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Irs 2012 Tax Return

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Irs 2012 Tax Return

Irs 2012 tax return Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Irs 2012 tax return More information. Irs 2012 tax return Exception—Community Income. Irs 2012 tax return Exception—Qualified joint venture. Irs 2012 tax return More information. Irs 2012 tax return More information. Irs 2012 tax return Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Irs 2012 tax return Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Irs 2012 tax return Table 1 can help you learn what those responsibilities are. Irs 2012 tax return Ask yourself each question listed in the table, then see the related discussion to find the answer. Irs 2012 tax return In addition to knowing about federal taxes, you need to make some basic business decisions. Irs 2012 tax return Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Irs 2012 tax return For information on how to contact the SBA, see How to Get More Information, later. Irs 2012 tax return Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Irs 2012 tax return When beginning a business, you must decide which form of business to use. Irs 2012 tax return Legal and tax considerations enter into this decision. Irs 2012 tax return Only tax considerations are discussed in this publication. Irs 2012 tax return Your form of business determines which income tax return form you have to file. Irs 2012 tax return See Table 2 to find out which form you have to file. Irs 2012 tax return Sole proprietorships. Irs 2012 tax return   A sole proprietorship is an unincorporated business that is owned by one individual. Irs 2012 tax return It is the simplest form of business organization to start and maintain. Irs 2012 tax return The business has no existence apart from you, the owner. Irs 2012 tax return Its liabilities are your personal liabilities. Irs 2012 tax return You undertake the risks of the business for all assets owned, whether or not used in the business. Irs 2012 tax return You include the income and expenses of the business on your personal tax return. Irs 2012 tax return More information. Irs 2012 tax return   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Irs 2012 tax return If you are a farmer, see Publication 225, Farmer's Tax Guide. Irs 2012 tax return Partnerships. Irs 2012 tax return   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Irs 2012 tax return Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Irs 2012 tax return   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Irs 2012 tax return , from its operations, but it does not pay income tax. Irs 2012 tax return Instead, it “passes through” any profits or losses to its partners. Irs 2012 tax return Each partner includes his or her share of the partnership's items on his or her tax return. Irs 2012 tax return More information. Irs 2012 tax return   For more information on partnerships, see Publication 541, Partnerships. Irs 2012 tax return Husband and wife business. Irs 2012 tax return   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Irs 2012 tax return Do not use Schedule C or C-EZ. Irs 2012 tax return Instead, file Form 1065, U. Irs 2012 tax return S. Irs 2012 tax return Return of Partnership Income. Irs 2012 tax return For more information, see Publication 541, Partnerships. Irs 2012 tax return Exception—Community Income. Irs 2012 tax return   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Irs 2012 tax return S. Irs 2012 tax return possession, you can treat the business either as a sole proprietorship or a partnership. Irs 2012 tax return The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Irs 2012 tax return A change in your reporting position will be treated as a conversion of the entity. Irs 2012 tax return Exception—Qualified joint venture. Irs 2012 tax return   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Irs 2012 tax return Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Irs 2012 tax return For an explanation of "material participation," see the Instructions for Schedule C, line G. Irs 2012 tax return   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Irs 2012 tax return Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Irs 2012 tax return For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Irs 2012 tax return Corporations. Irs 2012 tax return   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Irs 2012 tax return A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Irs 2012 tax return A corporation can also take special deductions. Irs 2012 tax return   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Irs 2012 tax return However, shareholders cannot deduct any loss of the corporation. Irs 2012 tax return More information. Irs 2012 tax return   For more information on corporations, see Publication 542, Corporations. Irs 2012 tax return S corporations. Irs 2012 tax return   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Irs 2012 tax return Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Irs 2012 tax return On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Irs 2012 tax return More information. Irs 2012 tax return   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Irs 2012 tax return S. Irs 2012 tax return Income Tax Return for an S Corporation. Irs 2012 tax return Limited liability company. Irs 2012 tax return   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Irs 2012 tax return The members of an LLC are not personally liable for its debts. Irs 2012 tax return An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Irs 2012 tax return 7701-3. Irs 2012 tax return For more information, see the instructions for Form 8832, Entity Classification Election. Irs 2012 tax return Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Irs 2012 tax return The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Irs 2012 tax return An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Irs 2012 tax return An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Irs 2012 tax return You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Irs 2012 tax return You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Irs 2012 tax return This includes returns or documents filed to report the following information. Irs 2012 tax return Interest, dividends, royalties, etc. Irs 2012 tax return , paid to you. Irs 2012 tax return Any amount paid to you as a dependent care provider. Irs 2012 tax return Certain other amounts paid to you that total $600 or more for the year. Irs 2012 tax return If you do not furnish your identification number as required, you may be subject to penalties. Irs 2012 tax return See Penalties, later. Irs 2012 tax return Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Irs 2012 tax return If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Irs 2012 tax return Applying for an EIN. Irs 2012 tax return   You may apply for an EIN: Online—Click on the EIN link at www. Irs 2012 tax return irs. Irs 2012 tax return gov/businesses/small. Irs 2012 tax return The EIN is issued immediately once the application information is validated. Irs 2012 tax return By telephone at 1-800-829-4933. Irs 2012 tax return By mailing or faxing Form SS-4, Application for Employer Identification Number. Irs 2012 tax return When to apply. Irs 2012 tax return   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Irs 2012 tax return If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Irs 2012 tax return If you apply by telephone or through the IRS website, you can get an EIN immediately. Irs 2012 tax return If you apply by fax, you can get an EIN within 4 business days. Irs 2012 tax return   If you do not receive your EIN by the time a return is due, file your return anyway. Irs 2012 tax return Write “Applied for” and the date you applied for the number in the space for the EIN. Irs 2012 tax return Do not use your social security number as a substitute for an EIN on your tax returns. Irs 2012 tax return More than one EIN. Irs 2012 tax return   You should have only one EIN. Irs 2012 tax return If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Irs 2012 tax return Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Irs 2012 tax return The IRS will tell you which number to use. Irs 2012 tax return More information. Irs 2012 tax return   For more information about EINs, see Publication 1635, Understanding Your EIN. Irs 2012 tax return Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Irs 2012 tax return The forms used to report these payments must include the payee's identification number. Irs 2012 tax return Employee. Irs 2012 tax return   If you have employees, you must get an SSN from each of them. Irs 2012 tax return Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Irs 2012 tax return If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Irs 2012 tax return This may occur, for example, if the employee's name has changed due to marriage or divorce. Irs 2012 tax return   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Irs 2012 tax return This form is available at SSA offices or by calling 1-800-772-1213. Irs 2012 tax return It is also available from the SSA website at www. Irs 2012 tax return ssa. Irs 2012 tax return gov. Irs 2012 tax return Other payee. Irs 2012 tax return   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Irs 2012 tax return If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Irs 2012 tax return   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Irs 2012 tax return This form is available from IRS offices or by calling 1-800-829-3676. Irs 2012 tax return It is also available from the IRS website at IRS. Irs 2012 tax return gov. Irs 2012 tax return    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Irs 2012 tax return For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Irs 2012 tax return Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Irs 2012 tax return A tax year is usually 12 consecutive months. Irs 2012 tax return There are two kinds of tax years. Irs 2012 tax return Calendar tax year. Irs 2012 tax return A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Irs 2012 tax return Fiscal tax year. Irs 2012 tax return A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Irs 2012 tax return A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Irs 2012 tax return If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Irs 2012 tax return You must use a calendar tax year if: You keep no books. Irs 2012 tax return You have no annual accounting period. Irs 2012 tax return Your present tax year does not qualify as a fiscal year. Irs 2012 tax return You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Irs 2012 tax return For more information, see Publication 538, Accounting Periods and Methods. Irs 2012 tax return First-time filer. Irs 2012 tax return   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Irs 2012 tax return You adopt a tax year by filing your first income tax return using that tax year. Irs 2012 tax return You have not adopted a tax year if you merely did any of the following. Irs 2012 tax return Filed an application for an extension of time to file an income tax return. Irs 2012 tax return Filed an application for an employer identification number. Irs 2012 tax return Paid estimated taxes for that tax year. Irs 2012 tax return Changing your tax year. Irs 2012 tax return   Once you have adopted your tax year, you may have to get IRS approval to change it. Irs 2012 tax return To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Irs 2012 tax return You may have to pay a fee. Irs 2012 tax return For more information, see Publication 538. Irs 2012 tax return Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Irs 2012 tax return You choose an accounting method for your business when you file your first income tax return. Irs 2012 tax return There are two basic accounting methods. Irs 2012 tax return Cash method. Irs 2012 tax return Under the cash method, you report income in the tax year you receive it. Irs 2012 tax return You usually deduct or capitalize expenses in the tax year you pay them. Irs 2012 tax return Accrual method. Irs 2012 tax return Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Irs 2012 tax return You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Irs 2012 tax return For other methods, see Publication 538. Irs 2012 tax return If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Irs 2012 tax return Inventories include goods held for sale in the normal course of business. Irs 2012 tax return They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Irs 2012 tax return Inventories are explained in Publication 538. Irs 2012 tax return Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Irs 2012 tax return For more information, see Publication 538. Irs 2012 tax return You must use the same accounting method to figure your taxable income and to keep your books. Irs 2012 tax return Also, you must use an accounting method that clearly shows your income. Irs 2012 tax return In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Irs 2012 tax return An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Irs 2012 tax return More than one business. Irs 2012 tax return   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Irs 2012 tax return You must keep a complete and separate set of books and records for each business. Irs 2012 tax return Changing your method of accounting. Irs 2012 tax return   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Irs 2012 tax return A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Irs 2012 tax return For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Irs 2012 tax return Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Irs 2012 tax return The following are the four general kinds of business taxes. Irs 2012 tax return Income tax. Irs 2012 tax return Self-employment tax. Irs 2012 tax return Employment taxes. Irs 2012 tax return Excise taxes. Irs 2012 tax return See Table 2 for the forms you file to report these taxes. Irs 2012 tax return You may want to get Publication 509. Irs 2012 tax return It has tax calendars that tell you when to file returns and make tax payments. Irs 2012 tax return Income Tax All businesses except partnerships must file an annual income tax return. Irs 2012 tax return Partnerships file an information return. Irs 2012 tax return Which form you use depends on how your business is organized. Irs 2012 tax return See Table 2 to find out which return you have to file. Irs 2012 tax return The federal income tax is a pay-as-you-go tax. Irs 2012 tax return You must pay the tax as you earn or receive income during the year. Irs 2012 tax return An employee usually has income tax withheld from his or her pay. Irs 2012 tax return If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Irs 2012 tax return If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Irs 2012 tax return Table 2. Irs 2012 tax return Which Forms Must I File? IF you are a. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return   THEN you may be liable for. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return   Use Form. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Irs 2012 tax return 2 Various other schedules may be needed. Irs 2012 tax return Estimated tax. Irs 2012 tax return   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Irs 2012 tax return Sole proprietors, partners, and S corporation shareholders. Irs 2012 tax return   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Irs 2012 tax return Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Irs 2012 tax return For more information, see Publication 505, Tax Withholding and Estimated Tax. Irs 2012 tax return Corporations. Irs 2012 tax return   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Irs 2012 tax return Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Irs 2012 tax return You must deposit the payments as explained later under Depositing Taxes. Irs 2012 tax return For more information, see Publication 542. Irs 2012 tax return Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Irs 2012 tax return Your payments of SE tax contribute to your coverage under the social security system. Irs 2012 tax return Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Irs 2012 tax return You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Irs 2012 tax return Your net earnings from self-employment were $400 or more. Irs 2012 tax return You had church employee income of $108. Irs 2012 tax return 28 or more. Irs 2012 tax return Use Schedule SE (Form 1040) to figure your SE tax. Irs 2012 tax return For more information, see Publication 334, Tax Guide for Small Business. Irs 2012 tax return You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Irs 2012 tax return The Social Security Administration (SSA) time limit for posting self-employment income. Irs 2012 tax return   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Irs 2012 tax return If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Irs 2012 tax return The SSA will not change its records to increase your self-employment income. Irs 2012 tax return Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Irs 2012 tax return Employment taxes include the following. Irs 2012 tax return Social security and Medicare taxes. Irs 2012 tax return Federal income tax withholding. Irs 2012 tax return Federal unemployment (FUTA) tax. Irs 2012 tax return If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Irs 2012 tax return If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Irs 2012 tax return These publications explain your tax responsibilities as an employer. Irs 2012 tax return If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Irs 2012 tax return That publication has information to help you determine whether an individual is an employee or an independent contractor. Irs 2012 tax return If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Irs 2012 tax return An independent contractor is someone who is self-employed. Irs 2012 tax return Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Irs 2012 tax return Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Irs 2012 tax return To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Irs 2012 tax return Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Irs 2012 tax return Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Irs 2012 tax return Medicare tax pays for benefits under the hospital insurance part of FICA. Irs 2012 tax return You withhold part of these taxes from your employee's wages and you pay a part yourself. Irs 2012 tax return To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Irs 2012 tax return Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Irs 2012 tax return (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Irs 2012 tax return ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Irs 2012 tax return You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Irs 2012 tax return You pay FUTA tax only from your own funds. Irs 2012 tax return Employees do not pay this tax or have it withheld from their pay. Irs 2012 tax return Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Irs 2012 tax return See Publication 15 to find out if you can use this form. Irs 2012 tax return Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Irs 2012 tax return Form I-9. Irs 2012 tax return   You must verify that each new employee is legally eligible to work in the United States. Irs 2012 tax return Both you and the employee must complete the U. Irs 2012 tax return S. Irs 2012 tax return Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Irs 2012 tax return You can get the form from USCIS offices or from the USCIS website at www. Irs 2012 tax return uscis. Irs 2012 tax return gov. Irs 2012 tax return Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Irs 2012 tax return Form W-4. Irs 2012 tax return   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Irs 2012 tax return You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Irs 2012 tax return For more information, see Publication 15. Irs 2012 tax return Employees claiming more than 10 withholding allowances. Irs 2012 tax return   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Irs 2012 tax return See section 16 of Publication 15. Irs 2012 tax return Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Irs 2012 tax return You must also send copies to the Social Security Administration. Irs 2012 tax return See Information Returns, later, for more information on Form W-2. Irs 2012 tax return Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Irs 2012 tax return Manufacture or sell certain products. Irs 2012 tax return Operate certain kinds of businesses. Irs 2012 tax return Use various kinds of equipment, facilities, or products. Irs 2012 tax return Receive payment for certain services. Irs 2012 tax return For more information on excise taxes, see Publication 510, Excise Taxes. Irs 2012 tax return Form 720. Irs 2012 tax return   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Irs 2012 tax return Environmental taxes. Irs 2012 tax return Communications and air transportation taxes. Irs 2012 tax return Fuel taxes. Irs 2012 tax return Tax on the first retail sale of heavy trucks, trailers, and tractors. Irs 2012 tax return Manufacturers taxes on the sale or use of a variety of different articles. Irs 2012 tax return Form 2290. Irs 2012 tax return   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Irs 2012 tax return The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Irs 2012 tax return Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Irs 2012 tax return For more information, see the instructions for Form 2290. Irs 2012 tax return Form 730. Irs 2012 tax return   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Irs 2012 tax return Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Irs 2012 tax return Form 11-C. Irs 2012 tax return   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Irs 2012 tax return Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Irs 2012 tax return Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Irs 2012 tax return Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Irs 2012 tax return Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Irs 2012 tax return Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Irs 2012 tax return The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Irs 2012 tax return You must give a copy of each information return you are required to file to the recipient or payer. Irs 2012 tax return In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Irs 2012 tax return For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Irs 2012 tax return Form 1099-MISC. Irs 2012 tax return   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Irs 2012 tax return These payments include the following items. Irs 2012 tax return Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Irs 2012 tax return Rent payments of $600 or more, other than rents paid to real estate agents. Irs 2012 tax return Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Irs 2012 tax return Royalty payments of $10 or more. Irs 2012 tax return Payments to certain crew members by operators of fishing boats. Irs 2012 tax return You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Irs 2012 tax return Form W-2. Irs 2012 tax return   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Irs 2012 tax return For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Irs 2012 tax return Form 8300. Irs 2012 tax return   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Irs 2012 tax return Cash includes U. Irs 2012 tax return S. Irs 2012 tax return and foreign coin and currency. Irs 2012 tax return It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Irs 2012 tax return For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Irs 2012 tax return Penalties The law provides penalties for not filing returns or paying taxes as required. Irs 2012 tax return Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Irs 2012 tax return Failure to file tax returns. Irs 2012 tax return   If you do not file your tax return by the due date, you may have to pay a penalty. Irs 2012 tax return The penalty is based on the tax not paid by the due date. Irs 2012 tax return See your tax return instructions for more information about this penalty. Irs 2012 tax return Failure to pay tax. Irs 2012 tax return   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Irs 2012 tax return For more information, see your tax return instructions. Irs 2012 tax return Failure to withhold, deposit, or pay taxes. Irs 2012 tax return   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Irs 2012 tax return You may also be subject to penalties if you deposit the taxes late. Irs 2012 tax return For more information, see Publication 15. Irs 2012 tax return Failure to follow information reporting requirements. Irs 2012 tax return   The following penalties apply if you are required to file information returns. Irs 2012 tax return For more information, see the General Instructions for Certain Information Returns. Irs 2012 tax return Failure to file information returns. Irs 2012 tax return A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Irs 2012 tax return Failure to furnish correct payee statements. Irs 2012 tax return A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Irs 2012 tax return Waiver of penalty. Irs 2012 tax return   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Irs 2012 tax return   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Irs 2012 tax return (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Irs 2012 tax return ) Failure to supply taxpayer identification number. Irs 2012 tax return   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Irs 2012 tax return You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Irs 2012 tax return Business Expenses You can deduct business expenses on your income tax return. Irs 2012 tax return These are the current operating costs of running your business. Irs 2012 tax return To be deductible, a business expense must be both ordinary and necessary. Irs 2012 tax return An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Irs 2012 tax return A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Irs 2012 tax return An expense does not have to be indispensable to be considered necessary. Irs 2012 tax return The following are brief explanations of some expenses that are of interest to people starting a business. Irs 2012 tax return There are many other expenses that you may be able to deduct. Irs 2012 tax return See your form instructions and Publication 535, Business Expenses. Irs 2012 tax return Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Irs 2012 tax return Your business start-up costs will depend on the type of business you are starting. Irs 2012 tax return They may include costs for advertising, travel, surveys, and training. Irs 2012 tax return These costs are generally capital expenses. Irs 2012 tax return You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Irs 2012 tax return You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Irs 2012 tax return The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Irs 2012 tax return Any remaining cost must be amortized. Irs 2012 tax return For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Irs 2012 tax return Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Irs 2012 tax return You must spread the cost over more than one tax year and deduct part of it each year. Irs 2012 tax return This method of deducting the cost of business property is called depreciation. Irs 2012 tax return Business property you must depreciate includes the following items. Irs 2012 tax return Office furniture. Irs 2012 tax return Buildings. Irs 2012 tax return Machinery and equipment. Irs 2012 tax return You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Irs 2012 tax return This deduction is known as the “section 179 deduction. Irs 2012 tax return ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Irs 2012 tax return Depreciation must be taken in the year it is allowable. Irs 2012 tax return Allowable depreciation not taken in a prior year cannot be taken in the current year. Irs 2012 tax return If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Irs 2012 tax return S. Irs 2012 tax return Individual Income Tax Return, or by changing your accounting method. Irs 2012 tax return For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Irs 2012 tax return Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Irs 2012 tax return Even then, your deduction may be limited. Irs 2012 tax return To qualify to claim expenses for business use of your home, you must meet both the following tests. Irs 2012 tax return Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Irs 2012 tax return Exclusive use. Irs 2012 tax return   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irs 2012 tax return The area used for business can be a room or other separately identifiable space. Irs 2012 tax return The space does not need to be marked off by a permanent partition. Irs 2012 tax return   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Irs 2012 tax return Exceptions to exclusive use. Irs 2012 tax return   You do not have to meet the exclusive use test if either of the following applies. Irs 2012 tax return You use part of your home for the storage of inventory or product samples. Irs 2012 tax return You use part of your home as a daycare facility. Irs 2012 tax return For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Irs 2012 tax return Principal place of business. Irs 2012 tax return   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Irs 2012 tax return You use it exclusively and regularly for administrative or management activities of your trade or business. Irs 2012 tax return You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Irs 2012 tax return   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Irs 2012 tax return The relative importance of the activities performed at each location. Irs 2012 tax return If the relative importance factor does not determine your principal place of business, the time spent at each location. Irs 2012 tax return    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irs 2012 tax return However, for other ways to qualify to deduct home office expenses, see Publication 587. Irs 2012 tax return Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Irs 2012 tax return If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Irs 2012 tax return More information. Irs 2012 tax return   For more information about business use of your home, see Publication 587. Irs 2012 tax return Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Irs 2012 tax return You generally can deduct either your actual expenses or the standard mileage rate. Irs 2012 tax return Actual expenses. Irs 2012 tax return   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Irs 2012 tax return You can divide your expenses based on the miles driven for each purpose. Irs 2012 tax return Example. Irs 2012 tax return You are the sole proprietor of a flower shop. Irs 2012 tax return You drove your van 20,000 miles during the year. Irs 2012 tax return 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Irs 2012 tax return You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Irs 2012 tax return Standard mileage rate. Irs 2012 tax return   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Irs 2012 tax return You can use the standard mileage rate for a vehicle you own or lease. Irs 2012 tax return The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Irs 2012 tax return It is announced annually by the IRS. Irs 2012 tax return To figure your deduction, multiply your business miles by the standard mileage rate for the year. Irs 2012 tax return    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Irs 2012 tax return However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Irs 2012 tax return Choosing the standard mileage rate. Irs 2012 tax return   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Irs 2012 tax return In later years, you can choose to use either the standard mileage rate or actual expenses. Irs 2012 tax return   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Irs 2012 tax return Additional information. Irs 2012 tax return   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irs 2012 tax return Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Irs 2012 tax return It also explains how long you must keep your records for federal tax purposes. Irs 2012 tax return A sample recordkeeping system is illustrated at the end of this part. Irs 2012 tax return Why Keep Records? Everyone in business must keep records. Irs 2012 tax return Good records will help you do the following. Irs 2012 tax return Monitor the progress of your business. Irs 2012 tax return   You need good records to monitor the progress of your business. Irs 2012 tax return Records can show whether your business is improving, which items are selling, or what changes you need to make. Irs 2012 tax return Good records can increase the likelihood of business success. Irs 2012 tax return Prepare your financial statements. Irs 2012 tax return   You need good records to prepare accurate financial statements. Irs 2012 tax return These include income (profit and loss) statements and balance sheets. Irs 2012 tax return These statements can help you in dealing with your bank or creditors and help you manage your business. Irs 2012 tax return An income statement shows the income and expenses of the business for a given period of time. Irs 2012 tax return A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Irs 2012 tax return Identify source of receipts. Irs 2012 tax return   You will receive money or property from many sources. Irs 2012 tax return Your records can identify the source of your receipts. Irs 2012 tax return You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Irs 2012 tax return Keep track of deductible expenses. Irs 2012 tax return   You may forget expenses when you prepare your tax return unless you record them when they occur. Irs 2012 tax return Prepare your tax returns. Irs 2012 tax return   You need good records to prepare your tax returns. Irs 2012 tax return These records must support the income, expenses, and credits you report. Irs 2012 tax return Generally, these are the same records you use to monitor your business and prepare your financial statements. Irs 2012 tax return Support items reported on tax returns. Irs 2012 tax return   You must keep your business records available at all times for inspection by the IRS. Irs 2012 tax return If the IRS examines any of your tax returns, you may be asked to explain the items reported. Irs 2012 tax return A complete set of records will speed up the examination. Irs 2012 tax return Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Irs 2012 tax return You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Irs 2012 tax return The business you are in affects the type of records you need to keep for federal tax purposes. Irs 2012 tax return You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Irs 2012 tax return See Accounting Method, earlier. Irs 2012 tax return If you are in more than one business, you should keep a complete and separate set of records for each business. Irs 2012 tax return A corporation should keep minutes of board of directors' meetings. Irs 2012 tax return Your recordkeeping system should include a summary of your business transactions. Irs 2012 tax return This summary is ordinarily made in your books (for example, accounting journals and ledgers). Irs 2012 tax return Your books must show your gross income, as well as your deductions and credits. Irs 2012 tax return For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Irs 2012 tax return In addition, you must keep supporting documents, explained later. Irs 2012 tax return Electronic records. Irs 2012 tax return   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Irs 2012 tax return When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Irs 2012 tax return An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Irs 2012 tax return The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Irs 2012 tax return All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Irs 2012 tax return Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Irs 2012 tax return   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Irs 2012 tax return You still have the responsibility of retaining any other books and records that are required to be retained. Irs 2012 tax return   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Irs 2012 tax return This test is not considered an examination and the results must be shared with you. Irs 2012 tax return If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Irs 2012 tax return If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Irs 2012 tax return For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Irs 2012 tax return Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Irs 2012 tax return Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Irs 2012 tax return These documents contain information you need to record in your books. Irs 2012 tax return It is important to keep these documents because they support the entries in your books and on your tax return. Irs 2012 tax return Keep them in an orderly fashion and in a safe place. Irs 2012 tax return For instance, organize them by year and type of income or expense. Irs 2012 tax return Gross receipts. Irs 2012 tax return   Gross receipts are the income you receive from your business. Irs 2012 tax return You should keep supporting documents that show the amounts and sources of your gross receipts. Irs 2012 tax return Documents that show gross receipts include the following. Irs 2012 tax return Cash register tapes. Irs 2012 tax return Bank deposit slips. Irs 2012 tax return Receipt books. Irs 2012 tax return Invoices. Irs 2012 tax return Credit card charge slips. Irs 2012 tax return Forms 1099-MISC. Irs 2012 tax return Purchases. Irs 2012 tax return   Purchases are the items you buy and resell to customers. Irs 2012 tax return If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Irs 2012 tax return Your supporting documents should show the amount paid and that the amount was for purchases. Irs 2012 tax return Documents for purchases include the following. Irs 2012 tax return Canceled checks. Irs 2012 tax return Cash register tape receipts. Irs 2012 tax return Credit card sales slips. Irs 2012 tax return Invoices. Irs 2012 tax return These records will help you determine the value of your inventory at the end of the year. Irs 2012 tax return See Publication 538 for information on methods for valuing inventory. Irs 2012 tax return Expenses. Irs 2012 tax return   Expenses are the costs you incur (other than purchases) to carry on your business. Irs 2012 tax return Your supporting documents should show the amount paid and that the amount was for a business expense. Irs 2012 tax return Documents for expenses include the following. Irs 2012 tax return Canceled checks. Irs 2012 tax return Cash register tapes. Irs 2012 tax return Account statements. Irs 2012 tax return Credit card sales slips. Irs 2012 tax return Invoices. Irs 2012 tax return Petty cash slips for small cash payments. Irs 2012 tax return    A petty cash fund allows you to make small payments without having to write checks for small amounts. Irs 2012 tax return Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Irs 2012 tax return Travel, transportation, entertainment, and gift expenses. Irs 2012 tax return   Specific recordkeeping rules apply to these expenses. Irs 2012 tax return For more information, see Publication 463. Irs 2012 tax return Employment taxes. Irs 2012 tax return   There are specific employment tax records you must keep. Irs 2012 tax return For a list, see Publication 15. Irs 2012 tax return Assets. Irs 2012 tax return   Assets are the property, such as machinery and furniture you own and use in your business. Irs 2012 tax return You must keep records to verify certain information about your business assets. Irs 2012 tax return You need records to figure the annual depreciation and the gain or loss when you sell the assets. Irs 2012 tax return Your records should show the following information. Irs 2012 tax return When and how you acquired the asset. Irs 2012 tax return Purchase price. Irs 2012 tax return Cost of any improvements. Irs 2012 tax return Section 179 deduction taken. Irs 2012 tax return Deductions taken for depreciation. Irs 2012 tax return Deductions taken for casualty losses, such as losses resulting from fires or storms. Irs 2012 tax return How you used the asset. Irs 2012 tax return When and how you disposed of the asset. Irs 2012 tax return Selling price. Irs 2012 tax return Expenses of sale. Irs 2012 tax return   The following documents may show this information. Irs 2012 tax return Purchase and sales invoices. Irs 2012 tax return Real estate closing statements. Irs 2012 tax return Canceled checks. Irs 2012 tax return What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Irs 2012 tax return These include account statements prepared for the financial institution by a third party. Irs 2012 tax return These account statements must be highly legible. Irs 2012 tax return The following table lists acceptable account statements. Irs 2012 tax return  IF payment is by. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return THEN the statement must show the. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return Check Check number. Irs 2012 tax return Amount. Irs 2012 tax return Payee's name. Irs 2012 tax return Date the check amount was posted to the account by the financial institution. Irs 2012 tax return Electronic funds transfer Amount transferred. Irs 2012 tax return Payee's name. Irs 2012 tax return Date the transfer was posted to the account by the financial institution. Irs 2012 tax return Credit card Amount charged. Irs 2012 tax return Payee's name. Irs 2012 tax return Transaction date. Irs 2012 tax return    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Irs 2012 tax return You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Irs 2012 tax return Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Irs 2012 tax return (Your business transactions are shown on the supporting documents just discussed. Irs 2012 tax return ) Business transactions are ordinarily summarized in books called journals and ledgers. Irs 2012 tax return You can buy them at your local stationery or office supply store. Irs 2012 tax return A journal is a book where you record each business transaction shown on your supporting documents. Irs 2012 tax return You may have to keep separate journals for transactions that occur frequently. Irs 2012 tax return A ledger is a book that contains the totals from all of your journals. Irs 2012 tax return It is organized into different accounts. Irs 2012 tax return Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Irs 2012 tax return For example, a recordkeeping system for a small business might include the following items. Irs 2012 tax return Business checkbook. Irs 2012 tax return Daily summary of cash receipts. Irs 2012 tax return Monthly summary of cash receipts. Irs 2012 tax return Check disbursements journal. Irs 2012 tax return Depreciation worksheet. Irs 2012 tax return Employee compensation record. Irs 2012 tax return The business checkbook is explained next. Irs 2012 tax return The other items are illustrated later under Sample Record System. Irs 2012 tax return The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Irs 2012 tax return For example, record expenses when they occur, and identify the source of recorded receipts. Irs 2012 tax return Generally, it is best to record transactions on a daily basis. Irs 2012 tax return Business checkbook. Irs 2012 tax return   One of the first things you should do when you start a business is open a business checking account. Irs 2012 tax return You should keep your business account separate from your personal checking account. Irs 2012 tax return   The business checkbook is your basic source of information for recording your business expenses. Irs 2012 tax return You should deposit all daily receipts in your business checking account. Irs 2012 tax return You should check your account for errors by reconciling it. Irs 2012 tax return See Reconciling the checking account, later. Irs 2012 tax return   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Irs 2012 tax return You should also note on the deposit slip the source of the deposit and keep copies of all slips. Irs 2012 tax return   You should make all payments by check to document business expenses. Irs 2012 tax return Write checks payable to yourself only when making withdrawals from your business for personal use. Irs 2012 tax return Avoid writing checks payable to cash. Irs 2012 tax return If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Irs 2012 tax return If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Irs 2012 tax return    Use the business account for business purposes only. Irs 2012 tax return Indicate the source of deposits and the type of expense in the checkbook. Irs 2012 tax return Reconciling the checking account. Irs 2012 tax return   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Irs 2012 tax return The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Irs 2012 tax return   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Irs 2012 tax return    You should reconcile your checking account each month. Irs 2012 tax return     Before you reconcile your monthly bank statement, check your own figures. Irs 2012 tax return Begin with the balance shown in your checkbook at the end of the previous month. Irs 2012 tax return To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Irs 2012 tax return   After checking your figures, the result should agree with your checkbook balance at the end of the month. Irs 2012 tax return If the result does not agree, you may have made an error in recording a check or deposit. Irs 2012 tax return You can find the error by doing the following. Irs 2012 tax return Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Irs 2012 tax return If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Irs 2012 tax return Adding the deposit amounts in your checkbook. Irs 2012 tax return Compare that total with the monthly total in your cash receipt book, if you have one. Irs 2012 tax return If the totals do not agree, check the individual amounts to find any errors. Irs 2012 tax return   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Irs 2012 tax return   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Irs 2012 tax return Many banks print a reconciliation worksheet on the back of the statement. Irs 2012 tax return   To reconcile your account, follow these steps. Irs 2012 tax return Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Irs 2012 tax return Note all differences in the dollar amounts. Irs 2012 tax return Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Irs 2012 tax return Note all differences in the dollar amounts. Irs 2012 tax return Mark the check number in the checkbook as having cleared the bank. Irs 2012 tax return After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Irs 2012 tax return Prepare a bank reconciliation. Irs 2012 tax return One is illustrated later under Sample Record System. Irs 2012 tax return Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Irs 2012 tax return At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Irs 2012 tax return If you still have differences, check the previous steps to find the errors. Irs 2012 tax return   Table 3. Irs 2012 tax return Period of Limitations IF you. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return   THEN the period is. Irs 2012 tax return . Irs 2012 tax return . Irs 2012 tax return 1. Irs 2012 tax return Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Irs 2012 tax return Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Irs 2012 tax return File a fraudulent return   Not limited 4. Irs 2012 tax return Do not file a return   Not limited 5. Irs 2012 tax return File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Irs 2012 tax return File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Irs 2012 tax return The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Irs 2012 tax return You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Irs 2012 tax return Single-entry. Irs 2012 tax return   A single-entry system is based on the income statement (profit or loss statement). Irs 2012 tax return It can be a simple and practical system if you are starting a small business. Irs 2012 tax return The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Irs 2012 tax return Double-entry. Irs 2012 tax return   A double-entry bookkeeping system uses journals and ledgers. Irs 2012 tax return Transactions are first entered in a journal and then posted to ledger accounts. Irs 2012 tax return These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Irs 2012 tax return You close income and expense accounts at the end of each tax year. Irs 2012 tax return You keep asset, liability, and net worth accounts open on a permanent basis. Irs 2012 tax return   In the double-entry system, each account has a left side for debits and a right side for credits. Irs 2012 tax return It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Irs 2012 tax return   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Irs 2012 tax return If the amounts do not balance, you have made an error and you must find and correct it. Irs 2012 tax return   An example of a journal entry exhibiting a payment of rent in October is shown next. Irs 2012 tax return General Journal Date Description of Entry Debit  Credit Oct. Irs 2012 tax return 5 Rent expense 780. Irs 2012 tax return 00     Cash   780. Irs 2012 tax return 00                 Computerized System There are computer software packages you can use for recordkeeping. Irs 2012 tax return They can be purchased in many retail stores. Irs 2012 tax return These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Irs 2012 tax return If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Irs 2012 tax return To meet this qualification, the machine-sensible records must reconcile with your books and return. Irs 2012 tax return These records must provide enough detail to identify the underlying source documents. Irs 2012 tax return You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Irs 2012 tax return This documentation must be sufficiently detailed to show all of the following items. Irs 2012 tax return Functions being performed as the data flows through the system. Irs 2012 tax return Controls used to ensure accurate and reliable processing. Irs 2012 tax return Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Irs 2012 tax return Charts of accounts and detailed account descriptions. Irs 2012 tax return See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Irs 2012 tax return How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Irs 2012 tax return Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Irs 2012 tax return The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Irs 2012 tax return Table 3 contains the periods of limitations that apply to income tax returns. Irs 2012 tax return Unless otherwise stated, the years refer to the period after the return was filed. Irs 2012 tax return Returns filed before the due date are treated as filed on the due date. Irs 2012 tax return Keep copies of your filed tax returns. Irs 2012 tax return They help in preparing future tax returns and making computations if you file an amended return. Irs 2012 tax return Employment taxes. Irs 2012 tax return   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Irs 2012 tax return For more information about recordkeeping for employment taxes, see Publication 15. Irs 2012 tax return Assets. Irs 2012 tax return   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Irs 2012 tax return You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Irs 2012 tax return   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Irs 2012 tax return You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Irs 2012 tax return Records for nontax purposes. Irs 2012 tax return   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Irs 2012 tax return For example, your insurance company or creditors may require you to keep them longer than the IRS does. Irs 2012 tax return Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Irs 2012 tax return Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Irs 2012 tax return These sample records should not be viewed as a recommendation of how to keep your records. Irs 2012 tax return They are intended only to show how one business keeps its records. Irs 2012 tax return 1. Irs 2012 tax return Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Irs 2012 tax return It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Irs 2012 tax return Henry takes the cash sales entry from his cash register tape. Irs 2012 tax return If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Irs 2012 tax return He carries the total receipts shown in this summary for January 3 ($267. Irs 2012 tax return 80), including cash sales ($263. Irs 2012 tax return 60) and sales tax ($4. Irs 2012 tax return 20), to the Monthly Summary of Cash Receipts. Irs 2012 tax return Petty cash fund. Irs 2012 tax return   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Irs 2012 tax return Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Irs 2012 tax return He sets up a fixed amount ($50) in his petty cash fund. Irs 2012 tax return The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Irs 2012 tax return When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Irs 2012 tax return (See the Check Disbursements Journal entry for check number 92. Irs 2012 tax return ) This restores the fund to its fixed amount of $50. Irs 2012 tax return He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Irs 2012 tax return 2. Irs 2012 tax return Monthly Summary of Cash Receipts This shows the income activity for the month. Irs 2012 tax return Henry carries the total monthly net sales shown in this summary for January ($4,865. Irs 2012 tax return 05) to his Annual Summary. Irs 2012 tax return To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Irs 2012 tax return He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Irs 2012 tax return He does not include the tax in his income. Irs 2012 tax return 3. Irs 2012 tax return Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Irs 2012 tax return All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Irs 2012 tax return Frequent expenses have their own headings across the sheet. Irs 2012 tax return He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Irs 2012 tax return Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Irs 2012 tax return Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Irs 2012 tax return If he did, he would record them in the journal, even though he could not deduct them as business expenses. Irs 2012 tax return Henry carries the January total of expenses for materials ($1,083. Irs 2012 tax return 50) to the Annual Summary. Irs 2012 tax return Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Irs 2012 tax return , in the appropriate columns of that summary. Irs 2012 tax return 4. Irs 2012 tax return Employee Compensation Record This record shows the following information. Irs 2012 tax return The number of hours Henry's employee worked in a pay period. Irs 2012 tax return The employee's total pay for the period. Irs 2012 tax return The deductions Henry withheld in figuring the employee's net pay. Irs 2012 tax return The monthly gross payroll. Irs 2012 tax return Henry carries the January gross payroll ($520) to the Annual Summary. Irs 2012 tax return 5. Irs 2012 tax return Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Irs 2012 tax return He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Irs 2012 tax return He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Irs 2012 tax return As in the journal, he keeps each major expense in a separate column. Irs 2012 tax return Henry carries the cash receipts total shown in the annual summary ($47,440. Irs 2012 tax return 9
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The Irs 2012 Tax Return

Irs 2012 tax return Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Irs 2012 tax return Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Irs 2012 tax return An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Irs 2012 tax return In general, an executor and an administrator perform the same duties and have the same responsibilities. Irs 2012 tax return For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Irs 2012 tax return It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Irs 2012 tax return Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Irs 2012 tax return The personal representative also must perform the following duties. Irs 2012 tax return Apply for an employer identification number (EIN) for the estate. Irs 2012 tax return File all tax returns, including income, estate and gift tax returns, when due. Irs 2012 tax return Pay the tax determined up to the date of discharge from duties. Irs 2012 tax return Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Irs 2012 tax return If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Irs 2012 tax return Penalty. Irs 2012 tax return   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Irs 2012 tax return Reliance on an agent (attorney, accountant, etc. Irs 2012 tax return ) is not reasonable cause for late filing. Irs 2012 tax return It is the personal representative's duty to file the returns for the decedent and the estate when due. Irs 2012 tax return Identification number. Irs 2012 tax return   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Irs 2012 tax return You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Irs 2012 tax return You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Irs 2012 tax return   You can get an EIN by applying online at www. Irs 2012 tax return irs. Irs 2012 tax return gov (click on "Apply for an EIN Online" under the Tools heading). Irs 2012 tax return Generally, if you apply online, you will receive your EIN immediately upon completing the application. Irs 2012 tax return You can also apply using Form SS-4, Application for Employer Identification Number. Irs 2012 tax return Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Irs 2012 tax return See the form instructions for other ways to apply. Irs 2012 tax return   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Irs 2012 tax return After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Irs 2012 tax return As the personal representative handling the estate, you must furnish this identification number to the payer. Irs 2012 tax return For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Irs 2012 tax return If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Irs 2012 tax return   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Irs 2012 tax return Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Irs 2012 tax return    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Irs 2012 tax return Also do not use it to make estimated tax payments for a tax year after the year of death. Irs 2012 tax return Penalty. Irs 2012 tax return   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Irs 2012 tax return You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Irs 2012 tax return Notice of fiduciary relationship. Irs 2012 tax return   The term fiduciary means any person acting for another person. Irs 2012 tax return It applies to persons who have positions of trust on behalf of others. Irs 2012 tax return A personal representative for a decedent's estate is a fiduciary. Irs 2012 tax return Form 56. Irs 2012 tax return   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Irs 2012 tax return Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Irs 2012 tax return See the Instructions for Form 56 for filing requirements and other information. Irs 2012 tax return   File Form 56 as soon as all the necessary information (including the EIN) is available. Irs 2012 tax return It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Irs 2012 tax return The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Irs 2012 tax return Termination of fiduciary relationship. Irs 2012 tax return   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Irs 2012 tax return See Form 56 and its instructions for more information. Irs 2012 tax return   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Irs 2012 tax return See below for a discussion of these forms. Irs 2012 tax return Request for prompt assessment (charge) of tax. Irs 2012 tax return   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Irs 2012 tax return However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Irs 2012 tax return This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Irs 2012 tax return This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Irs 2012 tax return This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Irs 2012 tax return Form 4810. Irs 2012 tax return   Form 4810 can be used for making this request. Irs 2012 tax return It must be filed separately from any other document. Irs 2012 tax return   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Irs 2012 tax return You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Irs 2012 tax return This applies even though the returns were filed before the decedent's death. Irs 2012 tax return Failure to report income. Irs 2012 tax return   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Irs 2012 tax return However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Irs 2012 tax return Request for discharge from personal liability for tax. Irs 2012 tax return   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Irs 2012 tax return The request must be made after the returns for those taxes are filed. Irs 2012 tax return To make the request, file Form 5495. Irs 2012 tax return For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Irs 2012 tax return   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Irs 2012 tax return If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Irs 2012 tax return If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Irs 2012 tax return    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Irs 2012 tax return Insolvent estate. Irs 2012 tax return   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Irs 2012 tax return Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Irs 2012 tax return The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Irs 2012 tax return The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Irs 2012 tax return Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Irs 2012 tax return Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Irs 2012 tax return If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Irs 2012 tax return If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Irs 2012 tax return If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Irs 2012 tax return Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Irs 2012 tax return A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Irs 2012 tax return See Joint Return, later. Irs 2012 tax return Return for preceding year. Irs 2012 tax return   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Irs 2012 tax return The return for that year will be a regular return and the personal representative must file it. Irs 2012 tax return Example. Irs 2012 tax return Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Irs 2012 tax return Her personal representative must file her 2012 return by April 15, 2013. Irs 2012 tax return Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Irs 2012 tax return Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Irs 2012 tax return If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Irs 2012 tax return If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Irs 2012 tax return Third party designee. Irs 2012 tax return   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Irs 2012 tax return This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Irs 2012 tax return It also allows the designee to perform certain actions. Irs 2012 tax return See the Instructions for Form 1040 for details. Irs 2012 tax return Signature. Irs 2012 tax return   If a personal representative has been appointed, that person must sign the return. Irs 2012 tax return If it is a joint return, the surviving spouse must also sign it. Irs 2012 tax return If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Irs 2012 tax return ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Irs 2012 tax return ” Paid preparer. Irs 2012 tax return   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Irs 2012 tax return See the Form 1040 instructions for details. Irs 2012 tax return When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Irs 2012 tax return A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Irs 2012 tax return However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Irs 2012 tax return The tax return must be prepared for the year of death regardless of when during the year death occurred. Irs 2012 tax return Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Irs 2012 tax return A tax return for a decedent can be electronically filed. Irs 2012 tax return A personal representative may also obtain an income tax filing extension on behalf of a decedent. Irs 2012 tax return Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Irs 2012 tax return Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Irs 2012 tax return It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Irs 2012 tax return In general, filing status depends on whether the decedent was considered single or married at the time of death. Irs 2012 tax return See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Irs 2012 tax return Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Irs 2012 tax return Also, the decedent may be entitled to other credits that result in a refund. Irs 2012 tax return These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Irs 2012 tax return Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Irs 2012 tax return   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Irs 2012 tax return   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Irs 2012 tax return S. Irs 2012 tax return Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Irs 2012 tax return Example. Irs 2012 tax return Edward Green died before filing his tax return. Irs 2012 tax return You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Irs 2012 tax return You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Irs 2012 tax return    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Irs 2012 tax return Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Irs 2012 tax return A new check will be issued in your name and mailed to you. Irs 2012 tax return Death certificate. Irs 2012 tax return   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Irs 2012 tax return Instead, keep it for your records and provide it if requested. Irs 2012 tax return Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Irs 2012 tax return S. Irs 2012 tax return Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Irs 2012 tax return See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Irs 2012 tax return Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Irs 2012 tax return However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Irs 2012 tax return This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Irs 2012 tax return The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Irs 2012 tax return A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Irs 2012 tax return The filing status of the decedent in this instance is married filing a separate return. Irs 2012 tax return For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Irs 2012 tax return Personal representative may revoke joint return election. Irs 2012 tax return   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Irs 2012 tax return This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Irs 2012 tax return The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Irs 2012 tax return Relief from joint liability. Irs 2012 tax return   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Irs 2012 tax return If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Irs 2012 tax return For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Irs 2012 tax return Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Irs 2012 tax return The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Irs 2012 tax return This section explains how some types of income are reported on the final return. Irs 2012 tax return For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Irs 2012 tax return Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Irs 2012 tax return Constructive receipt of income. Irs 2012 tax return   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Irs 2012 tax return Include the interest income on the final return. Irs 2012 tax return   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Irs 2012 tax return If the corporation customarily mailed its dividend checks, the dividend was includible when received. Irs 2012 tax return If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Irs 2012 tax return Do not include the dividend in the final return. Irs 2012 tax return Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Irs 2012 tax return If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Irs 2012 tax return Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Irs 2012 tax return A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Irs 2012 tax return You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Irs 2012 tax return For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Irs 2012 tax return For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Irs 2012 tax return If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Irs 2012 tax return See U. Irs 2012 tax return S. Irs 2012 tax return savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Irs 2012 tax return How to report. Irs 2012 tax return   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Irs 2012 tax return Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Irs 2012 tax return Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Irs 2012 tax return Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Irs 2012 tax return   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Irs 2012 tax return    Note. Irs 2012 tax return If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Irs 2012 tax return See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Irs 2012 tax return Partnership Income The death of a partner closes the partnership's tax year for that partner. Irs 2012 tax return Generally, it does not close the partnership's tax year for the remaining partners. Irs 2012 tax return The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Irs 2012 tax return To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Irs 2012 tax return On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Irs 2012 tax return The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Irs 2012 tax return The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Irs 2012 tax return Example. Irs 2012 tax return Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Irs 2012 tax return The partnership uses a tax year ending June 30. Irs 2012 tax return Mary died August 31, 2013, and her estate established its tax year through August 31. Irs 2012 tax return The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Irs 2012 tax return Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Irs 2012 tax return Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Irs 2012 tax return S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Irs 2012 tax return The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Irs 2012 tax return The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Irs 2012 tax return Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Irs 2012 tax return For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Irs 2012 tax return For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Irs 2012 tax return Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Irs 2012 tax return For more information, see Publication 555, Community Property. Irs 2012 tax return HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Irs 2012 tax return If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Irs 2012 tax return The estate tax deduction, discussed later, does not apply to this amount. Irs 2012 tax return If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Irs 2012 tax return For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Irs 2012 tax return Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Irs 2012 tax return The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Irs 2012 tax return If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Irs 2012 tax return The estate tax deduction, discussed later, does not apply to this amount. Irs 2012 tax return If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Irs 2012 tax return The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Irs 2012 tax return This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Irs 2012 tax return For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Irs 2012 tax return Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Irs 2012 tax return These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Irs 2012 tax return Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Irs 2012 tax return For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Irs 2012 tax return Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Irs 2012 tax return Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Irs 2012 tax return This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Irs 2012 tax return See Medical Expenses, later. Irs 2012 tax return Exemptions You can claim the decedent's personal exemption on the final income tax return. Irs 2012 tax return If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Irs 2012 tax return Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Irs 2012 tax return For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Irs 2012 tax return Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Irs 2012 tax return This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Irs 2012 tax return Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Irs 2012 tax return In that case medical expenses exceeding 7. Irs 2012 tax return 5% of AGI may be deducted. Irs 2012 tax return Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Irs 2012 tax return Election for decedent's expenses. Irs 2012 tax return   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Irs 2012 tax return However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Irs 2012 tax return   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Irs 2012 tax return You can deduct expenses incurred in the year of death on the final income tax return. Irs 2012 tax return You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Irs 2012 tax return   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Irs 2012 tax return 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Irs 2012 tax return Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Irs 2012 tax return Making the election. Irs 2012 tax return   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Irs 2012 tax return The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Irs 2012 tax return This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Irs 2012 tax return Example. Irs 2012 tax return Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Irs 2012 tax return Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Irs 2012 tax return Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Irs 2012 tax return Richard itemized his deductions when he filed his 2012 income tax return. Irs 2012 tax return The personal representative of the estate paid the entire $800 liability in August 2013. Irs 2012 tax return The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Irs 2012 tax return 5% limit. Irs 2012 tax return The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Irs 2012 tax return 5% limit. Irs 2012 tax return The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Irs 2012 tax return Medical expenses not paid by estate. Irs 2012 tax return   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Irs 2012 tax return If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Irs 2012 tax return Insurance reimbursements. Irs 2012 tax return   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Irs 2012 tax return The reimbursements are also includible in the decedent's gross estate. Irs 2012 tax return No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Irs 2012 tax return These expenses may be deductible for estate tax purposes on Form 706. Irs 2012 tax return Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Irs 2012 tax return A net operating loss on the decedent's final income tax return can be carried back to prior years. Irs 2012 tax return (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Irs 2012 tax return ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Irs 2012 tax return At-risk loss limits. Irs 2012 tax return   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Irs 2012 tax return   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Irs 2012 tax return An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Irs 2012 tax return An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Irs 2012 tax return The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Irs 2012 tax return For more information, see Publication 925, Passive Activity and At-Risk Rules. Irs 2012 tax return Passive activity rules. Irs 2012 tax return   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Irs 2012 tax return To determine material participation, see Publication 925. Irs 2012 tax return Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Irs 2012 tax return   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Irs 2012 tax return Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Irs 2012 tax return   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Irs 2012 tax return Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Irs 2012 tax return The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Irs 2012 tax return   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Irs 2012 tax return For more information, see Publication 925. Irs 2012 tax return Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Irs 2012 tax return Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Irs 2012 tax return Some of these credits are discussed next. Irs 2012 tax return Earned income credit. Irs 2012 tax return   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Irs 2012 tax return If the allowable credit is more than the tax liability for the year, the excess is refunded. Irs 2012 tax return   For more information, see Publication 596, Earned Income Credit (EIC). Irs 2012 tax return Credit for the elderly or the disabled. Irs 2012 tax return   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Irs 2012 tax return The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Irs 2012 tax return   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Irs 2012 tax return Child tax credit. Irs 2012 tax return   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Irs 2012 tax return You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Irs 2012 tax return For more information, see the Instructions for Form 1040. Irs 2012 tax return Adoption credit. Irs 2012 tax return   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Irs 2012 tax return   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Irs 2012 tax return See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Irs 2012 tax return General business tax credit. Irs 2012 tax return   The general business credit available to a taxpayer is limited. Irs 2012 tax return Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Irs 2012 tax return Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Irs 2012 tax return   After the carryforward period, a deduction may be allowed for any unused business credit. Irs 2012 tax return If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Irs 2012 tax return   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Irs 2012 tax return Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Irs 2012 tax return Self-employment tax. Irs 2012 tax return   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Irs 2012 tax return 28 or more. Irs 2012 tax return Alternative minimum tax (AMT). Irs 2012 tax return   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Irs 2012 tax return The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Irs 2012 tax return In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Irs 2012 tax return Form 6251. Irs 2012 tax return    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Irs 2012 tax return See the form instructions for information on when you must attach Form 6251 to Form 1040. Irs 2012 tax return Form 8801. Irs 2012 tax return   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Irs 2012 tax return See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Irs 2012 tax return Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Irs 2012 tax return Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Irs 2012 tax return Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Irs 2012 tax return For this purpose, a qualified hazardous duty area is treated as a combat zone. Irs 2012 tax return If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Irs 2012 tax return If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Irs 2012 tax return Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Irs 2012 tax return If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Irs 2012 tax return Also, if any tax was collected after the date of death, that amount will be credited or refunded. Irs 2012 tax return The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Irs 2012 tax return This is true even if death actually occurred earlier. Irs 2012 tax return For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Irs 2012 tax return Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Irs 2012 tax return S. Irs 2012 tax return employee, and In a military or terrorist action. Irs 2012 tax return The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Irs 2012 tax return Example. Irs 2012 tax return The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Irs 2012 tax return S. Irs 2012 tax return employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Irs 2012 tax return Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Irs 2012 tax return Military or terrorist action defined. Irs 2012 tax return   A military or terrorist action means the following. Irs 2012 tax return Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Irs 2012 tax return Any military action involving the U. Irs 2012 tax return S. Irs 2012 tax return Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Irs 2012 tax return   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Irs 2012 tax return Military action does not include training exercises. Irs 2012 tax return Any multinational force in which the United States is participating is treated as an ally of the United States. Irs 2012 tax return Determining if a terrorist activity or military action has occurred. Irs 2012 tax return   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Irs 2012 tax return Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Irs 2012 tax return Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Irs 2012 tax return The April 19, 1995, terrorist attack on the Alfred P. Irs 2012 tax return Murrah Federal Building (Oklahoma City). Irs 2012 tax return The September 11, 2001, terrorist attacks. Irs 2012 tax return The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Irs 2012 tax return The Act also exempts from federal income tax the following types of income. Irs 2012 tax return Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Irs 2012 tax return Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Irs 2012 tax return Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Irs 2012 tax return Payments from the September 11th Victim Compensation Fund 2001. Irs 2012 tax return The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Irs 2012 tax return See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Irs 2012 tax return Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Irs 2012 tax return The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Irs 2012 tax return For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Irs 2012 tax return However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Irs 2012 tax return For more information on the Act, see Publication 3920. Irs 2012 tax return Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Irs 2012 tax return If any tax is still due, it will be canceled. Irs 2012 tax return The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Irs 2012 tax return If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Irs 2012 tax return Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Irs 2012 tax return This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Irs 2012 tax return Filing a claim. Irs 2012 tax return   Use the following procedures to file a claim. Irs 2012 tax return If a U. Irs 2012 tax return S. Irs 2012 tax return individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Irs 2012 tax return Form W-2, Wage and Tax Statement, must accompany all returns. Irs 2012 tax return If a U. Irs 2012 tax return S. Irs 2012 tax return individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Irs 2012 tax return You must file a separate Form 1040X for each year in question. Irs 2012 tax return   You must file these returns and claims at the following address for regular mail (U. Irs 2012 tax return S. Irs 2012 tax return Postal Service). Irs 2012 tax return    Internal Revenue Service 333 W. Irs 2012 tax return Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Irs 2012 tax return On the applicable return, write the same phrase on the line for total tax. Irs 2012 tax return If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Irs 2012 tax return   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Irs 2012 tax return On joint returns, make an allocation of the tax as described below under Joint returns. Irs 2012 tax return If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Irs 2012 tax return   You must attach Form 1310 to all returns and claims for refund. Irs 2012 tax return However, for exceptions to filing Form 1310, see Form 1310. Irs 2012 tax return Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Irs 2012 tax return   You must also attach proof of death that includes a statement that the individual was a U. Irs 2012 tax return S. Irs 2012 tax return employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Irs 2012 tax return For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Irs 2012 tax return For other U. Irs 2012 tax return S. Irs 2012 tax return civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Irs 2012 tax return For other U. Irs 2012 tax return S. Irs 2012 tax return civilian employees killed overseas, attach a certification from the Department of State. Irs 2012 tax return   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Irs 2012 tax return Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Irs 2012 tax return Joint returns. Irs 2012 tax return   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Irs 2012 tax return Determine the decedent's tax liability as follows. Irs 2012 tax return Figure the income tax for which the decedent would have been liable if a separate return had been filed. Irs 2012 tax return Figure the income tax for which the spouse would have been liable if a separate return had been filed. Irs 2012 tax return Multiply the joint tax liability by a fraction. Irs 2012 tax return The numerator of the fraction is the amount in (1), above. Irs 2012 tax return The denominator of the fraction is the total of (1) and (2). Irs 2012 tax return   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Irs 2012 tax return Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Irs 2012 tax return Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Irs 2012 tax return If a personal representative has been appointed, the personal representative must sign the return. Irs 2012 tax return If it is a joint return, the surviving spouse must also sign it. Irs 2012 tax return If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Irs 2012 tax return If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Irs 2012 tax return ” To claim a refund for the decedent, do the following. Irs 2012 tax return If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Irs 2012 tax return If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Irs 2012 tax return (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Irs 2012 tax return ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Irs 2012 tax return If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Irs 2012 tax return Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Irs 2012 tax return Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Irs 2012 tax return Joint return by surviving spouse. Irs 2012 tax return   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Irs 2012 tax return Decedent as your dependent. Irs 2012 tax return   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Irs 2012 tax return   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Irs 2012 tax return To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Irs 2012 tax return To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Irs 2012 tax return Qualifying widows and widowers. Irs 2012 tax return   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Irs 2012 tax return Requirements. Irs 2012 tax return   Generally, you qualify for this special benefit if you meet all of the following requirements. Irs 2012 tax return You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Irs 2012 tax return You did not remarry before the end of the current tax year. Irs 2012 tax return You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Irs 2012 tax return You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Irs 2012 tax return Example. Irs 2012 tax return William Burns' wife died in 2010. Irs 2012 tax return William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Irs 2012 tax return For 2010, he was entitled to file a joint return for himself and his deceased wife. Irs 2012 tax return For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Irs 2012 tax return For later years, he may qualify to file as a head of household. Irs 2012 tax return Figuring your tax. Irs 2012 tax return   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Irs 2012 tax return Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Irs 2012 tax return   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Irs 2012 tax return Joint return filing rules. Irs 2012 tax return   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Irs 2012 tax return See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Irs 2012 tax return Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Irs 2012 tax return If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Irs 2012 tax return This exclusion does not apply to certain income. Irs 2012 tax return For more information, see Publication 3920. Irs 2012 tax return How To Report Income in respect of a decedent must be included in the income of one of the following. Irs 2012 tax return The decedent's estate, if the estate receives it. Irs 2012 tax return The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Irs 2012 tax return Any person to whom the estate properly distributes the right to receive it. Irs 2012 tax return If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Irs 2012 tax return See Estate Tax Deduction, later. Irs 2012 tax return Example 1. Irs 2012 tax return Frank Johnson owned and operated an apple orchard. Irs 2012 tax return He used the cash method of accounting. Irs 2012 tax return He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Irs 2012 tax return The proceeds from the sale are income in respect of a decedent. Irs 2012 tax return When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Irs 2012 tax return When Frank's widow collects the $2,000, she must include that amount in her return. Irs 2012 tax return It is not reported on the final return of the decedent or on the return of the estate. Irs 2012 tax return Example 2. Irs 2012 tax return Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Irs 2012 tax return The amount accrued from the sale of the apples would be included on his final return. Irs 2012 tax return Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Irs 2012 tax return Example 3. Irs 2012 tax return On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Irs 2012 tax return His adjusted basis in the tractor was $2,000. Irs 2012 tax return George died on February 15, before receiving payment. Irs 2012 tax return The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Irs 2012 tax return In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Irs 2012 tax return Example 4. Irs 2012 tax return Cathy O'Neil was entitled to a large salary payment at the date of her death. Irs 2012 tax return The amount was to be paid in five annual installments. Irs 2012 tax return The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Irs 2012 tax return The payments are income in respect of a decedent. Irs 2012 tax return None of the payments were includible on Cathy's final return. Irs 2012 tax return The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Irs 2012 tax return Example 5. Irs 2012 tax return You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Irs 2012 tax return You inherited the right from your mother, who acquired it by bequest from your father. Irs 2012 tax return Your mother died before she received all the commissions she had the right to receive, so you received the rest. Irs 2012 tax return The commissions are income in respect of a decedent. Irs 2012 tax return None of these commissions were includible in your father's final return. Irs 2012 tax return The commissions received by your mother were included in her income. Irs 2012 tax return The commissions you received are not includible in your mother's income, even on her final return. Irs 2012 tax return You must include them in your income. Irs 2012 tax return Character of income. Irs 2012 tax return   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Irs 2012 tax return If the income would have been a capital gain to the decedent, it will be a capital gain to you. Irs 2012 tax return Transfer of right to income. Irs 2012 tax return   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Irs 2012 tax return   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Irs 2012 tax return   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Irs 2012 tax return See Installment obligations, later. Irs 2012 tax return Transfer defined. Irs 2012 tax return   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Irs 2012 tax return Installment obligations. Irs 2012 tax return   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Irs 2012 tax return Include in your income the same profit the decedent would have included had death not occurred. Irs 2012 tax return For more information, see Publication 537, Installment Sales. Irs 2012 tax return   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Irs 2012 tax return Transfer to obligor. Irs 2012 tax return   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Irs 2012 tax return A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Irs 2012 tax return An obligation that becomes unenforceable is treated as having been canceled. Irs 2012 tax return   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Irs 2012 tax return The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Irs 2012 tax return   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Irs 2012 tax return Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Irs 2012 tax return Wages. Irs 2012 tax return   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Irs 2012 tax return The income is not reduced by any amounts withheld by the employer. Irs 2012 tax return If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Irs 2012 tax return   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Irs 2012 tax return However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Irs 2012 tax return These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Irs 2012 tax return These wages are not included in box 1 of Form W-2. Irs 2012 tax return   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe