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Printable 1040ez Tax Form

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Printable 1040ez Tax Form

Printable 1040ez tax form 2. Printable 1040ez tax form   Electing the Section 179 Deduction Table of Contents Introduction Useful Items - You may want to see: What Property Qualifies?Eligible Property Property Acquired for Business Use Property Acquired by Purchase What Property Does Not Qualify?Land and Improvements Excepted Property How Much Can You Deduct?Dollar Limits Business Income Limit Partnerships and Partners S Corporations Other Corporations How Do You Elect the Deduction? When Must You Recapture the Deduction? Introduction You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. Printable 1040ez tax form This is the section 179 deduction. Printable 1040ez tax form You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions. Printable 1040ez tax form Estates and trusts cannot elect the section 179 deduction. Printable 1040ez tax form This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. Printable 1040ez tax form It also explains when and how to recapture the deduction. Printable 1040ez tax form Useful Items - You may want to see: Publication 537 Installment Sales 544 Sales and Other Dispositions of Assets 954 Tax Incentives for Distressed Communities Form (and Instructions) 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. Printable 1040ez tax form What Property Qualifies? To qualify for the section 179 deduction, your property must meet all the following requirements. Printable 1040ez tax form It must be eligible property. Printable 1040ez tax form It must be acquired for business use. Printable 1040ez tax form It must have been acquired by purchase. Printable 1040ez tax form It must not be property described later under What Property Does Not Qualify . Printable 1040ez tax form The following discussions provide information about these requirements and exceptions. Printable 1040ez tax form Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Printable 1040ez tax form Tangible personal property. Printable 1040ez tax form Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Printable 1040ez tax form Single purpose agricultural (livestock) or horticultural structures. Printable 1040ez tax form See chapter 7 of Publication 225 for definitions and information regarding the use requirements that apply to these structures. Printable 1040ez tax form Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Printable 1040ez tax form Off-the-shelf computer software. Printable 1040ez tax form Qualified real property (described below). Printable 1040ez tax form Tangible personal property. Printable 1040ez tax form   Tangible personal property is any tangible property that is not real property. Printable 1040ez tax form It includes the following property. Printable 1040ez tax form Machinery and equipment. Printable 1040ez tax form Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Printable 1040ez tax form Gasoline storage tanks and pumps at retail service stations. Printable 1040ez tax form Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Printable 1040ez tax form   The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. Printable 1040ez tax form For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Printable 1040ez tax form Off-the-shelf computer software. Printable 1040ez tax form   Off-the-shelf computer software placed in service during the tax year is qualifying property for purposes of the section 179 deduction. Printable 1040ez tax form This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Printable 1040ez tax form It includes any program designed to cause a computer to perform a desired function. Printable 1040ez tax form However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software. Printable 1040ez tax form Qualified real property. Printable 1040ez tax form   You can elect to treat certain qualified real property you placed in service as section 179 property for tax years beginning in 2013. Printable 1040ez tax form If this election is made, the term “section 179 property” will include any qualified real property that is: Qualified leasehold improvement property, Qualified restaurant property, or Qualified retail improvement property. Printable 1040ez tax form The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 in 2013. Printable 1040ez tax form For more information, see Special rules for qualified section 179 real property, later. Printable 1040ez tax form Also, see Election for certain qualified section 179 real property, later, for information on how to make this election. Printable 1040ez tax form Qualified leasehold improvement property. Printable 1040ez tax form   Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2014) that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. Printable 1040ez tax form   In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Printable 1040ez tax form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Printable 1040ez tax form Examples include the following. Printable 1040ez tax form A complete liquidation of a subsidiary. Printable 1040ez tax form A transfer to a corporation controlled by the transferor. Printable 1040ez tax form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Printable 1040ez tax form Qualified restaurant property. Printable 1040ez tax form   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2014. Printable 1040ez tax form Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals. Printable 1040ez tax form Qualified retail improvement property. Printable 1040ez tax form   Generally, this is any improvement (placed in service after December 31, 2008, and before January 1, 2014) to an interior portion of nonresidential real property if it meets the following requirements. Printable 1040ez tax form The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public. Printable 1040ez tax form The improvement is placed in service more than 3 years after the date the building was first placed in service. Printable 1040ez tax form The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building. Printable 1040ez tax form In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions. Printable 1040ez tax form A transaction to which section 381(a) applies, A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business, A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Printable 1040ez tax form Examples include the following. Printable 1040ez tax form A complete liquidation of a subsidiary. Printable 1040ez tax form A transfer to a corporation controlled by the transferor. Printable 1040ez tax form An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization. Printable 1040ez tax form Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Printable 1040ez tax form Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Printable 1040ez tax form Partial business use. Printable 1040ez tax form   When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. Printable 1040ez tax form If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Printable 1040ez tax form Use the resulting business cost to figure your section 179 deduction. Printable 1040ez tax form Example. Printable 1040ez tax form May Oak bought and placed in service an item of section 179 property costing $11,000. Printable 1040ez tax form She used the property 80% for her business and 20% for personal purposes. Printable 1040ez tax form The business part of the cost of the property is $8,800 (80% × $11,000). Printable 1040ez tax form Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. Printable 1040ez tax form For example, property acquired by gift or inheritance does not qualify. Printable 1040ez tax form Property is not considered acquired by purchase in the following situations. Printable 1040ez tax form It is acquired by one component member of a controlled group from another component member of the same group. Printable 1040ez tax form Its basis is determined either— In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under the stepped-up basis rules for property acquired from a decedent. Printable 1040ez tax form It is acquired from a related person. Printable 1040ez tax form Related persons. Printable 1040ez tax form   Related persons are described under Related persons earlier. Printable 1040ez tax form However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears. Printable 1040ez tax form Example. Printable 1040ez tax form Ken Larch is a tailor. Printable 1040ez tax form He bought two industrial sewing machines from his father. Printable 1040ez tax form He placed both machines in service in the same year he bought them. Printable 1040ez tax form They do not qualify as section 179 property because Ken and his father are related persons. Printable 1040ez tax form He cannot claim a section 179 deduction for the cost of these machines. Printable 1040ez tax form What Property Does Not Qualify? Certain property does not qualify for the section 179 deduction. Printable 1040ez tax form This includes the following. Printable 1040ez tax form Land and Improvements Land and land improvements do not qualify as section 179 property. Printable 1040ez tax form Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. Printable 1040ez tax form Excepted Property Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property. Printable 1040ez tax form Certain property you lease to others (if you are a noncorporate lessor). Printable 1040ez tax form Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Printable 1040ez tax form Air conditioning or heating units. Printable 1040ez tax form Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code. Printable 1040ez tax form Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income. Printable 1040ez tax form Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months. Printable 1040ez tax form Leased property. Printable 1040ez tax form   Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. Printable 1040ez tax form This rule does not apply to corporations. Printable 1040ez tax form However, you can claim a section 179 deduction for the cost of the following property. Printable 1040ez tax form Property you manufacture or produce and lease to others. Printable 1040ez tax form Property you purchase and lease to others if both the following tests are met. Printable 1040ez tax form The term of the lease (including options to renew) is less than 50% of the property's class life. Printable 1040ez tax form For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Printable 1040ez tax form Property used for lodging. Printable 1040ez tax form   Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. Printable 1040ez tax form However, this does not apply to the following types of property. Printable 1040ez tax form Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Printable 1040ez tax form Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Printable 1040ez tax form Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Printable 1040ez tax form Any energy property. Printable 1040ez tax form Energy property. Printable 1040ez tax form   Energy property is property that meets the following requirements. Printable 1040ez tax form It is one of the following types of property. Printable 1040ez tax form Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool. Printable 1040ez tax form Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Printable 1040ez tax form Equipment used to produce, distribute, or use energy derived from a geothermal deposit. Printable 1040ez tax form For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage. Printable 1040ez tax form Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017. Printable 1040ez tax form The construction, reconstruction, or erection of the property must be completed by you. Printable 1040ez tax form For property you acquire, the original use of the property must begin with you. Printable 1040ez tax form The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Printable 1040ez tax form   For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990). Printable 1040ez tax form How Much Can You Deduct? Your section 179 deduction is generally the cost of the qualifying property. Printable 1040ez tax form However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. Printable 1040ez tax form These limits apply to each taxpayer, not to each business. Printable 1040ez tax form However, see Married Individuals under Dollar Limits , later. Printable 1040ez tax form For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. Printable 1040ez tax form See Do the Passenger Automobile Limits Apply in chapter 5 . Printable 1040ez tax form If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct. Printable 1040ez tax form Trade-in of other property. Printable 1040ez tax form   If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid. Printable 1040ez tax form Example. Printable 1040ez tax form Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. Printable 1040ez tax form They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. Printable 1040ez tax form The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. Printable 1040ez tax form They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van. Printable 1040ez tax form Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Printable 1040ez tax form Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200). Printable 1040ez tax form Dollar Limits The total amount you can elect to deduct under section 179 for most property placed in service in 2013 generally cannot be more than $500,000. Printable 1040ez tax form If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. Printable 1040ez tax form You do not have to claim the full $500,000. Printable 1040ez tax form Qualified real property (described earlier) that you elected to treat as section 179 real property is limited to $250,000 of the maximum deduction of $500,000 for 2013. Printable 1040ez tax form The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year. Printable 1040ez tax form After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction. Printable 1040ez tax form Example. Printable 1040ez tax form In 2013, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. Printable 1040ez tax form You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. Printable 1040ez tax form This is the maximum amount you can deduct. Printable 1040ez tax form Your $25,000 deduction for the saw completely recovered its cost. Printable 1040ez tax form Your basis for depreciation is zero. Printable 1040ez tax form The basis for depreciation of your machinery is $25,000. Printable 1040ez tax form You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery. Printable 1040ez tax form Situations affecting dollar limit. Printable 1040ez tax form   Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. Printable 1040ez tax form The general dollar limit is affected by any of the following situations. Printable 1040ez tax form The cost of your section 179 property placed in service exceeds $2,000,000. Printable 1040ez tax form Your business is an enterprise zone business. Printable 1040ez tax form You placed in service a sport utility or certain other vehicles. Printable 1040ez tax form You are married filing a joint or separate return. Printable 1040ez tax form Costs exceeding $2,000,000 If the cost of your qualifying section 179 property placed in service in a year is more than $2,000,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,000,000. Printable 1040ez tax form If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Printable 1040ez tax form Example. Printable 1040ez tax form In 2013, Jane Ash placed in service machinery costing $2,100,000. Printable 1040ez tax form This cost is $100,000 more than $2,000,000, so she must reduce her dollar limit to $400,000 ($500,000 − $100,000). Printable 1040ez tax form Enterprise Zone Businesses An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. Printable 1040ez tax form For more information including the definitions of “enterprise zone business” and “qualified zone property,” see sections 1397A, 1397C, and 1397D of the Internal Revenue Code. Printable 1040ez tax form The dollar limit on the section 179 deduction is increased by the smaller of: $35,000, or The cost of section 179 property that is also qualified zone property placed in service before January 1, 2014 (including such property placed in service by your spouse, even if you are filing a separate return). Printable 1040ez tax form Note. Printable 1040ez tax form   You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,000,000 (explained earlier). Printable 1040ez tax form Sport Utility and Certain Other Vehicles You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. Printable 1040ez tax form This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. Printable 1040ez tax form However, the $25,000 limit does not apply to any vehicle: Designed to seat more than nine passengers behind the driver's seat, Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Printable 1040ez tax form Married Individuals If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. Printable 1040ez tax form If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Printable 1040ez tax form If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,000,000. Printable 1040ez tax form You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. Printable 1040ez tax form If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you. Printable 1040ez tax form Example. Printable 1040ez tax form Jack Elm is married. Printable 1040ez tax form He and his wife file separate returns. Printable 1040ez tax form Jack bought and placed in service $2,000,000 of qualified farm machinery in 2013. Printable 1040ez tax form His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Printable 1040ez tax form Their combined dollar limit is $470,000. Printable 1040ez tax form This is because they must figure the limit as if they were one taxpayer. Printable 1040ez tax form They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,000,000. Printable 1040ez tax form They elect to allocate the $470,000 dollar limit as follows. Printable 1040ez tax form $446,500 ($470,000 x 95%) to Mr. Printable 1040ez tax form Elm's machinery. Printable 1040ez tax form $23,500 ($470,000 x 5%) to Mrs. Printable 1040ez tax form Elm's equipment. Printable 1040ez tax form If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them. Printable 1040ez tax form Joint return after filing separate returns. Printable 1040ez tax form   If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts. Printable 1040ez tax form The dollar limit (after reduction for any cost of section 179 property over $2,000,000). Printable 1040ez tax form The total cost of section 179 property you and your spouse elected to expense on your separate returns. Printable 1040ez tax form Example. Printable 1040ez tax form The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. Printable 1040ez tax form After the due date of their returns, they file a joint return. Printable 1040ez tax form Their dollar limit for the section 179 deduction is $32,000. Printable 1040ez tax form This is the lesser of the following amounts. Printable 1040ez tax form $470,000—The dollar limit less the cost of section 179 property over $2,000,000. Printable 1040ez tax form $32,000—The total they elected to expense on their separate returns. Printable 1040ez tax form Business Income Limit The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Printable 1040ez tax form Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business. Printable 1040ez tax form Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Printable 1040ez tax form Special rules apply to a 2013 deduction of qualified section 179 real property that is disallowed because of the business income limit. Printable 1040ez tax form See Special rules for qualified section 179 property under Carryover of disallowed deduction, later. Printable 1040ez tax form Taxable income. Printable 1040ez tax form   In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Printable 1040ez tax form Net income or loss from a trade or business includes the following items. Printable 1040ez tax form Section 1231 gains (or losses). Printable 1040ez tax form Interest from working capital of your trade or business. Printable 1040ez tax form Wages, salaries, tips, or other pay earned as an employee. Printable 1040ez tax form For information about section 1231 gains and losses, see chapter 3 in Publication 544. Printable 1040ez tax form   In addition, figure taxable income without regard to any of the following. Printable 1040ez tax form The section 179 deduction. Printable 1040ez tax form The self-employment tax deduction. Printable 1040ez tax form Any net operating loss carryback or carryforward. Printable 1040ez tax form Any unreimbursed employee business expenses. Printable 1040ez tax form Two different taxable income limits. Printable 1040ez tax form   In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. Printable 1040ez tax form You may have to figure the limit for this other deduction taking into account the section 179 deduction. Printable 1040ez tax form If so, complete the following steps. Printable 1040ez tax form Step Action 1 Figure taxable income without the section 179 deduction or the other deduction. Printable 1040ez tax form 2 Figure a hypothetical section 179 deduction using the taxable income figured in Step 1. Printable 1040ez tax form 3 Subtract the hypothetical section 179 deduction figured in Step 2 from the taxable income figured in Step 1. Printable 1040ez tax form 4 Figure a hypothetical amount for the other deduction using the amount figured in Step 3 as taxable income. Printable 1040ez tax form 5 Subtract the hypothetical other deduction figured in Step 4 from the taxable income figured in Step 1. Printable 1040ez tax form 6 Figure your actual section 179 deduction using the taxable income figured in Step 5. Printable 1040ez tax form 7 Subtract your actual section 179 deduction figured in Step 6 from the taxable income figured in Step 1. Printable 1040ez tax form 8 Figure your actual other deduction using the taxable income figured in Step 7. Printable 1040ez tax form Example. Printable 1040ez tax form On February 1, 2013, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. Printable 1040ez tax form It elects to expense the entire $500,000 cost under section 179. Printable 1040ez tax form In June, the corporation gave a charitable contribution of $10,000. Printable 1040ez tax form A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. Printable 1040ez tax form The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. Printable 1040ez tax form XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. Printable 1040ez tax form XYZ figures its section 179 deduction and its deduction for charitable contributions as follows. Printable 1040ez tax form Step 1– Taxable income figured without either deduction is $520,000. Printable 1040ez tax form Step 2– Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000. Printable 1040ez tax form Step 3– $20,000 ($520,000 − $500,000). Printable 1040ez tax form Step 4– Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000. Printable 1040ez tax form Step 5– $518,000 ($520,000 − $2,000). Printable 1040ez tax form Step 6– Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Printable 1040ez tax form Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction. Printable 1040ez tax form Step 7– $20,000 ($520,000 − $500,000). Printable 1040ez tax form Step 8– Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000. Printable 1040ez tax form Carryover of disallowed deduction. Printable 1040ez tax form   You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. Printable 1040ez tax form This disallowed deduction amount is shown on line 13 of Form 4562. Printable 1040ez tax form You use the amount you carry over to determine your section 179 deduction in the next year. Printable 1040ez tax form Enter that amount on line 10 of your Form 4562 for the next year. Printable 1040ez tax form   If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Printable 1040ez tax form Your selections must be shown in your books and records. Printable 1040ez tax form For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. Printable 1040ez tax form If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year. Printable 1040ez tax form   If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first. Printable 1040ez tax form Special rules for qualified section 179 real property. Printable 1040ez tax form   You can carry over to 2013 a 2012 deduction attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation. Printable 1040ez tax form Any such 2012 carryover amounts that are not deducted in 2013, plus any 2013 disallowed section 179 expense deductions attributable to qualified real property, are not carried over to 2014. Printable 1040ez tax form Instead these amounts are treated as property placed in service on the first day of 2013 for purposes of computing depreciation (including the special depreciation allowance, if applicable). Printable 1040ez tax form See section 179(f) of the Internal Revenue Code and Notice 2013-59 for more information. Printable 1040ez tax form If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Printable 1040ez tax form Instead, you must add it back to the property's basis. Printable 1040ez tax form Partnerships and Partners The section 179 deduction limits apply both to the partnership and to each partner. Printable 1040ez tax form The partnership determines its section 179 deduction subject to the limits. Printable 1040ez tax form It then allocates the deduction among its partners. Printable 1040ez tax form Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Printable 1040ez tax form ) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. Printable 1040ez tax form To determine any reduction in the dollar limit for costs over $2,000,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. Printable 1040ez tax form After the dollar limit (reduced for any nonpartnership section 179 costs over $2,000,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit. Printable 1040ez tax form Partnership's taxable income. Printable 1040ez tax form   For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. Printable 1040ez tax form See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). Printable 1040ez tax form However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code. Printable 1040ez tax form Partner's share of partnership's taxable income. Printable 1040ez tax form   For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business. Printable 1040ez tax form Example. Printable 1040ez tax form In 2013, Beech Partnership placed in service section 179 property with a total cost of $2,025,000. Printable 1040ez tax form The partnership must reduce its dollar limit by $25,000 ($2,025,000 − $2,000,000). Printable 1040ez tax form Its maximum section 179 deduction is $475,000 ($500,000 − $25,000), and it elects to expense that amount. Printable 1040ez tax form The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. Printable 1040ez tax form It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners. Printable 1040ez tax form In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. Printable 1040ez tax form He also conducts a business as a sole proprietor and, in 2013, placed in service in that business qualifying section 179 property costing $55,000. Printable 1040ez tax form He had a net loss of $5,000 from that business for the year. Printable 1040ez tax form Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,000,000 and his dollar limit is not reduced. Printable 1040ez tax form His maximum section 179 deduction is $500,000. Printable 1040ez tax form He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. Printable 1040ez tax form However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). Printable 1040ez tax form He carries over $45,000 ($125,000 − $80,000) of the elected section 179 costs to 2014. Printable 1040ez tax form He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records. Printable 1040ez tax form Different tax years. Printable 1040ez tax form   For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year. Printable 1040ez tax form Example. Printable 1040ez tax form John and James Oak are equal partners in Oak Partnership. Printable 1040ez tax form Oak Partnership uses a tax year ending January 31. Printable 1040ez tax form John and James both use a tax year ending December 31. Printable 1040ez tax form For its tax year ending January 31, 2013, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2012. Printable 1040ez tax form John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2013 tax year. Printable 1040ez tax form Adjustment of partner's basis in partnership. Printable 1040ez tax form   A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. Printable 1040ez tax form If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership. Printable 1040ez tax form Adjustment of partnership's basis in section 179 property. Printable 1040ez tax form   The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. Printable 1040ez tax form This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits. Printable 1040ez tax form S Corporations Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. Printable 1040ez tax form The deduction limits apply to an S corporation and to each shareholder. Printable 1040ez tax form The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits. Printable 1040ez tax form Figuring taxable income for an S corporation. Printable 1040ez tax form   To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year. Printable 1040ez tax form   To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. Printable 1040ez tax form However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. Printable 1040ez tax form For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. Printable 1040ez tax form In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income. Printable 1040ez tax form Other Corporations A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes. Printable 1040ez tax form It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return). Printable 1040ez tax form It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year. Printable 1040ez tax form How Do You Elect the Deduction? You elect to take the section 179 deduction by completing Part I of Form 4562. Printable 1040ez tax form If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I. Printable 1040ez tax form For property placed in service in 2013, file Form 4562 with either of the following. Printable 1040ez tax form Your original 2013 tax return, whether or not you file it timely. Printable 1040ez tax form An amended return for 2013 filed within the time prescribed by law. Printable 1040ez tax form An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Printable 1040ez tax form The amended return must also include any resulting adjustments to taxable income. Printable 1040ez tax form You must keep records that show the specific identification of each piece of qualifying section 179 property. Printable 1040ez tax form These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Printable 1040ez tax form Election for certain qualified section 179 real property. Printable 1040ez tax form   You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2013. Printable 1040ez tax form If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code. Printable 1040ez tax form   To make the election, attach a statement indicating you are “electing the application of section 179(f) of the Internal Revenue Code” with either of the following. Printable 1040ez tax form Your original 2013 tax return, whether or not you file it timely. Printable 1040ez tax form An amended return for 2013 filed within the time prescribed by law. Printable 1040ez tax form The amended return must also include any adjustments to taxable income. Printable 1040ez tax form   The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. Printable 1040ez tax form It must specify one or more of the three types of qualified property (described under Qualified real property ) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Printable 1040ez tax form Also, report this on line 6 of Form 4562. Printable 1040ez tax form    The maximum section 179 expense deduction that can be taken for qualified section 179 real property is limited to $250,000. Printable 1040ez tax form Revoking an election. Printable 1040ez tax form   An election (or any specification made in the election) to take a section 179 deduction for 2013 can be revoked without IRS approval by filing an amended return. Printable 1040ez tax form The amended return must be filed within the time prescribed by law. Printable 1040ez tax form The amended return must also include any resulting adjustments to taxable income. Printable 1040ez tax form Once made, the revocation is irrevocable. Printable 1040ez tax form When Must You Recapture the Deduction? You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. Printable 1040ez tax form In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. Printable 1040ez tax form You also increase the basis of the property by the recapture amount. Printable 1040ez tax form Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4 . Printable 1040ez tax form If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Printable 1040ez tax form Instead, use the rules for recapturing depreciation explained in chapter 3 of Publication 544 under Section 1245 Property. Printable 1040ez tax form For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. Printable 1040ez tax form If the property is listed property (described in chapter 5 ), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Printable 1040ez tax form Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement. Printable 1040ez tax form Figuring the recapture amount. Printable 1040ez tax form   To figure the amount to recapture, take the following steps. Printable 1040ez tax form Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Printable 1040ez tax form Begin with the year you placed the property in service and include the year of recapture. Printable 1040ez tax form Subtract the depreciation figured in (1) from the section 179 deduction you claimed. Printable 1040ez tax form The result is the amount you must recapture. Printable 1040ez tax form Example. Printable 1040ez tax form In January 2011, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. Printable 1040ez tax form The property is not listed property. Printable 1040ez tax form The property is 3-year property. Printable 1040ez tax form He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. Printable 1040ez tax form He used the property only for business in 2011 and 2012. Printable 1040ez tax form In 2013, he used the property 40% for business and 60% for personal use. Printable 1040ez tax form He figures his recapture amount as follows. Printable 1040ez tax form Section 179 deduction claimed (2011) $5,000. Printable 1040ez tax form 00 Minus: Allowable depreciation using Table A-1 (instead of section 179 deduction):   2011 $1,666. Printable 1040ez tax form 50   2012 2,222. Printable 1040ez tax form 50   2013 ($740. Printable 1040ez tax form 50 × 40% (business)) 296. Printable 1040ez tax form 20 4,185. Printable 1040ez tax form 20 2013 — Recapture amount $ 814. Printable 1040ez tax form 80 Paul must include $814. Printable 1040ez tax form 80 in income for 2013. Printable 1040ez tax form If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return. Printable 1040ez tax form Prev  Up  Next   Home   More Online Publications
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The Printable 1040ez Tax Form

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