Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 551 Basis of Assets 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and   Theft Loss Workbook Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Form 1040NR, Schedule A Itemized Deductions (for nonresident aliens) Schedule D (Form 1040) Capital Gains and Losses 4684 Casualties and Thefts 4797 Sales of Business Property See How To Get Tax Help near the end of this publication for information about getting publications and forms. Instructions on how to fill out 1040ez Prev  Up  Next   Home   More Online Publications
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Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Reduction Act of 1985, as amended, refund payments issued to corporations claiming refundable prior year minimum tax liability, are subject to sequestration. This means that refund payments processed on or after October 1, 2013 and on or before September 30, 2014 will be reduced by the fiscal year 2014 sequestration rate of 7.2 percent, irrespective of when the original or amended tax return was received by the Service. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

A corporation that can claim an additional first-year depreciation deduction under section 168(k) can choose instead to accelerate the use of its prior year minimum tax credits, treating the accelerated credits as refundable credits.  Corporations making this section 168(k)(4) election and claiming a refund of prior year minimum tax credits should complete Form 8827.  These corporations will be notified that a portion of their requested refund was subject to the sequester reduction.

Corporations making the section 168(k)(4) election but not claiming a refund of prior year minimum tax credits are not subject to this reduction. 

Page Last Reviewed or Updated: 30-Sep-2013

The Instructions On How To Fill Out 1040ez

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