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Tax Act 2012 Login

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Tax Act 2012 Login

Tax act 2012 login 7. Tax act 2012 login   Figuring Gross Profit Table of Contents Introduction Items To Check Testing Gross Profit AccuracyExample. Tax act 2012 login Additions to Gross Profit Introduction After you have figured the gross receipts from your business (chapter 5) and the cost of goods sold (chapter 6), you are ready to figure your gross profit. Tax act 2012 login You must determine gross profit before you can deduct any business expenses. Tax act 2012 login These expenses are discussed in chapter 8. Tax act 2012 login If you are filing Schedule C-EZ, your gross profit is your gross receipts plus certain other amounts, explained later under Additions to Gross Profit. Tax act 2012 login Businesses that sell products. Tax act 2012 login   If you are filing Schedule C, figure your gross profit by first figuring your net receipts. Tax act 2012 login Figure net receipts (line 3) on Schedule C by subtracting any returns and allowances (line 2) from gross receipts (line 1). Tax act 2012 login Returns and allowances include cash or credit refunds you make to customers, rebates, and other allowances off the actual sales price. Tax act 2012 login   Next, subtract the cost of goods sold (line 4) from net receipts (line 3). Tax act 2012 login The result is the gross profit from your business. Tax act 2012 login Businesses that sell services. Tax act 2012 login   You do not have to figure the cost of goods sold if the sale of merchandise is not an income-producing factor for your business. Tax act 2012 login Your gross profit is the same as your net receipts (gross receipts minus any refunds, rebates, or other allowances). Tax act 2012 login Most professions and businesses that sell services rather than products can figure gross profit directly from net receipts in this way. Tax act 2012 login Illustration. Tax act 2012 login   This illustration of the gross profit section of the income statement of a retail business shows how gross profit is figured. Tax act 2012 login Income Statement Year Ended December 31, 2013 Gross receipts $400,000 Minus: Returns and allowances 14,940 Net receipts $385,060 Minus: Cost of goods sold 288,140 Gross profit $96,920   The cost of goods sold for this business is figured as follows: Inventory at beginning of year $37,845 Plus: Purchases $285,900   Minus: Items withdrawn for personal use 2,650 283,250 Goods available for sale $321,095 Minus: Inventory at end of year 32,955 Cost of goods sold $288,140 Items To Check Consider the following items before figuring your gross profit. Tax act 2012 login Gross receipts. Tax act 2012 login   At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. Tax act 2012 login You may find it helpful to use cash registers to keep track of receipts. Tax act 2012 login You should also use a proper invoicing system and keep a separate bank account for your business. Tax act 2012 login Sales tax collected. Tax act 2012 login   Check to make sure your records show the correct sales tax collected. Tax act 2012 login   If you collect state and local sales taxes imposed on you as the seller of goods or services from the buyer, you must include the amount collected in gross receipts. Tax act 2012 login   If you are required to collect state and local taxes imposed on the buyer and turn them over to state or local governments, you generally do not include these amounts in income. Tax act 2012 login Inventory at beginning of year. Tax act 2012 login   Compare this figure with last year's ending inventory. Tax act 2012 login The two amounts should usually be the same. Tax act 2012 login Purchases. Tax act 2012 login   If you take any inventory items for your personal use (use them yourself, provide them to your family, or give them as personal gifts, etc. Tax act 2012 login ) be sure to remove them from the cost of goods sold. Tax act 2012 login For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6. Tax act 2012 login Inventory at end of year. Tax act 2012 login   Check to make sure your procedures for taking inventory are adequate. Tax act 2012 login These procedures should ensure all items have been included in inventory and proper pricing techniques have been used. Tax act 2012 login   Use inventory forms and adding machine tapes as the only evidence for your inventory. Tax act 2012 login Inventory forms are available at office supply stores. Tax act 2012 login These forms have columns for recording the description, quantity, unit price, and value of each inventory item. Tax act 2012 login Each page has space to record who made the physical count, who priced the items, who made the extensions, and who proofread the calculations. Tax act 2012 login These forms will help satisfy you that the total inventory is accurate. Tax act 2012 login They will also provide you with a permanent record to support its validity. Tax act 2012 login   Inventories are discussed in chapter 2. Tax act 2012 login Testing Gross Profit Accuracy If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. Tax act 2012 login First, divide gross profit by net receipts. Tax act 2012 login The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price. Tax act 2012 login Next, compare this percentage to your markup policy. Tax act 2012 login Little or no difference between these two percentages shows that your gross profit figure is accurate. Tax act 2012 login A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. Tax act 2012 login You should determine the reason for the difference. Tax act 2012 login Example. Tax act 2012 login   Joe Able operates a retail business. Tax act 2012 login On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. Tax act 2012 login The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. Tax act 2012 login His cost of goods sold is $200,000. Tax act 2012 login This results in a gross profit of $100,000 ($300,000 − $200,000). Tax act 2012 login To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). Tax act 2012 login The resulting 331/3% confirms his markup percentage of 331/3%. Tax act 2012 login Additions to Gross Profit If your business has income from a source other than its regular business operations, enter the income on line 6 of Schedule C and add it to gross profit. Tax act 2012 login The result is gross business income. Tax act 2012 login If you use Schedule C-EZ, include the income on line 1 of the schedule. Tax act 2012 login Some examples include income from an interest-bearing checking account, income from scrap sales, income from certain fuel tax credits and refunds, and amounts recovered from bad debts. Tax act 2012 login Prev  Up  Next   Home   More Online Publications
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Understanding your CP276A Notice

We didn't receive a correctly completed tax liability schedule. We normally charge a Federal Tax Deposit (FTD) penalty when this happens. We decided not to do so this time.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).
 


What you need to do

  • Review your tax liability schedule. Enter the liability amount for each payroll date and see if your payroll tax deposit liability matches the tax liability you reported on your tax form. When they don't match, we reject your tax liability schedule.
  • Correct the copy of your tax return and the schedule that you kept for your records.

You may want to...


Answers to Common Questions

Do I have to reply to this notice?
No, but you should check your records to see why your tax liability schedule was incorrect.

How do I know whether I should make monthly or semiweekly payroll tax deposits?
Go back and look at the total tax liability for the four quarters before the quarter ending in June of last year if you file a quarterly return. Annual return filers should go back and look at the total tax liability of the year before their previous filing year.

For either a quarterly or an annual filer, a total tax liability of $50,000 or less means you can make your federal payroll tax deposits monthly. A tax liability greater than $50,000 means you have to make semiweekly payroll tax deposits.

When are my payroll tax deposits due?
The following table shows the schedule for semiweekly payroll tax deposits:

When Then
The payroll tax liability period is Saturday, Sunday, Monday, and Tuesday Make the tax deposit by the following Friday.
The payroll tax liability period is Wednesday, Thursday, and Friday Make the tax deposit by the following Wednesday.
A holiday falls on a weekday after the payroll tax liability period and before or on the normal deposit day Extend the deposit due date one business day for each day of holiday.

Monthly payroll tax depositors must make their tax deposits by the fifteenth of each month. When the fifteenth falls on a Saturday, a Sunday, or a legal holiday, tax deposits are due on the next business day.

Do I have to make my payroll tax deposits electronically?
Normally, yes. However, you may send your payment in with your tax return when your tax liability is $2,500 or less. If you file a quarterly tax return, another time when you may send in your payment with your return is when:

  • Your tax liabilities never totaled $100,000 or more in a deposit period, and
  • Your tax liability in the preceding quarter was $2,500 or less.

Tips for next time you file

Report each tax liability (not your deposits) on the tax liability schedule.

Make sure that that the amount on your tax liability schedule matches the payroll tax amount on your tax return.

Do not list negative amounts on your tax liability schedule.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP276A, Page 1

Notice CP276A, Page 2

Page Last Reviewed or Updated: 14-Mar-2014

The Tax Act 2012 Login

Tax act 2012 login 12. Tax act 2012 login   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. Tax act 2012 login Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. Tax act 2012 login Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. Tax act 2012 login Method 2. Tax act 2012 login RoyaltiesDepletion. Tax act 2012 login Coal and iron ore. Tax act 2012 login Sale of property interest. Tax act 2012 login Part of future production sold. Tax act 2012 login Unemployment BenefitsTypes of unemployment compensation. Tax act 2012 login Governmental program. Tax act 2012 login Repayment of unemployment compensation. Tax act 2012 login Tax withholding. Tax act 2012 login Repayment of benefits. Tax act 2012 login Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. Tax act 2012 login Deduction for costs involved in unlawful discrimination suits. Tax act 2012 login Energy conservation measure. Tax act 2012 login Dwelling unit. Tax act 2012 login Current income required to be distributed. Tax act 2012 login Current income not required to be distributed. Tax act 2012 login How to report. Tax act 2012 login Losses. Tax act 2012 login Grantor trust. Tax act 2012 login Nonemployee compensation. Tax act 2012 login Corporate director. Tax act 2012 login Personal representatives. Tax act 2012 login Manager of trade or business for bankruptcy estate. Tax act 2012 login Notary public. Tax act 2012 login Election precinct official. Tax act 2012 login Difficulty-of-care payments. Tax act 2012 login Maintaining space in home. Tax act 2012 login Reporting taxable payments. Tax act 2012 login Lotteries and raffles. Tax act 2012 login Form W-2G. Tax act 2012 login Reporting winnings and recordkeeping. Tax act 2012 login Inherited pension or IRA. Tax act 2012 login Employee awards or bonuses. Tax act 2012 login Pulitzer, Nobel, and similar prizes. Tax act 2012 login Payment for services. Tax act 2012 login VA payments. Tax act 2012 login Prizes. Tax act 2012 login Strike and lockout benefits. Tax act 2012 login Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. Tax act 2012 login Some items, however, are only partly excluded from income. Tax act 2012 login This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. Tax act 2012 login Income that is taxable must be reported on your tax return and is subject to tax. Tax act 2012 login Income that is nontaxable may have to be shown on your tax return but is not taxable. Tax act 2012 login This chapter begins with discussions of the following income items. Tax act 2012 login Bartering. Tax act 2012 login Canceled debts. Tax act 2012 login Sales parties at which you are the host or hostess. Tax act 2012 login Life insurance proceeds. Tax act 2012 login Partnership income. Tax act 2012 login S Corporation income. Tax act 2012 login Recoveries (including state income tax refunds). Tax act 2012 login Rents from personal property. Tax act 2012 login Repayments. Tax act 2012 login Royalties. Tax act 2012 login Unemployment benefits. Tax act 2012 login Welfare and other public assistance benefits. Tax act 2012 login These discussions are followed by brief discussions of other income items. Tax act 2012 login Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. Tax act 2012 login You must include in your income, at the time received, the fair market value of property or services you receive in bartering. Tax act 2012 login 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 fair market value unless the value can be shown to be otherwise. Tax act 2012 login Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Tax act 2012 login However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. Tax act 2012 login Example 1. Tax act 2012 login You are a self-employed attorney who performs legal services for a client, a small corporation. Tax act 2012 login The corporation gives you shares of its stock as payment for your services. Tax act 2012 login You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. Tax act 2012 login Example 2. Tax act 2012 login You are self-employed and a member of a barter club. Tax act 2012 login The club uses “credit units” as a means of exchange. Tax act 2012 login It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. Tax act 2012 login The club subtracts credit units from your account when you receive goods or services from other members. Tax act 2012 login You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. Tax act 2012 login Example 3. Tax act 2012 login You own a small apartment building. Tax act 2012 login In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. Tax act 2012 login You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. Tax act 2012 login Form 1099-B from barter exchange. Tax act 2012 login   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. Tax act 2012 login It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. Tax act 2012 login The IRS also will receive a copy of Form 1099-B. Tax act 2012 login Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. Tax act 2012 login You have no income from the canceled debt if it is intended as a gift to you. Tax act 2012 login A debt includes any indebtedness for which you are liable or which attaches to property you hold. Tax act 2012 login If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. Tax act 2012 login If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). Tax act 2012 login Form 1099-C. Tax act 2012 login   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. Tax act 2012 login The amount of the canceled debt is shown in box 2. Tax act 2012 login Interest included in canceled debt. Tax act 2012 login   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Tax act 2012 login Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. Tax act 2012 login See Deductible debt under Exceptions, later. Tax act 2012 login   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. Tax act 2012 login If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). Tax act 2012 login Discounted mortgage loan. Tax act 2012 login   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. Tax act 2012 login You must include the canceled amount in your income. Tax act 2012 login Mortgage relief upon sale or other disposition. Tax act 2012 login   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. Tax act 2012 login To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. Tax act 2012 login Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. Tax act 2012 login    You may be able to exclude part of the mortgage relief on your principal residence. Tax act 2012 login See Excluded debt, later. Tax act 2012 login   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. Tax act 2012 login You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Tax act 2012 login Report any gain on nonbusiness property as a capital gain. Tax act 2012 login   See Publication 4681 for more information. Tax act 2012 login Stockholder debt. Tax act 2012 login   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. Tax act 2012 login For more information, see Publication 542, Corporations. Tax act 2012 login   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. Tax act 2012 login This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. Tax act 2012 login Repayment of canceled debt. Tax act 2012 login   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. Tax act 2012 login You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. Tax act 2012 login The statute of limitations generally does not end until 3 years after the due date of your original return. Tax act 2012 login Exceptions There are several exceptions to the inclusion of canceled debt in income. Tax act 2012 login These are explained next. Tax act 2012 login Student loans. Tax act 2012 login   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. Tax act 2012 login   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. Tax act 2012 login To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). Tax act 2012 login   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. Tax act 2012 login Education loan repayment assistance. Tax act 2012 login   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. Tax act 2012 login    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. Tax act 2012 login If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. Tax act 2012 login See Form 1040X and its instructions for details on filing. Tax act 2012 login Deductible debt. Tax act 2012 login   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. Tax act 2012 login This exception applies only if you use the cash method of accounting. Tax act 2012 login For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. Tax act 2012 login Price reduced after purchase. Tax act 2012 login   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. Tax act 2012 login The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. Tax act 2012 login Excluded debt. Tax act 2012 login   Do not include a canceled debt in your gross income in the following situations. Tax act 2012 login The debt is canceled in a bankruptcy case under title 11 of the U. Tax act 2012 login S. Tax act 2012 login Code. Tax act 2012 login See Publication 908, Bankruptcy Tax Guide. Tax act 2012 login The debt is canceled when you are insolvent. Tax act 2012 login However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. Tax act 2012 login See Publication 908. Tax act 2012 login The debt is qualified farm debt and is canceled by a qualified person. Tax act 2012 login See chapter 3 of Publication 225, Farmer's Tax Guide. Tax act 2012 login The debt is qualified real property business debt. Tax act 2012 login See chapter 5 of Publication 334. Tax act 2012 login The cancellation is intended as a gift. Tax act 2012 login The debt is qualified principal residence indebtedness. Tax act 2012 login See Publication 525 for additional information. Tax act 2012 login Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. Tax act 2012 login You must report this item as income at its fair market value. Tax act 2012 login Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. Tax act 2012 login These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. Tax act 2012 login For more information about the 50% limit for meal and entertainment expenses, see chapter 26. Tax act 2012 login Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. Tax act 2012 login This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. Tax act 2012 login However, interest income received as a result of life insurance proceeds may be taxable. Tax act 2012 login Proceeds not received in installments. Tax act 2012 login   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. Tax act 2012 login If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. Tax act 2012 login Proceeds received in installments. Tax act 2012 login   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. Tax act 2012 login   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Tax act 2012 login Include anything over this excluded part in your income as interest. Tax act 2012 login Surviving spouse. Tax act 2012 login   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. Tax act 2012 login If you remarry, you can continue to take the exclusion. Tax act 2012 login Surrender of policy for cash. Tax act 2012 login   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Tax act 2012 login In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. Tax act 2012 login    You should receive a Form 1099-R showing the total proceeds and the taxable part. Tax act 2012 login Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. Tax act 2012 login More information. Tax act 2012 login   For more information, see Life Insurance Proceeds in Publication 525. Tax act 2012 login Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. Tax act 2012 login Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. Tax act 2012 login To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. Tax act 2012 login Include the part of the lump sum payment that is more than your cost in your income. Tax act 2012 login Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. Tax act 2012 login Viatical settlement. Tax act 2012 login   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. Tax act 2012 login A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. Tax act 2012 login Exclusion for terminal illness. Tax act 2012 login    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. Tax act 2012 login This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. Tax act 2012 login Exclusion for chronic illness. Tax act 2012 login    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. Tax act 2012 login Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. Tax act 2012 login This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. Tax act 2012 login For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. Tax act 2012 login Exception. Tax act 2012 login   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. Tax act 2012 login Form 8853. Tax act 2012 login   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. Tax act 2012 login You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. Tax act 2012 login Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. Tax act 2012 login For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. Tax act 2012 login For more information, see Publication 559, Survivors, Executors, and Administrators. Tax act 2012 login Partnership Income A partnership generally is not a taxable entity. Tax act 2012 login The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. Tax act 2012 login Schedule K-1 (Form 1065). Tax act 2012 login    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. Tax act 2012 login S. Tax act 2012 login Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. Tax act 2012 login In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. Tax act 2012 login Keep Schedule K-1 (Form 1065) for your records. Tax act 2012 login Do not attach it to your Form 1040, unless you are specifically required to do so. Tax act 2012 login For more information on partnerships, see Publication 541, Partnerships. Tax act 2012 login Qualified joint venture. Tax act 2012 login   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Tax act 2012 login To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Tax act 2012 login For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. Tax act 2012 login S Corporation Income In most cases, an S corporation does not pay tax on its income. Tax act 2012 login Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. Tax act 2012 login Schedule K-1 (Form 1120S). Tax act 2012 login   An S corporation must file a return on Form 1120S, U. Tax act 2012 login S. Tax act 2012 login Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. Tax act 2012 login In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. Tax act 2012 login Keep Schedule K-1 (Form 1120S) for your records. Tax act 2012 login Do not attach it to your Form 1040, unless you are specifically required to do so. Tax act 2012 login For more information on S corporations and their shareholders, see the Instructions for Form 1120S. Tax act 2012 login Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. Tax act 2012 login The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). Tax act 2012 login You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. Tax act 2012 login Tax benefit rule. Tax act 2012 login   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. Tax act 2012 login For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. Tax act 2012 login For more information, see Publication 525. Tax act 2012 login Federal income tax refund. Tax act 2012 login   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. Tax act 2012 login State tax refund. Tax act 2012 login   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. Tax act 2012 login The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. Tax act 2012 login The IRS also will receive a copy of the Form 1099-G. Tax act 2012 login If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. Tax act 2012 login See Publication 525 for when you must use another worksheet. Tax act 2012 login   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. Tax act 2012 login For examples, see Publication 525. Tax act 2012 login Mortgage interest refund. Tax act 2012 login    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. Tax act 2012 login Do not subtract the refund amount from the interest you paid in 2013. Tax act 2012 login You may have to include it in your income under the rules explained in the following discussions. Tax act 2012 login Interest on recovery. Tax act 2012 login   Interest on any of the amounts you recover must be reported as interest income in the year received. Tax act 2012 login For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. Tax act 2012 login Recovery and expense in same year. Tax act 2012 login   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. Tax act 2012 login Recovery for 2 or more years. Tax act 2012 login   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. Tax act 2012 login This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. Tax act 2012 login For information on how to compute the allocation, see Recoveries in Publication 525. Tax act 2012 login Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. Tax act 2012 login Where to report. Tax act 2012 login   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. Tax act 2012 login You cannot use Form 1040A or Form 1040EZ. Tax act 2012 login Standard deduction limit. Tax act 2012 login   You generally are allowed to claim the standard deduction if you do not itemize your deductions. Tax act 2012 login Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). Tax act 2012 login If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. Tax act 2012 login Example. Tax act 2012 login For 2012, you filed a joint return. Tax act 2012 login Your taxable income was $60,000 and you were not entitled to any tax credits. Tax act 2012 login Your standard deduction was $11,900, and you had itemized deductions of $14,000. Tax act 2012 login In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. Tax act 2012 login The difference between the state and local income tax you deducted and your local general sales tax was more than $400. Tax act 2012 login Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. Tax act 2012 login Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. Tax act 2012 login Standard deduction for earlier years. Tax act 2012 login   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. Tax act 2012 login Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. Tax act 2012 login Example. Tax act 2012 login You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. Tax act 2012 login Your itemized deductions were $12,350. Tax act 2012 login The standard deduction that you could have claimed was $11,900. Tax act 2012 login In 2013, you recovered $2,100 of your 2012 itemized deductions. Tax act 2012 login None of the recoveries were more than the actual deductions for 2012. Tax act 2012 login Include $450 of the recoveries in your 2013 income. Tax act 2012 login This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). Tax act 2012 login Recovery limited to deduction. Tax act 2012 login   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. Tax act 2012 login The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. Tax act 2012 login Example. Tax act 2012 login During 2012 you paid $1,700 for medical expenses. Tax act 2012 login From this amount you subtracted $1,500, which was 7. Tax act 2012 login 5% of your adjusted gross income. Tax act 2012 login Your actual medical expense deduction was $200. Tax act 2012 login In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. Tax act 2012 login The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. Tax act 2012 login Other recoveries. Tax act 2012 login   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. Tax act 2012 login Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. Tax act 2012 login In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. Tax act 2012 login See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. Tax act 2012 login Reporting business income and expenses. Tax act 2012 login    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login The form instructions have information on how to complete them. Tax act 2012 login Reporting nonbusiness income. Tax act 2012 login   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. Tax act 2012 login List the type and amount of the income on the dotted line next to line 21. Tax act 2012 login Reporting nonbusiness expenses. Tax act 2012 login   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Tax act 2012 login Also enter the amount and “PPR” on the dotted line next to line 36. Tax act 2012 login   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. Tax act 2012 login See Activity not for profit , under Other Income, later. Tax act 2012 login Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Tax act 2012 login Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. Tax act 2012 login Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. Tax act 2012 login Type of deduction. Tax act 2012 login   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. Tax act 2012 login You generally deduct the repayment on the same form or schedule on which you previously reported it as income. Tax act 2012 login For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). Tax act 2012 login If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). Tax act 2012 login If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). Tax act 2012 login Repaid social security benefits. Tax act 2012 login   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. Tax act 2012 login Repayment of $3,000 or less. Tax act 2012 login   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. Tax act 2012 login If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. Tax act 2012 login Repayment over $3,000. Tax act 2012 login   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). Tax act 2012 login However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. Tax act 2012 login This means that at the time you included the income, it appeared that you had an unrestricted right to it. Tax act 2012 login If you qualify for this choice, figure your tax under both methods and compare the results. Tax act 2012 login Use the method (deduction or credit) that results in less tax. Tax act 2012 login When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Tax act 2012 login Each instance of repayment is not considered separately. Tax act 2012 login Method 1. Tax act 2012 login   Figure your tax for 2013 claiming a deduction for the repaid amount. Tax act 2012 login If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. Tax act 2012 login Method 2. Tax act 2012 login   Figure your tax for 2013 claiming a credit for the repaid amount. Tax act 2012 login Follow these steps. Tax act 2012 login Figure your tax for 2013 without deducting the repaid amount. Tax act 2012 login Refigure your tax from the earlier year without including in income the amount you repaid in 2013. Tax act 2012 login Subtract the tax in (2) from the tax shown on your return for the earlier year. Tax act 2012 login This is the credit. Tax act 2012 login Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). Tax act 2012 login   If method 1 results in less tax, deduct the amount repaid. Tax act 2012 login If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. Tax act 2012 login R. Tax act 2012 login C. Tax act 2012 login 1341” in the column to the right of line 71. Tax act 2012 login   An example of this computation can be found in Publication 525. Tax act 2012 login Repaid wages subject to social security and Medicare taxes. Tax act 2012 login   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. Tax act 2012 login If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. Tax act 2012 login File a claim for refund using Form 843, Claim for Refund and Request for Abatement. Tax act 2012 login Repaid wages subject to Additional Medicare Tax. Tax act 2012 login   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. Tax act 2012 login If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. Tax act 2012 login To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. Tax act 2012 login S. Tax act 2012 login Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. Tax act 2012 login See the Instructions for Form 1040X. Tax act 2012 login Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. Tax act 2012 login In most cases you report royalties in Part I of Schedule E (Form 1040). Tax act 2012 login However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. Tax act 2012 login , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login Copyrights and patents. Tax act 2012 login   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. Tax act 2012 login Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. Tax act 2012 login Oil, gas, and minerals. Tax act 2012 login   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. Tax act 2012 login The royalties are based on units, such as barrels, tons, etc. Tax act 2012 login , and are paid to you by a person or company who leases the property from you. Tax act 2012 login Depletion. Tax act 2012 login   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. Tax act 2012 login For information on this subject, see chapter 9 of Publication 535. Tax act 2012 login Coal and iron ore. Tax act 2012 login   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. Tax act 2012 login For information about gain or loss from the sale of coal and iron ore, see Publication 544. Tax act 2012 login Sale of property interest. Tax act 2012 login   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. Tax act 2012 login Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). Tax act 2012 login For more information on selling section 1231 property, see chapter 3 of Publication 544. Tax act 2012 login   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. Tax act 2012 login Part of future production sold. Tax act 2012 login   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Tax act 2012 login Do not include it in your income or take depletion based on it. Tax act 2012 login   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. Tax act 2012 login Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. Tax act 2012 login Unemployment compensation. Tax act 2012 login   You must include in income all unemployment compensation you receive. Tax act 2012 login You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. Tax act 2012 login In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Tax act 2012 login Types of unemployment compensation. Tax act 2012 login   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Tax act 2012 login It includes the following benefits. Tax act 2012 login Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. Tax act 2012 login State unemployment insurance benefits. Tax act 2012 login Railroad unemployment compensation benefits. Tax act 2012 login Disability payments from a government program paid as a substitute for unemployment compensation. Tax act 2012 login (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. Tax act 2012 login See chapter 5 for more information. Tax act 2012 login ) Trade readjustment allowances under the Trade Act of 1974. Tax act 2012 login Unemployment assistance under the Disaster Relief and Emergency Assistance Act. Tax act 2012 login Unemployment assistance under the Airline Deregulation Act of 1974 Program. Tax act 2012 login Governmental program. Tax act 2012 login   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. Tax act 2012 login If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. Tax act 2012 login Repayment of unemployment compensation. Tax act 2012 login   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Tax act 2012 login On the dotted line next to your entry enter “Repaid” and the amount you repaid. Tax act 2012 login If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. Tax act 2012 login If the amount is more than $3,000, see Repayments , earlier. Tax act 2012 login Tax withholding. Tax act 2012 login   You can choose to have federal income tax withheld from your unemployment compensation. Tax act 2012 login To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Tax act 2012 login Tax will be withheld at 10% of your payment. Tax act 2012 login    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. Tax act 2012 login If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. Tax act 2012 login For more information on estimated tax, see chapter 4. Tax act 2012 login Supplemental unemployment benefits. Tax act 2012 login   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. Tax act 2012 login They are taxable as wages and are subject to withholding for income tax. Tax act 2012 login They may be subject to social security and Medicare taxes. Tax act 2012 login For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. Tax act 2012 login Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Tax act 2012 login Repayment of benefits. Tax act 2012 login   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. Tax act 2012 login If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. Tax act 2012 login If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. Tax act 2012 login   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. Tax act 2012 login (You cannot use Form 1040A or Form 1040EZ. Tax act 2012 login ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. Tax act 2012 login If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. Tax act 2012 login For more information on this, see Repayments , earlier. Tax act 2012 login Private unemployment fund. Tax act 2012 login   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. Tax act 2012 login Report the taxable amount on Form 1040, line 21. Tax act 2012 login Payments by a union. Tax act 2012 login   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. Tax act 2012 login However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. Tax act 2012 login Guaranteed annual wage. Tax act 2012 login   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. Tax act 2012 login Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Tax act 2012 login State employees. Tax act 2012 login   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. Tax act 2012 login Although the payments are fully taxable, do not report them as unemployment compensation. Tax act 2012 login Report these payments on Form 1040, line 21. Tax act 2012 login Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. Tax act 2012 login Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. Tax act 2012 login Do not deduct medical expenses that are reimbursed by such a fund. Tax act 2012 login You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. Tax act 2012 login Reemployment Trade Adjustment Assistance (RTAA) payments. Tax act 2012 login   RTAA payments received from a state must be included in your income. Tax act 2012 login The state must send you Form 1099-G to advise you of the amount you should include in income. Tax act 2012 login The amount should be reported on Form 1040, line 21. Tax act 2012 login Persons with disabilities. Tax act 2012 login   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. Tax act 2012 login However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. Tax act 2012 login Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. Tax act 2012 login Disaster relief grants. Tax act 2012 login    Do not include post-disaster grants received under the Robert T. Tax act 2012 login Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. Tax act 2012 login Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. Tax act 2012 login If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. Tax act 2012 login See Recoveries , earlier. Tax act 2012 login Unemployment assistance payments under the Act are taxable unemployment compensation. Tax act 2012 login See Unemployment compensation under Unemployment Benefits, earlier. Tax act 2012 login Disaster relief payments. Tax act 2012 login   You can exclude from income any amount you receive that is a qualified disaster relief payment. Tax act 2012 login A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. Tax act 2012 login You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. Tax act 2012 login The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. Tax act 2012 login   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. Tax act 2012 login   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. Tax act 2012 login Disaster mitigation payments. Tax act 2012 login   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. Tax act 2012 login Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. Tax act 2012 login However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. Tax act 2012 login They are paid to you through state and local governments based on the provisions of the Robert T. Tax act 2012 login Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. Tax act 2012 login   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. Tax act 2012 login Home Affordable Modification Program (HAMP). Tax act 2012 login   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. Tax act 2012 login Mortgage assistance payments under section 235 of the National Housing Act. Tax act 2012 login   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. Tax act 2012 login Interest paid for the homeowner under the mortgage assistance program cannot be deducted. Tax act 2012 login Medicare. Tax act 2012 login   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. Tax act 2012 login This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). Tax act 2012 login Old-age, survivors, and disability insurance benefits (OASDI). Tax act 2012 login   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. Tax act 2012 login This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. Tax act 2012 login Nutrition Program for the Elderly. Tax act 2012 login    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. Tax act 2012 login If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. Tax act 2012 login Payments to reduce cost of winter energy. Tax act 2012 login   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. Tax act 2012 login Other Income The following brief discussions are arranged in alphabetical order. Tax act 2012 login Other income items briefly discussed below are referenced to publications which provide more topical information. Tax act 2012 login Activity not for profit. Tax act 2012 login   You must include on your return income from an activity from which you do not expect to make a profit. Tax act 2012 login An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Tax act 2012 login Enter this income on Form 1040, line 21. Tax act 2012 login Deductions for expenses related to the activity are limited. Tax act 2012 login They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). Tax act 2012 login See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. Tax act 2012 login Alaska Permanent Fund dividend. Tax act 2012 login   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. Tax act 2012 login The state of Alaska sends each recipient a document that shows the amount of the payment with the check. Tax act 2012 login The amount also is reported to IRS. Tax act 2012 login Alimony. Tax act 2012 login   Include in your income on Form 1040, line 11, any alimony payments you receive. Tax act 2012 login Amounts you receive for child support are not income to you. Tax act 2012 login Alimony and child support payments are discussed in chapter 18. Tax act 2012 login Bribes. Tax act 2012 login   If you receive a bribe, include it in your income. Tax act 2012 login Campaign contributions. Tax act 2012 login   These contributions are not income to a candidate unless they are diverted to his or her personal use. Tax act 2012 login To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. Tax act 2012 login However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. Tax act 2012 login S. Tax act 2012 login Income Tax Return for Certain Political Organizations. Tax act 2012 login Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. Tax act 2012 login Car pools. Tax act 2012 login   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. Tax act 2012 login These amounts are considered reimbursement for your expenses. Tax act 2012 login However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. Tax act 2012 login Cash rebates. Tax act 2012 login   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. Tax act 2012 login Example. Tax act 2012 login You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. Tax act 2012 login The $2,000 is not income to you. Tax act 2012 login Your basis in the car is $22,000. Tax act 2012 login This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. Tax act 2012 login Casualty insurance and other reimbursements. Tax act 2012 login   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. Tax act 2012 login See chapter 25 for more information. Tax act 2012 login Child support payments. Tax act 2012 login   You should not report these payments on your return. Tax act 2012 login See chapter 18 for more information. Tax act 2012 login Court awards and damages. Tax act 2012 login   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Tax act 2012 login The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. Tax act 2012 login Include the following as ordinary income. Tax act 2012 login Interest on any award. Tax act 2012 login Compensation for lost wages or lost profits in most cases. Tax act 2012 login Punitive damages, in most cases. Tax act 2012 login It does not matter if they relate to a physical injury or physical sickness. Tax act 2012 login Amounts received in settlement of pension rights (if you did not contribute to the plan). Tax act 2012 login Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. Tax act 2012 login Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. Tax act 2012 login Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. Tax act 2012 login   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). Tax act 2012 login Emotional distress. Tax act 2012 login   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Tax act 2012 login Do not include them in your income. Tax act 2012 login   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Tax act 2012 login Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. Tax act 2012 login Deduction for costs involved in unlawful discrimination suits. Tax act 2012 login   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. Tax act 2012 login For more information, see Publication 525. Tax act 2012 login Credit card insurance. Tax act 2012 login   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. Tax act 2012 login These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. Tax act 2012 login Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. Tax act 2012 login Down payment assistance. Tax act 2012 login   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. Tax act 2012 login If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. Tax act 2012 login If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. Tax act 2012 login Employment agency fees. Tax act 2012 login   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. Tax act 2012 login However, if you pay it and your employer reimburses you for it, it is includible in your income. Tax act 2012 login Energy conservation subsidies. Tax act 2012 login   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. Tax act 2012 login Energy conservation measure. Tax act 2012 login   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. Tax act 2012 login Dwelling unit. Tax act 2012 login   This includes a house, apartment, condominium, mobile home, boat, or similar property. Tax act 2012 login If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. Tax act 2012 login Estate and trust income. Tax act 2012 login    An estate or trust, unlike a partnership, may have to pay federal income tax. Tax act 2012 login If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. Tax act 2012 login However, there is never a double tax. Tax act 2012 login Estates and trusts file their returns on Form 1041, U. Tax act 2012 login S. Tax act 2012 login Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). Tax act 2012 login Current income required to be distributed. Tax act 2012 login   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. Tax act 2012 login Current income not required to be distributed. Tax act 2012 login    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. Tax act 2012 login How to report. Tax act 2012 login   Treat each item of income the same way that the estate or trust would treat it. Tax act 2012 login For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. Tax act 2012 login The same rule applies to distributions of tax-exempt interest and capital gains. Tax act 2012 login   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. Tax act 2012 login Losses. Tax act 2012 login   Losses of estates and trusts generally are not deductible by the beneficiaries. Tax act 2012 login Grantor trust. Tax act 2012 login   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. Tax act 2012 login (The grantor is the one who transferred property to the trust. Tax act 2012 login ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. Tax act 2012 login   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. Tax act 2012 login Expenses paid by another. Tax act 2012 login   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. Tax act 2012 login But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. Tax act 2012 login Fees for services. Tax act 2012 login   Include all fees for your services in your income. Tax act 2012 login Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. Tax act 2012 login Nonemployee compensation. Tax act 2012 login   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. Tax act 2012 login You may need to report your fees as self-employment income. Tax act 2012 login See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. Tax act 2012 login Corporate director. Tax act 2012 login   Corporate director fees are self-employment income. Tax act 2012 login Report these payments on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login Personal representatives. Tax act 2012 login   All personal representatives must include in their gross income fees paid to them from an estate. Tax act 2012 login If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. Tax act 2012 login If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login The fee is not includible in income if it is waived. Tax act 2012 login Manager of trade or business for bankruptcy estate. Tax act 2012 login   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. Tax act 2012 login Report this income on Form 1040, line 21. Tax act 2012 login Notary public. Tax act 2012 login    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login These payments are not subject to self-employment tax. Tax act 2012 login See the separate instructions for Schedule SE (Form 1040) for details. Tax act 2012 login Election precinct official. Tax act 2012 login    You should receive a Form W-2 showing payments for services performed as an election official or election worker. Tax act 2012 login Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. Tax act 2012 login Foster care providers. Tax act 2012 login   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. Tax act 2012 login However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. Tax act 2012 login   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. Tax act 2012 login Difficulty-of-care payments. Tax act 2012 login   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. Tax act 2012 login A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. Tax act 2012 login   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. Tax act 2012 login Maintaining space in home. Tax act 2012 login   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. Tax act 2012 login Reporting taxable payments. Tax act 2012 login    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. Tax act 2012 login Report the payments on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. Tax act 2012 login Found property. Tax act 2012 login   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. Tax act 2012 login Free tour. Tax act 2012 login   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Tax act 2012 login Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. Tax act 2012 login You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. Tax act 2012 login If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). Tax act 2012 login Gambling winnings. Tax act 2012 login   You must include your gambling winnings in income on Form 1040, line 21. Tax act 2012 login If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Tax act 2012 login Lotteries and raffles. Tax act 2012 login   Winnings from lotteries and raffles are gambling winnings. Tax act 2012 login In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. Tax act 2012 login    If you win a state lottery prize payable in installments, see Publication 525 for more information. Tax act 2012 login Form W-2G. Tax act 2012 login   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. Tax act 2012 login Include the amount from box 1 on Form 1040, line 21. Tax act 2012 login Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. Tax act 2012 login Reporting winnings and recordkeeping. Tax act 2012 login   For more information on reporting gam