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Tax Software 2012

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Tax Software 2012

Tax software 2012 7. Tax software 2012   Figuring Gross Profit Table of Contents Introduction Items To Check Testing Gross Profit AccuracyExample. Tax software 2012 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 software 2012 You must determine gross profit before you can deduct any business expenses. Tax software 2012 These expenses are discussed in chapter 8. Tax software 2012 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 software 2012 Businesses that sell products. Tax software 2012   If you are filing Schedule C, figure your gross profit by first figuring your net receipts. Tax software 2012 Figure net receipts (line 3) on Schedule C by subtracting any returns and allowances (line 2) from gross receipts (line 1). Tax software 2012 Returns and allowances include cash or credit refunds you make to customers, rebates, and other allowances off the actual sales price. Tax software 2012   Next, subtract the cost of goods sold (line 4) from net receipts (line 3). Tax software 2012 The result is the gross profit from your business. Tax software 2012 Businesses that sell services. Tax software 2012   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 software 2012 Your gross profit is the same as your net receipts (gross receipts minus any refunds, rebates, or other allowances). Tax software 2012 Most professions and businesses that sell services rather than products can figure gross profit directly from net receipts in this way. Tax software 2012 Illustration. Tax software 2012   This illustration of the gross profit section of the income statement of a retail business shows how gross profit is figured. Tax software 2012 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for this business is figured as follows: Inventory at beginning of year $37,845 Plus: Purchases $285,900   Minus: Items withdrawn for personal use 2,650 283,250 Goods available for sale $321,095 Minus: Inventory at end of year 32,955 Cost of goods sold $288,140 Items To Check Consider the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 software 2012 Gross receipts. Tax software 2012   At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. Tax software 2012 You may find it helpful to use cash registers to keep track of receipts. Tax software 2012 You should also use a proper invoicing system and keep a separate bank account for your business. Tax software 2012 Sales tax collected. Tax software 2012   Check to make sure your records show the correct sales tax collected. Tax software 2012   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 software 2012   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 software 2012 Inventory at beginning of year. Tax software 2012   Compare this figure with last year's ending inventory. Tax software 2012 The two amounts should usually be the same. Tax software 2012 Purchases. Tax software 2012   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 software 2012 ) be sure to remove them from the cost of goods sold. Tax software 2012 For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6. Tax software 2012 Inventory at end of year. Tax software 2012   Check to make sure your procedures for taking inventory are adequate. Tax software 2012 These procedures should ensure all items have been included in inventory and proper pricing techniques have been used. Tax software 2012   Use inventory forms and adding machine tapes as the only evidence for your inventory. Tax software 2012 Inventory forms are available at office supply stores. Tax software 2012 These forms have columns for recording the description, quantity, unit price, and value of each inventory item. Tax software 2012 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 software 2012 These forms will help satisfy you that the total inventory is accurate. Tax software 2012 They will also provide you with a permanent record to support its validity. Tax software 2012   Inventories are discussed in chapter 2. Tax software 2012 Testing Gross Profit Accuracy If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. Tax software 2012 First, divide gross profit by net receipts. Tax software 2012 The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price. Tax software 2012 Next, compare this percentage to your markup policy. Tax software 2012 Little or no difference between these two percentages shows that your gross profit figure is accurate. Tax software 2012 A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. Tax software 2012 You should determine the reason for the difference. Tax software 2012 Example. Tax software 2012   Joe Able operates a retail business. Tax software 2012 On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. Tax software 2012 The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. Tax software 2012 His cost of goods sold is $200,000. Tax software 2012 This results in a gross profit of $100,000 ($300,000 − $200,000). Tax software 2012 To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). Tax software 2012 The resulting 331/3% confirms his markup percentage of 331/3%. Tax software 2012 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 software 2012 The result is gross business income. Tax software 2012 If you use Schedule C-EZ, include the income on line 1 of the schedule. Tax software 2012 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 software 2012 Prev  Up  Next   Home   More Online Publications
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Understanding your CP2501 Notice

You need to contact us. We've received information not reported on your tax return.


What you need to do

  • Read your notice carefully — it explains the information we received.
  • Complete the notice's response form whether or not the information is right or wrong.

You may want to...

  • Contact the business or person reporting the information if it is wrong. Ask them to correct it.
  • Order a transcript of your return.
  • Make sure your earlier returns don't have the same mistake.
  • Fill out the section on the response form to allow someone (such as an accountant) to contact us on your behalf.
  • Contact us with any unanswered questions you have.
  • Keep a copy of your notice for your files.

Answers to Common Questions

Is the notice a bill?
No. It informs you about the information we've received.

What do I need to do?
Complete the notice's response form.

What do I do if the information is wrong?
The response form has instructions on what to do if the new information is wrong. You also may want to contact whoever reported the information and ask them to correct it.

I want to check a copy of my original return. I don't have one. How can I get one?
You can order a transcript of your return. You also can get one by completing and sending us a Form 4506-T, Request for Transcript of Tax Return.

I don't want a transcript of my return. I want a copy. How can I get one?
Did an accountant or some other person prepare your return? You could ask them for a copy.

I can't get a copy of my return from a tax preparer. How else can I get a copy of it?
You can get a copy of your return by completing and sending us a Form 4506, Request for Copy of Tax Return. We charge a fee for return requests.

The information is wrong because someone else is using my name and Social Security number. What can I do?
You can visit our Identity theft information to find out more about what you can do. You also should call us and let us know.

Why did it take you so long to contact me about this matter?
Our computer systems match the information you report on your tax return with information reported by employers, banks, businesses, and others. This matching takes several months to complete.


Tips for next year

You can avoid future problems by:

  • keeping accurate and full records
  • waiting until you get all of your income statements to file your tax return
  • checking the records you get from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they're correct
  • including all your income on your tax return
  • following the instructions on how to report income, expenses and deductions
  • filing an amended tax return for any information you receive after you've filed your return

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about how to file electronically.

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

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

The Tax Software 2012

Tax software 2012 5. Tax software 2012   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Tax software 2012 Making the election. Tax software 2012 Form 3115. Tax software 2012 Income TaxesAccrual of contested income taxes. Tax software 2012 Employment Taxes Other TaxesAdditional Medicare Tax. Tax software 2012 What's New Additional Medicare Tax. Tax software 2012  Beginning in 2013, you must withhold a 0. Tax software 2012 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Tax software 2012 Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Tax software 2012 See Employment Taxes , and Self-employment tax , later. Tax software 2012 Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Tax software 2012 You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Tax software 2012 Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Tax software 2012 When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Tax software 2012 This applies whether you use the cash method or an accrual method of accounting. Tax software 2012 Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Tax software 2012 You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Tax software 2012 Limit on accrual of taxes. Tax software 2012   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Tax software 2012 However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Tax software 2012 Example. Tax software 2012 Your state imposes a tax on personal property used in a trade or business conducted in the state. Tax software 2012 This tax is assessed and becomes a lien as of July 1 (accrual date). Tax software 2012 In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Tax software 2012 Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Tax software 2012 You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Tax software 2012 Uniform capitalization rules. Tax software 2012   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Tax software 2012 They also apply to certain taxpayers who acquire property for resale. Tax software 2012 Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Tax software 2012 For more information, see chapter 1. Tax software 2012 Carrying charges. Tax software 2012   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Tax software 2012 You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Tax software 2012 For more information, see chapter 7. Tax software 2012 Refunds of taxes. Tax software 2012   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Tax software 2012 For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Tax software 2012    You must include in income any interest you receive on tax refunds. Tax software 2012 Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Tax software 2012 The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Tax software 2012 Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Tax software 2012 See Taxes for local benefits , later. Tax software 2012 If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Tax software 2012 However, you can elect to ratably accrue the taxes during the year. Tax software 2012 See Electing to ratably accrue , later. Tax software 2012 Taxes for local benefits. Tax software 2012   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Tax software 2012 These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Tax software 2012 You should increase the basis of your property by the amount of the assessment. Tax software 2012   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Tax software 2012 If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Tax software 2012 Example. Tax software 2012 To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Tax software 2012 The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Tax software 2012 The city is paying the principal and interest with the annual payments made by the property owners. Tax software 2012 The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Tax software 2012 The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Tax software 2012 Charges for services. Tax software 2012   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Tax software 2012 Purchase or sale of real estate. Tax software 2012   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Tax software 2012   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Tax software 2012 Treat the seller as paying the taxes up to but not including the date of sale. Tax software 2012 Treat the buyer as paying the taxes beginning with the date of sale. Tax software 2012 You can usually find this information on the settlement statement you received at closing. Tax software 2012   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Tax software 2012 Example. Tax software 2012 Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Tax software 2012 He has not elected to ratably accrue property taxes. Tax software 2012 November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Tax software 2012 He sold the property on June 30, 2013. Tax software 2012 Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Tax software 2012 He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Tax software 2012 Electing to ratably accrue. Tax software 2012   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Tax software 2012 Example. Tax software 2012 Juan Sanchez is a calendar year taxpayer who uses an accrual method. Tax software 2012 His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Tax software 2012 July 1 is the assessment and lien date. Tax software 2012 If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Tax software 2012 Separate elections. Tax software 2012   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Tax software 2012 Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Tax software 2012 See Form 3115 , later. Tax software 2012 Making the election. Tax software 2012   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Tax software 2012 The statement should show all the following items. Tax software 2012 The trades or businesses to which the election applies and the accounting method or methods used. Tax software 2012 The period to which the taxes relate. Tax software 2012 The computation of the real estate tax deduction for that first year. Tax software 2012   Generally, you must file your return by the due date (including extensions). Tax software 2012 However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Tax software 2012 Attach the statement to the amended return and write “Filed pursuant to section 301. Tax software 2012 9100-2” on the statement. Tax software 2012 File the amended return at the same address where you filed the original return. Tax software 2012 Form 3115. Tax software 2012    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Tax software 2012 For more information, including applicable time frames for filing, see the Instructions for Form 3115. Tax software 2012 Note. Tax software 2012 If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Tax software 2012 R. Tax software 2012 B. Tax software 2012 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Tax software 2012 R. Tax software 2012 B. Tax software 2012 689, and Revenue Procedure 2012-20, 2012-14 I. Tax software 2012 R. Tax software 2012 B. Tax software 2012 700, or any successor. Tax software 2012 Revenue Procedure 2011-14 is available at  www. Tax software 2012 irs. Tax software 2012 gov/irb/2011-04IRB/ar08. Tax software 2012 html. Tax software 2012 Income Taxes This section discusses federal, state, local, and foreign income taxes. Tax software 2012 Federal income taxes. Tax software 2012   You cannot deduct federal income taxes. Tax software 2012 State and local income taxes. Tax software 2012   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Tax software 2012 An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Tax software 2012   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Tax software 2012 Accrual of contested income taxes. Tax software 2012   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Tax software 2012   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Tax software 2012 You cannot deduct them in the year in which the liability is finally determined. Tax software 2012    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Tax software 2012 Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Tax software 2012   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Tax software 2012 You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Tax software 2012 For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Tax software 2012 Foreign income taxes. Tax software 2012   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Tax software 2012 S. Tax software 2012 possession. Tax software 2012 However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Tax software 2012 S. Tax software 2012 tax under the foreign earned income exclusion or the foreign housing exclusion. Tax software 2012 For information on these exclusions, see Publication 54, Tax Guide for U. Tax software 2012 S. Tax software 2012 Citizens and Resident Aliens Abroad. Tax software 2012 For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Tax software 2012 Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Tax software 2012 Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Tax software 2012 You may also need to pay certain employment taxes from your own funds. Tax software 2012 These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Tax software 2012 Note. Tax software 2012 Additional Medicare Tax is only imposed on the employee. Tax software 2012 There is no employer share of Additional Medicare Tax. Tax software 2012 Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Tax software 2012 You can deduct the employment taxes you must pay from your own funds as taxes. Tax software 2012 Example. Tax software 2012 You pay your employee $18,000 a year. Tax software 2012 However, after you withhold various taxes, your employee receives $14,500. Tax software 2012 You also pay an additional $1,500 in employment taxes. Tax software 2012 You should deduct the full $18,000 as wages. Tax software 2012 You can deduct the $1,500 you pay from your own funds as taxes. Tax software 2012 For more information on employment taxes, see Publication 15 (Circular E). Tax software 2012 Unemployment fund taxes. Tax software 2012   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Tax software 2012 Deduct these payments as taxes. Tax software 2012 Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Tax software 2012 Excise taxes. Tax software 2012   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Tax software 2012 However, see Fuel taxes , later. Tax software 2012   For more information on excise taxes, see Publication 510. Tax software 2012 Franchise taxes. Tax software 2012   You can deduct corporate franchise taxes as a business expense. Tax software 2012 Fuel taxes. Tax software 2012   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Tax software 2012 Do not deduct these taxes as a separate item. Tax software 2012   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Tax software 2012 For more information, see Publication 510. Tax software 2012 Occupational taxes. Tax software 2012   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Tax software 2012 Personal property tax. Tax software 2012   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Tax software 2012 Sales tax. Tax software 2012   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Tax software 2012 If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Tax software 2012 If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Tax software 2012 If the property is depreciable, add the sales tax to the basis for depreciation. Tax software 2012 For more information on basis, see Publication 551. Tax software 2012    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Tax software 2012 Also, do not include these taxes in gross receipts or sales. Tax software 2012 Self-employment tax. Tax software 2012   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Tax software 2012 This deduction only affects your income tax. Tax software 2012 It does not affect your net earnings from self-employment or your self-employment tax. Tax software 2012   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Tax software 2012   For more information on self-employment tax, see Publication 334. Tax software 2012 Additional Medicare Tax. Tax software 2012   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Tax software 2012 See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Tax software 2012 Prev  Up  Next   Home   More Online Publications