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Turbo Tax Filing For 2010

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Turbo Tax Filing For 2010

Turbo tax filing for 2010 3. Turbo tax filing for 2010   SIMPLE Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: SIMPLE IRA PlanWho Can Set Up a SIMPLE IRA Plan? Who Can Participate in a SIMPLE IRA Plan? How To Set Up a SIMPLE IRA Plan Notification Requirement Contribution Limits When To Deduct Contributions Where To Deduct Contributions Tax Treatment of Contributions Distributions (Withdrawals) More Information on SIMPLE IRA Plans SIMPLE 401(k) Plan Topics - This chapter discusses: SIMPLE IRA plan SIMPLE 401(k) plan Useful Items - You may want to see: Publications 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4284 SIMPLE IRA Plan Checklist 4334 SIMPLE IRA Plans for Small Businesses Forms (and Instructions) W-2 Wage and Tax Statement 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A savings incentive match plan for employees (SIMPLE plan) is a written arrangement that provides you and your employees with a simplified way to make contributions to provide retirement income. Turbo tax filing for 2010 Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. Turbo tax filing for 2010 In addition, you will contribute matching or nonelective contributions. Turbo tax filing for 2010 SIMPLE plans can only be maintained on a calendar-year basis. Turbo tax filing for 2010 A SIMPLE plan can be set up in either of the following ways. Turbo tax filing for 2010 Using SIMPLE IRAs (SIMPLE IRA plan). Turbo tax filing for 2010 As part of a 401(k) plan (SIMPLE 401(k) plan). Turbo tax filing for 2010 Many financial institutions will help you set up a SIMPLE plan. Turbo tax filing for 2010 SIMPLE IRA Plan A SIMPLE IRA plan is a retirement plan that uses SIMPLE IRAs for each eligible employee. Turbo tax filing for 2010 Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Turbo tax filing for 2010 For the definition of an eligible employee, see Who Can Participate in a SIMPLE IRA Plan , later. Turbo tax filing for 2010 Who Can Set Up a SIMPLE IRA Plan? You can set up a SIMPLE IRA plan if you meet both the following requirements. Turbo tax filing for 2010 You meet the employee limit. Turbo tax filing for 2010 You do not maintain another qualified plan unless the other plan is for collective bargaining employees. Turbo tax filing for 2010 Employee limit. Turbo tax filing for 2010   You can set up a SIMPLE IRA plan only if you had 100 or fewer employees who received $5,000 or more in compensation from you for the preceding year. Turbo tax filing for 2010 Under this rule, you must take into account all employees employed at any time during the calendar year regardless of whether they are eligible to participate. Turbo tax filing for 2010 Employees include self-employed individuals who received earned income and leased employees (defined in chapter 1). Turbo tax filing for 2010   Once you set up a SIMPLE IRA plan, you must continue to meet the 100-employee limit each year you maintain the plan. Turbo tax filing for 2010 Grace period for employers who cease to meet the 100-employee limit. Turbo tax filing for 2010   If you maintain the SIMPLE IRA plan for at least 1 year and you cease to meet the 100-employee limit in a later year, you will be treated as meeting it for the 2 calendar years immediately following the calendar year for which you last met it. Turbo tax filing for 2010   A different rule applies if you do not meet the 100-employee limit because of an acquisition, disposition, or similar transaction. Turbo tax filing for 2010 Under this rule, the SIMPLE IRA plan will be treated as meeting the 100-employee limit for the year of the transaction and the 2 following years if both the following conditions are satisfied. Turbo tax filing for 2010 Coverage under the plan has not significantly changed during the grace period. Turbo tax filing for 2010 The SIMPLE IRA plan would have continued to qualify after the transaction if you had remained a separate employer. Turbo tax filing for 2010    The grace period for acquisitions, dispositions, and similar transactions also applies if, because of these types of transactions, you do not meet the rules explained under Other qualified plan or Who Can Participate in a SIMPLE IRA Plan, below. Turbo tax filing for 2010 Other qualified plan. Turbo tax filing for 2010   The SIMPLE IRA plan generally must be the only retirement plan to which you make contributions, or to which benefits accrue, for service in any year beginning with the year the SIMPLE IRA plan becomes effective. Turbo tax filing for 2010 Exception. Turbo tax filing for 2010   If you maintain a qualified plan for collective bargaining employees, you are permitted to maintain a SIMPLE IRA plan for other employees. Turbo tax filing for 2010 Who Can Participate in a SIMPLE IRA Plan? Eligible employee. Turbo tax filing for 2010   Any employee who received at least $5,000 in compensation during any 2 years preceding the current calendar year and is reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate. Turbo tax filing for 2010 The term “employee” includes a self-employed individual who received earned income. Turbo tax filing for 2010   You can use less restrictive eligibility requirements (but not more restrictive ones) by eliminating or reducing the prior year compensation requirements, the current year compensation requirements, or both. Turbo tax filing for 2010 For example, you can allow participation for employees who received at least $3,000 in compensation during any preceding calendar year. Turbo tax filing for 2010 However, you cannot impose any other conditions for participating in a SIMPLE IRA plan. Turbo tax filing for 2010 Excludable employees. Turbo tax filing for 2010   The following employees do not need to be covered under a SIMPLE IRA plan. Turbo tax filing for 2010 Employees who are covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Turbo tax filing for 2010 Nonresident alien employees who have received no U. Turbo tax filing for 2010 S. Turbo tax filing for 2010 source wages, salaries, or other personal services compensation from you. Turbo tax filing for 2010 Compensation. Turbo tax filing for 2010   Compensation for employees is the total wages, tips, and other compensation from the employer subject to federal income tax withholding and the amounts paid for domestic service in a private home, local college club, or local chapter of a college fraternity or sorority. Turbo tax filing for 2010 Compensation also includes the employee's salary reduction contributions made under this plan and, if applicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under a section 457 plan required to be reported by the employer on Form W-2. Turbo tax filing for 2010 If you are self-employed, compensation is your net earnings from self-employment (line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040)) before subtracting any contributions made to the SIMPLE IRA plan for yourself. Turbo tax filing for 2010 How To Set Up a SIMPLE IRA Plan You can use Form 5304-SIMPLE or Form 5305-SIMPLE to set up a SIMPLE IRA plan. Turbo tax filing for 2010 Each form is a model savings incentive match plan for employees (SIMPLE) plan document. Turbo tax filing for 2010 Which form you use depends on whether you select a financial institution or your employees select the institution that will receive the contributions. Turbo tax filing for 2010 Use Form 5304-SIMPLE if you allow each plan participant to select the financial institution for receiving his or her SIMPLE IRA plan contributions. Turbo tax filing for 2010 Use Form 5305-SIMPLE if you require that all contributions under the SIMPLE IRA plan be deposited initially at a designated financial institution. Turbo tax filing for 2010 The SIMPLE IRA plan is adopted when you have completed all appropriate boxes and blanks on the form and you (and the designated financial institution, if any) have signed it. Turbo tax filing for 2010 Keep the original form. Turbo tax filing for 2010 Do not file it with the IRS. Turbo tax filing for 2010 Other uses of the forms. Turbo tax filing for 2010   If you set up a SIMPLE IRA plan using Form 5304-SIMPLE or Form 5305-SIMPLE, you can use the form to satisfy other requirements, including the following. Turbo tax filing for 2010 Meeting employer notification requirements for the SIMPLE IRA plan. Turbo tax filing for 2010 Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that provides the necessary information to the employee. Turbo tax filing for 2010 Maintaining the SIMPLE IRA plan records and proving you set up a SIMPLE IRA plan for employees. Turbo tax filing for 2010 Deadline for setting up a SIMPLE IRA plan. Turbo tax filing for 2010   You can set up a SIMPLE IRA plan effective on any date from January 1 through October 1 of a year, provided you did not previously maintain a SIMPLE IRA plan. Turbo tax filing for 2010 This requirement does not apply if you are a new employer that comes into existence after October 1 of the year the SIMPLE IRA plan is set up and you set up a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence. Turbo tax filing for 2010 If you previously maintained a SIMPLE IRA plan, you can set up a SIMPLE IRA plan effective only on January 1 of a year. Turbo tax filing for 2010 A SIMPLE IRA plan cannot have an effective date that is before the date you actually adopt the plan. Turbo tax filing for 2010 Setting up a SIMPLE IRA. Turbo tax filing for 2010   SIMPLE IRAs are the individual retirement accounts or annuities into which the contributions are deposited. Turbo tax filing for 2010 A SIMPLE IRA must be set up for each eligible employee. Turbo tax filing for 2010 Forms 5305-S, SIMPLE Individual Retirement Trust Account, and 5305-SA, SIMPLE Individual Retirement Custodial Account, are model trust and custodial account documents the participant and the trustee (or custodian) can use for this purpose. Turbo tax filing for 2010   A SIMPLE IRA cannot be a Roth IRA. Turbo tax filing for 2010 Contributions to a SIMPLE IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Turbo tax filing for 2010 Deadline for setting up a SIMPLE IRA. Turbo tax filing for 2010   A SIMPLE IRA must be set up for an employee before the first date by which a contribution is required to be deposited into the employee's IRA. Turbo tax filing for 2010 See Time limits for contributing funds , later, under Contribution Limits. Turbo tax filing for 2010 Credit for startup costs. Turbo tax filing for 2010   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE IRA plan that first became effective in 2013. Turbo tax filing for 2010 For more information, see Credit for startup costs under Reminders, earlier. Turbo tax filing for 2010 Notification Requirement If you adopt a SIMPLE IRA plan, you must notify each employee of the following information before the beginning of the election period. Turbo tax filing for 2010 The employee's opportunity to make or change a salary reduction choice under a SIMPLE IRA plan. Turbo tax filing for 2010 Your decision to make either matching contributions or nonelective contributions (discussed later). Turbo tax filing for 2010 A summary description provided by the financial institution. Turbo tax filing for 2010 Written notice that his or her balance can be transferred without cost or penalty if they use a designated financial institution. Turbo tax filing for 2010 Election period. Turbo tax filing for 2010   The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31 of the preceding calendar year). Turbo tax filing for 2010 However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year (for example, on July 1) or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan. Turbo tax filing for 2010   A SIMPLE IRA plan can provide longer periods for permitting employees to enter into salary reduction agreements or to modify prior agreements. Turbo tax filing for 2010 For example, a SIMPLE IRA plan can provide a 90-day election period instead of the 60-day period. Turbo tax filing for 2010 Similarly, in addition to the 60-day period, a SIMPLE IRA plan can provide quarterly election periods during the 30 days before each calendar quarter, other than the first quarter of each year. Turbo tax filing for 2010 Contribution Limits Contributions are made up of salary reduction contributions and employer contributions. Turbo tax filing for 2010 You, as the employer, must make either matching contributions or nonelective contributions, defined later. Turbo tax filing for 2010 No other contributions can be made to the SIMPLE IRA plan. Turbo tax filing for 2010 These contributions, which you can deduct, must be made timely. Turbo tax filing for 2010 See Time limits for contributing funds , later. Turbo tax filing for 2010 Salary reduction contributions. Turbo tax filing for 2010   The amount the employee chooses to have you contribute to a SIMPLE IRA on his or her behalf cannot be more than $12,000 for 2013 and 2014. Turbo tax filing for 2010 These contributions must be expressed as a percentage of the employee's compensation unless you permit the employee to express them as a specific dollar amount. Turbo tax filing for 2010 You cannot place restrictions on the contribution amount (such as limiting the contribution percentage), except to comply with the $12,000 limit. Turbo tax filing for 2010   If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($17,500 for 2013 and 2014) on exclusion of salary reduction contributions and other elective deferrals. Turbo tax filing for 2010 Catch-up contributions. Turbo tax filing for 2010   A SIMPLE IRA plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Turbo tax filing for 2010 The catch-up contribution limit for 2013 and 2014 for SIMPLE IRA plans is $2,500. Turbo tax filing for 2010 Salary reduction contributions are not treated as catch-up contributions for 2013 or 2014 until they exceed $12,000. Turbo tax filing for 2010 However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Turbo tax filing for 2010 The catch-up contribution limit. Turbo tax filing for 2010 The excess of the participant's compensation over the salary reduction contributions that are not catch-up contributions. Turbo tax filing for 2010 Employer matching contributions. Turbo tax filing for 2010   You are generally required to match each employee's salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee's compensation. Turbo tax filing for 2010 This requirement does not apply if you make nonelective contributions as discussed later. Turbo tax filing for 2010 Example. Turbo tax filing for 2010 In 2013, your employee, John Rose, earned $25,000 and chose to defer 5% of his salary. Turbo tax filing for 2010 Your net earnings from self-employment are $40,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Turbo tax filing for 2010 You make 3% matching contributions. Turbo tax filing for 2010 The total contribution you make for John is $2,000, figured as follows. Turbo tax filing for 2010 Salary reduction contributions ($25,000 × . Turbo tax filing for 2010 05) $1,250 Employer matching contribution ($25,000 × . Turbo tax filing for 2010 03) 750 Total contributions $2,000     The total contribution you make for yourself is $5,200, figured as follows. Turbo tax filing for 2010 Salary reduction contributions ($40,000 × . Turbo tax filing for 2010 10) $4,000 Employer matching contribution ($40,000 × . Turbo tax filing for 2010 03) 1,200 Total contributions $5,200 Lower percentage. Turbo tax filing for 2010   If you choose a matching contribution less than 3%, the percentage must be at least 1%. Turbo tax filing for 2010 You must notify the employees of the lower match within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Turbo tax filing for 2010 You cannot choose a percentage less than 3% for more than 2 years during the 5-year period that ends with (and includes) the year for which the choice is effective. Turbo tax filing for 2010 Nonelective contributions. Turbo tax filing for 2010   Instead of matching contributions, you can choose to make nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount you select) of compensation from you for the year. Turbo tax filing for 2010 If you make this choice, you must make nonelective contributions whether or not the employee chooses to make salary reduction contributions. Turbo tax filing for 2010 Only $255,000 of the employee's compensation can be taken into account to figure the contribution limit in 2013 ($260,000 in 2014). Turbo tax filing for 2010   If you choose this 2% contribution formula, you must notify the employees within a reasonable period of time before the 60-day election period (discussed earlier) for the calendar year. Turbo tax filing for 2010 Example 1. Turbo tax filing for 2010 In 2013, your employee, Jane Wood, earned $36,000 and chose to have you contribute 10% of her salary. Turbo tax filing for 2010 Your net earnings from self-employment are $50,000, and you choose to contribute 10% of your earnings to your SIMPLE IRA. Turbo tax filing for 2010 You make a 2% nonelective contribution. Turbo tax filing for 2010 Both of you are under age 50. Turbo tax filing for 2010 The total contribution you make for Jane is $4,320, figured as follows. Turbo tax filing for 2010 Salary reduction contributions ($36,000 × . Turbo tax filing for 2010 10) $3,600 2% nonelective contributions ($36,000 × . Turbo tax filing for 2010 02) 720 Total contributions $4,320     The total contribution you make for yourself is $6,000, figured as follows. Turbo tax filing for 2010 Salary reduction contributions ($50,000 × . Turbo tax filing for 2010 10) $5,000 2% nonelective contributions ($50,000 × . Turbo tax filing for 2010 02) 1,000 Total contributions $6,000 Example 2. Turbo tax filing for 2010 Using the same facts as in Example 1, above, the maximum contribution you make for Jane or for yourself if you each earned $75,000 is $13,500, figured as follows. Turbo tax filing for 2010 Salary reduction contributions (maximum amount allowed) $12,000 2% nonelective contributions ($75,000 × . Turbo tax filing for 2010 02) 1,500 Total contributions $13,500 Time limits for contributing funds. Turbo tax filing for 2010   You must make the salary reduction contributions to the SIMPLE IRA within 30 days after the end of the month in which the amounts would otherwise have been payable to the employee in cash. Turbo tax filing for 2010 You must make matching contributions or nonelective contributions by the due date (including extensions) for filing your federal income tax return for the year. Turbo tax filing for 2010 Certain plans subject to Department of Labor rules may have an earlier due date for salary reduction contributions. Turbo tax filing for 2010 When To Deduct Contributions You can deduct SIMPLE IRA contributions in the tax year within which the calendar year for which contributions were made ends. Turbo tax filing for 2010 You can deduct contributions for a particular tax year if they are made for that tax year and are made by the due date (including extensions) of your federal income tax return for that year. Turbo tax filing for 2010 Example 1. Turbo tax filing for 2010 Your tax year is the fiscal year ending June 30. Turbo tax filing for 2010 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2013 before July 1, 2013) are deductible in the tax year ending June 30, 2014. Turbo tax filing for 2010 Example 2. Turbo tax filing for 2010 You are a sole proprietor whose tax year is the calendar year. Turbo tax filing for 2010 Contributions under a SIMPLE IRA plan for the calendar year 2013 (including contributions made in 2014 by April 15, 2014) are deductible in the 2013 tax year. Turbo tax filing for 2010 Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Turbo tax filing for 2010 For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120 or Form 1120S. Turbo tax filing for 2010 Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Turbo tax filing for 2010 (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you receive from the partnership. Turbo tax filing for 2010 ) Tax Treatment of Contributions You can deduct your contributions and your employees can exclude these contributions from their gross income. Turbo tax filing for 2010 SIMPLE IRA plan contributions are not subject to federal income tax withholding. Turbo tax filing for 2010 However, salary reduction contributions are subject to social security, Medicare, and federal unemployment (FUTA) taxes. Turbo tax filing for 2010 Matching and nonelective contributions are not subject to these taxes. Turbo tax filing for 2010 Reporting on Form W-2. Turbo tax filing for 2010   Do not include SIMPLE IRA plan contributions in the “Wages, tips, other compensation” box of Form W-2. Turbo tax filing for 2010 You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Turbo tax filing for 2010 You must also include them in box 12. Turbo tax filing for 2010 Mark the “Retirement plan” checkbox in box 13. Turbo tax filing for 2010 For more information, see the Form W-2 instructions. Turbo tax filing for 2010 Distributions (Withdrawals) Distributions from a SIMPLE IRA are subject to IRA rules and generally are includible in income for the year received. Turbo tax filing for 2010 Tax-free rollovers can be made from one SIMPLE IRA into another SIMPLE IRA. Turbo tax filing for 2010 However, a rollover from a SIMPLE IRA to a non-SIMPLE IRA can be made tax free only after a 2-year participation in the SIMPLE IRA plan. Turbo tax filing for 2010 Generally, you or your employee must begin to receive distributions from a SIMPLE IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Turbo tax filing for 2010 Early withdrawals generally are subject to a 10% additional tax. Turbo tax filing for 2010 However, the additional tax is increased to 25% if funds are withdrawn within 2 years of beginning participation. Turbo tax filing for 2010 More information. Turbo tax filing for 2010   See Publication 590 for information about IRA rules, including those on the tax treatment of distributions, rollovers, required distributions, and income tax withholding. Turbo tax filing for 2010 More Information on SIMPLE IRA Plans If you need help to set up or maintain a SIMPLE IRA plan, go to the IRS website and search SIMPLE IRA Plan. Turbo tax filing for 2010 SIMPLE 401(k) Plan You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. Turbo tax filing for 2010 A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. Turbo tax filing for 2010 However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below. Turbo tax filing for 2010 Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $12,000 for 2013 and 2014. Turbo tax filing for 2010 If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2013 and 2014. Turbo tax filing for 2010 See Catch-up contributions , earlier under Contribution Limits. Turbo tax filing for 2010 You must make either: Matching contributions up to 3% of compensation for the year, or Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year. Turbo tax filing for 2010 No other contributions can be made to the trust. Turbo tax filing for 2010 No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan. Turbo tax filing for 2010 The employee's rights to any contributions are nonforfeitable. Turbo tax filing for 2010 No more than $255,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2013 ($260,000 in 2014). Turbo tax filing for 2010 Compensation is defined earlier in this chapter. Turbo tax filing for 2010 Employee notification. Turbo tax filing for 2010   The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. Turbo tax filing for 2010 See Notification Requirement in this chapter. Turbo tax filing for 2010 Credit for startup costs. Turbo tax filing for 2010   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2013. Turbo tax filing for 2010 For more information, see Credit for startup costs under Reminders, earlier. Turbo tax filing for 2010 Note on Forms. Turbo tax filing for 2010   Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. Turbo tax filing for 2010 To set up a SIMPLE 401(k) plan, see Adopting a Written Plan in chapter 4. Turbo tax filing for 2010 Prev  Up  Next   Home   More Online Publications
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The Turbo Tax Filing For 2010

Turbo tax filing for 2010 7. Turbo tax filing for 2010   Figuring Gross Profit Table of Contents Introduction Items To Check Testing Gross Profit AccuracyExample. Turbo tax filing for 2010 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. Turbo tax filing for 2010 You must determine gross profit before you can deduct any business expenses. Turbo tax filing for 2010 These expenses are discussed in chapter 8. Turbo tax filing for 2010 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. Turbo tax filing for 2010 Businesses that sell products. Turbo tax filing for 2010   If you are filing Schedule C, figure your gross profit by first figuring your net receipts. Turbo tax filing for 2010 Figure net receipts (line 3) on Schedule C by subtracting any returns and allowances (line 2) from gross receipts (line 1). Turbo tax filing for 2010 Returns and allowances include cash or credit refunds you make to customers, rebates, and other allowances off the actual sales price. Turbo tax filing for 2010   Next, subtract the cost of goods sold (line 4) from net receipts (line 3). Turbo tax filing for 2010 The result is the gross profit from your business. Turbo tax filing for 2010 Businesses that sell services. Turbo tax filing for 2010   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. Turbo tax filing for 2010 Your gross profit is the same as your net receipts (gross receipts minus any refunds, rebates, or other allowances). Turbo tax filing for 2010 Most professions and businesses that sell services rather than products can figure gross profit directly from net receipts in this way. Turbo tax filing for 2010 Illustration. Turbo tax filing for 2010   This illustration of the gross profit section of the income statement of a retail business shows how gross profit is figured. Turbo tax filing for 2010 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. Turbo tax filing for 2010 Gross receipts. Turbo tax filing for 2010   At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. Turbo tax filing for 2010 You may find it helpful to use cash registers to keep track of receipts. Turbo tax filing for 2010 You should also use a proper invoicing system and keep a separate bank account for your business. Turbo tax filing for 2010 Sales tax collected. Turbo tax filing for 2010   Check to make sure your records show the correct sales tax collected. Turbo tax filing for 2010   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. Turbo tax filing for 2010   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. Turbo tax filing for 2010 Inventory at beginning of year. Turbo tax filing for 2010   Compare this figure with last year's ending inventory. Turbo tax filing for 2010 The two amounts should usually be the same. Turbo tax filing for 2010 Purchases. Turbo tax filing for 2010   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. Turbo tax filing for 2010 ) be sure to remove them from the cost of goods sold. Turbo tax filing for 2010 For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6. Turbo tax filing for 2010 Inventory at end of year. Turbo tax filing for 2010   Check to make sure your procedures for taking inventory are adequate. Turbo tax filing for 2010 These procedures should ensure all items have been included in inventory and proper pricing techniques have been used. Turbo tax filing for 2010   Use inventory forms and adding machine tapes as the only evidence for your inventory. Turbo tax filing for 2010 Inventory forms are available at office supply stores. Turbo tax filing for 2010 These forms have columns for recording the description, quantity, unit price, and value of each inventory item. Turbo tax filing for 2010 Each page has space to record who made the physical count, who priced the items, who made the extensions, and who proofread the calculations. Turbo tax filing for 2010 These forms will help satisfy you that the total inventory is accurate. Turbo tax filing for 2010 They will also provide you with a permanent record to support its validity. Turbo tax filing for 2010   Inventories are discussed in chapter 2. Turbo tax filing for 2010 Testing Gross Profit Accuracy If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. Turbo tax filing for 2010 First, divide gross profit by net receipts. Turbo tax filing for 2010 The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price. Turbo tax filing for 2010 Next, compare this percentage to your markup policy. Turbo tax filing for 2010 Little or no difference between these two percentages shows that your gross profit figure is accurate. Turbo tax filing for 2010 A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. Turbo tax filing for 2010 You should determine the reason for the difference. Turbo tax filing for 2010 Example. Turbo tax filing for 2010   Joe Able operates a retail business. Turbo tax filing for 2010 On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. Turbo tax filing for 2010 The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. Turbo tax filing for 2010 His cost of goods sold is $200,000. Turbo tax filing for 2010 This results in a gross profit of $100,000 ($300,000 − $200,000). Turbo tax filing for 2010 To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). Turbo tax filing for 2010 The resulting 331/3% confirms his markup percentage of 331/3%. Turbo tax filing for 2010 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. Turbo tax filing for 2010 The result is gross business income. Turbo tax filing for 2010 If you use Schedule C-EZ, include the income on line 1 of the schedule. Turbo tax filing for 2010 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. Turbo tax filing for 2010 Prev  Up  Next   Home   More Online Publications