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1040ez 2011 Instructions

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1040ez 2011 Instructions

1040ez 2011 instructions 28. 1040ez 2011 instructions   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. 1040ez 2011 instructions  The 2013 rate for business use of a vehicle is 56½ cents per mile. 1040ez 2011 instructions Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). 1040ez 2011 instructions You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. 1040ez 2011 instructions This chapter covers the following topics. 1040ez 2011 instructions Deductions subject to the 2% limit. 1040ez 2011 instructions Deductions not subject to the 2% limit. 1040ez 2011 instructions Expenses you cannot deduct. 1040ez 2011 instructions You must keep records to verify your deductions. 1040ez 2011 instructions You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. 1040ez 2011 instructions For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. 1040ez 2011 instructions Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). 1040ez 2011 instructions You can claim the amount of expenses that is more than 2% of your adjusted gross income. 1040ez 2011 instructions You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. 1040ez 2011 instructions Your adjusted gross income is the amount on Form 1040, line 38. 1040ez 2011 instructions Generally, you apply the 2% limit after you apply any other deduction limit. 1040ez 2011 instructions For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. 1040ez 2011 instructions Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). 1040ez 2011 instructions Unreimbursed employee expenses (line 21). 1040ez 2011 instructions Tax preparation fees (line 22). 1040ez 2011 instructions Other expenses (line 23). 1040ez 2011 instructions Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. 1040ez 2011 instructions An expense is ordinary if it is common and accepted in your trade, business, or profession. 1040ez 2011 instructions An expense is necessary if it is appropriate and helpful to your business. 1040ez 2011 instructions An expense does not have to be required to be considered necessary. 1040ez 2011 instructions Examples of unreimbursed employee expenses are listed next. 1040ez 2011 instructions The list is followed by discussions of additional unreimbursed employee expenses. 1040ez 2011 instructions Business bad debt of an employee. 1040ez 2011 instructions Education that is work related. 1040ez 2011 instructions (See chapter 27. 1040ez 2011 instructions ) Legal fees related to your job. 1040ez 2011 instructions Licenses and regulatory fees. 1040ez 2011 instructions Malpractice insurance premiums. 1040ez 2011 instructions Medical examinations required by an employer. 1040ez 2011 instructions Occupational taxes. 1040ez 2011 instructions Passport for a business trip. 1040ez 2011 instructions Subscriptions to professional journals and trade magazines related to your work. 1040ez 2011 instructions Travel, transportation, entertainment, and gifts related to your work. 1040ez 2011 instructions (See chapter 26. 1040ez 2011 instructions ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. 1040ez 2011 instructions Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. 1040ez 2011 instructions Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. 1040ez 2011 instructions For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. 1040ez 2011 instructions Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. 1040ez 2011 instructions Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. 1040ez 2011 instructions Lobbying and political activities. 1040ez 2011 instructions   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. 1040ez 2011 instructions See Dues used for lobbying under Nondeductible Expenses, later. 1040ez 2011 instructions Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. 1040ez 2011 instructions If you file Form 1040A, you can deduct these expenses on line 16. 1040ez 2011 instructions If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. 1040ez 2011 instructions However, neither spouse can deduct more than $250 of his or her qualified expenses. 1040ez 2011 instructions Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. 1040ez 2011 instructions You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. 1040ez 2011 instructions The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. 1040ez 2011 instructions See Publication 587 for more detailed information and a worksheet. 1040ez 2011 instructions Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. 1040ez 2011 instructions You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. 1040ez 2011 instructions Employment and outplacement agency fees. 1040ez 2011 instructions   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. 1040ez 2011 instructions Employer pays you back. 1040ez 2011 instructions   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. 1040ez 2011 instructions (See Recoveries in chapter 12. 1040ez 2011 instructions ) Employer pays the employment agency. 1040ez 2011 instructions   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. 1040ez 2011 instructions Résumé. 1040ez 2011 instructions   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. 1040ez 2011 instructions Travel and transportation expenses. 1040ez 2011 instructions   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. 1040ez 2011 instructions You can deduct the travel expenses if the trip is primarily to look for a new job. 1040ez 2011 instructions The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. 1040ez 2011 instructions   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. 1040ez 2011 instructions   You can choose to use the standard mileage rate to figure your car expenses. 1040ez 2011 instructions The 2013 rate for business use of a vehicle is 56½ cents per mile. 1040ez 2011 instructions See chapter 26 for more information. 1040ez 2011 instructions Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. 1040ez 2011 instructions Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. 1040ez 2011 instructions If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. 1040ez 2011 instructions Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. 1040ez 2011 instructions If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. 1040ez 2011 instructions Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. 1040ez 2011 instructions You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. 1040ez 2011 instructions However, you cannot deduct the cost of travel as a form of education. 1040ez 2011 instructions Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. 1040ez 2011 instructions You can depreciate the cost of tools that have a useful life substantially beyond the tax year. 1040ez 2011 instructions For more information about depreciation, see Publication 946. 1040ez 2011 instructions Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. 1040ez 2011 instructions You can also deduct assessments for benefit payments to unemployed union members. 1040ez 2011 instructions However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. 1040ez 2011 instructions Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. 1040ez 2011 instructions You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. 1040ez 2011 instructions See Lobbying Expenses under Nondeductible Expenses, later. 1040ez 2011 instructions Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. 1040ez 2011 instructions You must wear them as a condition of your employment. 1040ez 2011 instructions The clothes are not suitable for everyday wear. 1040ez 2011 instructions It is not enough that you wear distinctive clothing. 1040ez 2011 instructions The clothing must be specifically required by your employer. 1040ez 2011 instructions Nor is it enough that you do not, in fact, wear your work clothes away from work. 1040ez 2011 instructions The clothing must not be suitable for taking the place of your regular clothing. 1040ez 2011 instructions Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. 1040ez 2011 instructions ). 1040ez 2011 instructions Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. 1040ez 2011 instructions However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. 1040ez 2011 instructions Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. 1040ez 2011 instructions Protective clothing. 1040ez 2011 instructions   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. 1040ez 2011 instructions   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. 1040ez 2011 instructions Military uniforms. 1040ez 2011 instructions   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. 1040ez 2011 instructions However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. 1040ez 2011 instructions In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. 1040ez 2011 instructions   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. 1040ez 2011 instructions   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. 1040ez 2011 instructions Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. 1040ez 2011 instructions Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. 1040ez 2011 instructions These fees include the cost of tax preparation software programs and tax publications. 1040ez 2011 instructions They also include any fee you paid for electronic filing of your return. 1040ez 2011 instructions Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. 1040ez 2011 instructions On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. 1040ez 2011 instructions You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. 1040ez 2011 instructions Some of these other expenses are explained in the following discussions. 1040ez 2011 instructions If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. 1040ez 2011 instructions Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. 1040ez 2011 instructions Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. 1040ez 2011 instructions First report the loss in Section B of Form 4684, Casualties and Thefts. 1040ez 2011 instructions You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. 1040ez 2011 instructions To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. 1040ez 2011 instructions For other casualty and theft losses, see chapter 25. 1040ez 2011 instructions Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. 1040ez 2011 instructions Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. 1040ez 2011 instructions The fees are deductible in the year paid. 1040ez 2011 instructions Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). 1040ez 2011 instructions You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. 1040ez 2011 instructions But if you work as an employee and also use the computer in that work, see Publication 946. 1040ez 2011 instructions Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. 1040ez 2011 instructions Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. 1040ez 2011 instructions The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. 1040ez 2011 instructions For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. 1040ez 2011 instructions Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. 1040ez 2011 instructions But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. 1040ez 2011 instructions You must add the fee to the cost of the property. 1040ez 2011 instructions You cannot deduct the fee you pay to a broker to sell securities. 1040ez 2011 instructions You can use the fee only to figure gain or loss from the sale. 1040ez 2011 instructions See the Instructions for Form 8949 for information on how to report the fee. 1040ez 2011 instructions Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. 1040ez 2011 instructions A hobby is not a business because it is not carried on to make a profit. 1040ez 2011 instructions See Activity not for profit in chapter 12 under Other Income. 1040ez 2011 instructions Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. 1040ez 2011 instructions Deductions of pass-through entities are passed through to the partners or shareholders. 1040ez 2011 instructions The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. 1040ez 2011 instructions Example. 1040ez 2011 instructions You are a member of an investment club that is formed solely to invest in securities. 1040ez 2011 instructions The club is treated as a partnership. 1040ez 2011 instructions The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. 1040ez 2011 instructions In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. 1040ez 2011 instructions However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. 1040ez 2011 instructions Publicly offered mutual funds. 1040ez 2011 instructions   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. 1040ez 2011 instructions A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. 1040ez 2011 instructions   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). 1040ez 2011 instructions This net figure is the amount you report on your return as income. 1040ez 2011 instructions You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. 1040ez 2011 instructions Information returns. 1040ez 2011 instructions   You should receive information returns from pass-through entities. 1040ez 2011 instructions Partnerships and S corporations. 1040ez 2011 instructions   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. 1040ez 2011 instructions Nonpublicly offered mutual funds. 1040ez 2011 instructions   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. 1040ez 2011 instructions You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. 1040ez 2011 instructions Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. 1040ez 2011 instructions Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. 1040ez 2011 instructions You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. 1040ez 2011 instructions You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. 1040ez 2011 instructions You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). 1040ez 2011 instructions See Tax Preparation Fees , earlier. 1040ez 2011 instructions Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. 1040ez 2011 instructions Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. 1040ez 2011 instructions If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. 1040ez 2011 instructions If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. 1040ez 2011 instructions Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. 1040ez 2011 instructions Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. 1040ez 2011 instructions You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. 1040ez 2011 instructions Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. 1040ez 2011 instructions These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. 1040ez 2011 instructions Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. 1040ez 2011 instructions For more information about IRAs, see chapter 17. 1040ez 2011 instructions Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. 1040ez 2011 instructions They are not subject to the 2% limit. 1040ez 2011 instructions Report these items on Schedule A (Form 1040), line 28. 1040ez 2011 instructions List of Deductions Each of the following items is discussed in detail after the list (except where indicated). 1040ez 2011 instructions Amortizable premium on taxable bonds. 1040ez 2011 instructions Casualty and theft losses from income- producing property. 1040ez 2011 instructions Federal estate tax on income in respect of a decedent. 1040ez 2011 instructions Gambling losses up to the amount of gambling winnings. 1040ez 2011 instructions Impairment-related work expenses of persons with disabilities. 1040ez 2011 instructions Loss from other activities from Schedule K-1 (Form 1065-B), box 2. 1040ez 2011 instructions Losses from Ponzi-type investment schemes. 1040ez 2011 instructions See Losses from Ponzi-type investment schemes under Theft in chapter 25. 1040ez 2011 instructions Repayments of more than $3,000 under a claim of right. 1040ez 2011 instructions Unrecovered investment in an annuity. 1040ez 2011 instructions Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. 1040ez 2011 instructions You can elect to amortize the premium on taxable bonds. 1040ez 2011 instructions The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. 1040ez 2011 instructions Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. 1040ez 2011 instructions For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. 1040ez 2011 instructions Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). 1040ez 2011 instructions First, report the loss in Form 4684, Section B. 1040ez 2011 instructions You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. 1040ez 2011 instructions To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. 1040ez 2011 instructions For more information on casualty and theft losses, see chapter 25. 1040ez 2011 instructions Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. 1040ez 2011 instructions Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. 1040ez 2011 instructions See Publication 559 for more information. 1040ez 2011 instructions Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. 1040ez 2011 instructions You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. 1040ez 2011 instructions You cannot deduct gambling losses that are more than your winnings. 1040ez 2011 instructions You cannot reduce your gambling winnings by your gambling losses and report the difference. 1040ez 2011 instructions You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. 1040ez 2011 instructions Therefore, your records should show your winnings separately from your losses. 1040ez 2011 instructions Diary of winnings and losses. 1040ez 2011 instructions You must keep an accurate diary or similar record of your losses and winnings. 1040ez 2011 instructions Your diary should contain at least the following information. 1040ez 2011 instructions The date and type of your specific wager or wagering activity. 1040ez 2011 instructions The name and address or location of the gambling establishment. 1040ez 2011 instructions The names of other persons present with you at the gambling establishment. 1040ez 2011 instructions The amount(s) you won or lost. 1040ez 2011 instructions See Publication 529 for more information. 1040ez 2011 instructions Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. 1040ez 2011 instructions Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. 1040ez 2011 instructions Self-employed. 1040ez 2011 instructions   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. 1040ez 2011 instructions Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. 1040ez 2011 instructions It is not subject to the passive activity limitations. 1040ez 2011 instructions Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. 1040ez 2011 instructions See Repayments in chapter 12 for more information. 1040ez 2011 instructions Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. 1040ez 2011 instructions If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. 1040ez 2011 instructions See chapter 10 for more information about the tax treatment of pensions and annuities. 1040ez 2011 instructions Nondeductible Expenses Examples of nondeductible expenses are listed next. 1040ez 2011 instructions The list is followed by discussions of additional nondeductible expenses. 1040ez 2011 instructions List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. 1040ez 2011 instructions Burial or funeral expenses, including the cost of a cemetery lot. 1040ez 2011 instructions Capital expenses. 1040ez 2011 instructions Fees and licenses, such as car licenses, marriage licenses, and dog tags. 1040ez 2011 instructions Hobby losses, but see Hobby Expenses , earlier. 1040ez 2011 instructions Home repairs, insurance, and rent. 1040ez 2011 instructions Illegal bribes and kickbacks. 1040ez 2011 instructions See Bribes and kickbacks in chapter 11 of Publication 535. 1040ez 2011 instructions Losses from the sale of your home, furniture, personal car, etc. 1040ez 2011 instructions Personal disability insurance premiums. 1040ez 2011 instructions Personal, living, or family expenses. 1040ez 2011 instructions The value of wages never received or lost vacation time. 1040ez 2011 instructions Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. 1040ez 2011 instructions See chapter 37. 1040ez 2011 instructions Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. 1040ez 2011 instructions These include qualification and registration fees for primary elections. 1040ez 2011 instructions Legal fees. 1040ez 2011 instructions   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. 1040ez 2011 instructions Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. 1040ez 2011 instructions Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. 1040ez 2011 instructions This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. 1040ez 2011 instructions You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. 1040ez 2011 instructions Dues paid to airline, hotel, and luncheon clubs are not deductible. 1040ez 2011 instructions Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). 1040ez 2011 instructions If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. 1040ez 2011 instructions Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. 1040ez 2011 instructions This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). 1040ez 2011 instructions Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. 1040ez 2011 instructions Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. 1040ez 2011 instructions Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. 1040ez 2011 instructions However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. 1040ez 2011 instructions See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. 1040ez 2011 instructions Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. 1040ez 2011 instructions Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. 1040ez 2011 instructions You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. 1040ez 2011 instructions See chapter 18 for information on alimony. 1040ez 2011 instructions Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. 1040ez 2011 instructions These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. 1040ez 2011 instructions Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. 1040ez 2011 instructions Dues used for lobbying. 1040ez 2011 instructions   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. 1040ez 2011 instructions See Lobbying Expenses in Publication 529 for information on exceptions. 1040ez 2011 instructions Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. 1040ez 2011 instructions However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. 1040ez 2011 instructions See chapter 25. 1040ez 2011 instructions Example. 1040ez 2011 instructions A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. 1040ez 2011 instructions The diamond falls from the ring and is never found. 1040ez 2011 instructions The loss of the diamond is a casualty. 1040ez 2011 instructions Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. 1040ez 2011 instructions See chapter 26 for information on deductible expenses while traveling away from home. 1040ez 2011 instructions Meals While Working Late You cannot deduct the cost of meals while working late. 1040ez 2011 instructions However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. 1040ez 2011 instructions See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. 1040ez 2011 instructions Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. 1040ez 2011 instructions Custody of children. 1040ez 2011 instructions Breach of promise to marry suit. 1040ez 2011 instructions Civil or criminal charges resulting from a personal relationship. 1040ez 2011 instructions Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. 1040ez 2011 instructions Preparation of a title (or defense or perfection of a title). 1040ez 2011 instructions Preparation of a will. 1040ez 2011 instructions Property claims or property settlement in a divorce. 1040ez 2011 instructions You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. 1040ez 2011 instructions Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. 1040ez 2011 instructions Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. 1040ez 2011 instructions Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. 1040ez 2011 instructions Accounting certificate fees paid for the initial right to practice accounting. 1040ez 2011 instructions Bar exam fees and incidental expenses in securing initial admission to the bar. 1040ez 2011 instructions Medical and dental license fees paid to get initial licensing. 1040ez 2011 instructions Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. 1040ez 2011 instructions Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. 1040ez 2011 instructions Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. 1040ez 2011 instructions Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. 1040ez 2011 instructions You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. 1040ez 2011 instructions Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. 1040ez 2011 instructions You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. 1040ez 2011 instructions If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. 1040ez 2011 instructions Example. 1040ez 2011 instructions During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. 1040ez 2011 instructions In earning this income, you had total expenses of $500 during the year. 1040ez 2011 instructions You cannot identify the amount of each expense item that is for each income item. 1040ez 2011 instructions Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. 1040ez 2011 instructions You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). 1040ez 2011 instructions Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. 1040ez 2011 instructions See chapter 26 for more information on deductible travel expenses. 1040ez 2011 instructions Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. 1040ez 2011 instructions However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. 1040ez 2011 instructions Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. 1040ez 2011 instructions Prev  Up  Next   Home   More Online Publications
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1040ez 2011 instructions Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. 1040ez 2011 instructions More information. 1040ez 2011 instructions Exception—Community Income. 1040ez 2011 instructions Exception—Qualified joint venture. 1040ez 2011 instructions More information. 1040ez 2011 instructions More information. 1040ez 2011 instructions Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. 1040ez 2011 instructions Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. 1040ez 2011 instructions Table 1 can help you learn what those responsibilities are. 1040ez 2011 instructions Ask yourself each question listed in the table, then see the related discussion to find the answer. 1040ez 2011 instructions In addition to knowing about federal taxes, you need to make some basic business decisions. 1040ez 2011 instructions Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. 1040ez 2011 instructions For information on how to contact the SBA, see How to Get More Information, later. 1040ez 2011 instructions Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. 1040ez 2011 instructions When beginning a business, you must decide which form of business to use. 1040ez 2011 instructions Legal and tax considerations enter into this decision. 1040ez 2011 instructions Only tax considerations are discussed in this publication. 1040ez 2011 instructions Your form of business determines which income tax return form you have to file. 1040ez 2011 instructions See Table 2 to find out which form you have to file. 1040ez 2011 instructions Sole proprietorships. 1040ez 2011 instructions   A sole proprietorship is an unincorporated business that is owned by one individual. 1040ez 2011 instructions It is the simplest form of business organization to start and maintain. 1040ez 2011 instructions The business has no existence apart from you, the owner. 1040ez 2011 instructions Its liabilities are your personal liabilities. 1040ez 2011 instructions You undertake the risks of the business for all assets owned, whether or not used in the business. 1040ez 2011 instructions You include the income and expenses of the business on your personal tax return. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. 1040ez 2011 instructions If you are a farmer, see Publication 225, Farmer's Tax Guide. 1040ez 2011 instructions Partnerships. 1040ez 2011 instructions   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. 1040ez 2011 instructions Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. 1040ez 2011 instructions   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. 1040ez 2011 instructions , from its operations, but it does not pay income tax. 1040ez 2011 instructions Instead, it “passes through” any profits or losses to its partners. 1040ez 2011 instructions Each partner includes his or her share of the partnership's items on his or her tax return. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information on partnerships, see Publication 541, Partnerships. 1040ez 2011 instructions Husband and wife business. 1040ez 2011 instructions   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. 1040ez 2011 instructions Do not use Schedule C or C-EZ. 1040ez 2011 instructions Instead, file Form 1065, U. 1040ez 2011 instructions S. 1040ez 2011 instructions Return of Partnership Income. 1040ez 2011 instructions For more information, see Publication 541, Partnerships. 1040ez 2011 instructions Exception—Community Income. 1040ez 2011 instructions   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. 1040ez 2011 instructions S. 1040ez 2011 instructions possession, you can treat the business either as a sole proprietorship or a partnership. 1040ez 2011 instructions The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 1040ez 2011 instructions A change in your reporting position will be treated as a conversion of the entity. 1040ez 2011 instructions Exception—Qualified joint venture. 1040ez 2011 instructions   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. 1040ez 2011 instructions Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. 1040ez 2011 instructions For an explanation of "material participation," see the Instructions for Schedule C, line G. 1040ez 2011 instructions   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. 1040ez 2011 instructions Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. 1040ez 2011 instructions For more information, see Qualified Joint Venture in the Instructions for Schedule SE. 1040ez 2011 instructions Corporations. 1040ez 2011 instructions   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. 1040ez 2011 instructions A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. 1040ez 2011 instructions A corporation can also take special deductions. 1040ez 2011 instructions   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. 1040ez 2011 instructions However, shareholders cannot deduct any loss of the corporation. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information on corporations, see Publication 542, Corporations. 1040ez 2011 instructions S corporations. 1040ez 2011 instructions   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. 1040ez 2011 instructions Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. 1040ez 2011 instructions On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. 1040ez 2011 instructions S. 1040ez 2011 instructions Income Tax Return for an S Corporation. 1040ez 2011 instructions Limited liability company. 1040ez 2011 instructions   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. 1040ez 2011 instructions The members of an LLC are not personally liable for its debts. 1040ez 2011 instructions An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. 1040ez 2011 instructions 7701-3. 1040ez 2011 instructions For more information, see the instructions for Form 8832, Entity Classification Election. 1040ez 2011 instructions Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. 1040ez 2011 instructions The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). 1040ez 2011 instructions An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. 1040ez 2011 instructions An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. 1040ez 2011 instructions You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. 1040ez 2011 instructions You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. 1040ez 2011 instructions This includes returns or documents filed to report the following information. 1040ez 2011 instructions Interest, dividends, royalties, etc. 1040ez 2011 instructions , paid to you. 1040ez 2011 instructions Any amount paid to you as a dependent care provider. 1040ez 2011 instructions Certain other amounts paid to you that total $600 or more for the year. 1040ez 2011 instructions If you do not furnish your identification number as required, you may be subject to penalties. 1040ez 2011 instructions See Penalties, later. 1040ez 2011 instructions Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. 1040ez 2011 instructions If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. 1040ez 2011 instructions Applying for an EIN. 1040ez 2011 instructions   You may apply for an EIN: Online—Click on the EIN link at www. 1040ez 2011 instructions irs. 1040ez 2011 instructions gov/businesses/small. 1040ez 2011 instructions The EIN is issued immediately once the application information is validated. 1040ez 2011 instructions By telephone at 1-800-829-4933. 1040ez 2011 instructions By mailing or faxing Form SS-4, Application for Employer Identification Number. 1040ez 2011 instructions When to apply. 1040ez 2011 instructions   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. 1040ez 2011 instructions If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. 1040ez 2011 instructions If you apply by telephone or through the IRS website, you can get an EIN immediately. 1040ez 2011 instructions If you apply by fax, you can get an EIN within 4 business days. 1040ez 2011 instructions   If you do not receive your EIN by the time a return is due, file your return anyway. 1040ez 2011 instructions Write “Applied for” and the date you applied for the number in the space for the EIN. 1040ez 2011 instructions Do not use your social security number as a substitute for an EIN on your tax returns. 1040ez 2011 instructions More than one EIN. 1040ez 2011 instructions   You should have only one EIN. 1040ez 2011 instructions If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. 1040ez 2011 instructions Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. 1040ez 2011 instructions The IRS will tell you which number to use. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information about EINs, see Publication 1635, Understanding Your EIN. 1040ez 2011 instructions Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). 1040ez 2011 instructions The forms used to report these payments must include the payee's identification number. 1040ez 2011 instructions Employee. 1040ez 2011 instructions   If you have employees, you must get an SSN from each of them. 1040ez 2011 instructions Record the name and SSN of each employee exactly as they are shown on the employee's social security card. 1040ez 2011 instructions If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. 1040ez 2011 instructions This may occur, for example, if the employee's name has changed due to marriage or divorce. 1040ez 2011 instructions   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. 1040ez 2011 instructions This form is available at SSA offices or by calling 1-800-772-1213. 1040ez 2011 instructions It is also available from the SSA website at www. 1040ez 2011 instructions ssa. 1040ez 2011 instructions gov. 1040ez 2011 instructions Other payee. 1040ez 2011 instructions   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. 1040ez 2011 instructions If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. 1040ez 2011 instructions   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. 1040ez 2011 instructions This form is available from IRS offices or by calling 1-800-829-3676. 1040ez 2011 instructions It is also available from the IRS website at IRS. 1040ez 2011 instructions gov. 1040ez 2011 instructions    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. 1040ez 2011 instructions For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. 1040ez 2011 instructions Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. 1040ez 2011 instructions A tax year is usually 12 consecutive months. 1040ez 2011 instructions There are two kinds of tax years. 1040ez 2011 instructions Calendar tax year. 1040ez 2011 instructions A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. 1040ez 2011 instructions Fiscal tax year. 1040ez 2011 instructions A fiscal tax year is 12 consecutive months ending on the last day of any month except December. 1040ez 2011 instructions A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. 1040ez 2011 instructions If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. 1040ez 2011 instructions You must use a calendar tax year if: You keep no books. 1040ez 2011 instructions You have no annual accounting period. 1040ez 2011 instructions Your present tax year does not qualify as a fiscal year. 1040ez 2011 instructions You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. 1040ez 2011 instructions For more information, see Publication 538, Accounting Periods and Methods. 1040ez 2011 instructions First-time filer. 1040ez 2011 instructions   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. 1040ez 2011 instructions You adopt a tax year by filing your first income tax return using that tax year. 1040ez 2011 instructions You have not adopted a tax year if you merely did any of the following. 1040ez 2011 instructions Filed an application for an extension of time to file an income tax return. 1040ez 2011 instructions Filed an application for an employer identification number. 1040ez 2011 instructions Paid estimated taxes for that tax year. 1040ez 2011 instructions Changing your tax year. 1040ez 2011 instructions   Once you have adopted your tax year, you may have to get IRS approval to change it. 1040ez 2011 instructions To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. 1040ez 2011 instructions You may have to pay a fee. 1040ez 2011 instructions For more information, see Publication 538. 1040ez 2011 instructions Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. 1040ez 2011 instructions You choose an accounting method for your business when you file your first income tax return. 1040ez 2011 instructions There are two basic accounting methods. 1040ez 2011 instructions Cash method. 1040ez 2011 instructions Under the cash method, you report income in the tax year you receive it. 1040ez 2011 instructions You usually deduct or capitalize expenses in the tax year you pay them. 1040ez 2011 instructions Accrual method. 1040ez 2011 instructions Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. 1040ez 2011 instructions You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. 1040ez 2011 instructions For other methods, see Publication 538. 1040ez 2011 instructions If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. 1040ez 2011 instructions Inventories include goods held for sale in the normal course of business. 1040ez 2011 instructions They also include raw materials and supplies that will physically become a part of merchandise intended for sale. 1040ez 2011 instructions Inventories are explained in Publication 538. 1040ez 2011 instructions Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. 1040ez 2011 instructions For more information, see Publication 538. 1040ez 2011 instructions You must use the same accounting method to figure your taxable income and to keep your books. 1040ez 2011 instructions Also, you must use an accounting method that clearly shows your income. 1040ez 2011 instructions In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. 1040ez 2011 instructions An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. 1040ez 2011 instructions More than one business. 1040ez 2011 instructions   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. 1040ez 2011 instructions You must keep a complete and separate set of books and records for each business. 1040ez 2011 instructions Changing your method of accounting. 1040ez 2011 instructions   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. 1040ez 2011 instructions A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. 1040ez 2011 instructions For examples of changes that require approval and information on how to get approval for the change, see Publication 538. 1040ez 2011 instructions Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. 1040ez 2011 instructions The following are the four general kinds of business taxes. 1040ez 2011 instructions Income tax. 1040ez 2011 instructions Self-employment tax. 1040ez 2011 instructions Employment taxes. 1040ez 2011 instructions Excise taxes. 1040ez 2011 instructions See Table 2 for the forms you file to report these taxes. 1040ez 2011 instructions You may want to get Publication 509. 1040ez 2011 instructions It has tax calendars that tell you when to file returns and make tax payments. 1040ez 2011 instructions Income Tax All businesses except partnerships must file an annual income tax return. 1040ez 2011 instructions Partnerships file an information return. 1040ez 2011 instructions Which form you use depends on how your business is organized. 1040ez 2011 instructions See Table 2 to find out which return you have to file. 1040ez 2011 instructions The federal income tax is a pay-as-you-go tax. 1040ez 2011 instructions You must pay the tax as you earn or receive income during the year. 1040ez 2011 instructions An employee usually has income tax withheld from his or her pay. 1040ez 2011 instructions If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. 1040ez 2011 instructions If you are not required to make estimated tax payments, you may pay any tax due when you file your return. 1040ez 2011 instructions Table 2. 1040ez 2011 instructions Which Forms Must I File? IF you are a. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions   THEN you may be liable for. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions   Use Form. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. 1040ez 2011 instructions 2 Various other schedules may be needed. 1040ez 2011 instructions Estimated tax. 1040ez 2011 instructions   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. 1040ez 2011 instructions Sole proprietors, partners, and S corporation shareholders. 1040ez 2011 instructions   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. 1040ez 2011 instructions Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. 1040ez 2011 instructions For more information, see Publication 505, Tax Withholding and Estimated Tax. 1040ez 2011 instructions Corporations. 1040ez 2011 instructions   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. 1040ez 2011 instructions Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. 1040ez 2011 instructions You must deposit the payments as explained later under Depositing Taxes. 1040ez 2011 instructions For more information, see Publication 542. 1040ez 2011 instructions Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. 1040ez 2011 instructions Your payments of SE tax contribute to your coverage under the social security system. 1040ez 2011 instructions Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. 1040ez 2011 instructions You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. 1040ez 2011 instructions Your net earnings from self-employment were $400 or more. 1040ez 2011 instructions You had church employee income of $108. 1040ez 2011 instructions 28 or more. 1040ez 2011 instructions Use Schedule SE (Form 1040) to figure your SE tax. 1040ez 2011 instructions For more information, see Publication 334, Tax Guide for Small Business. 1040ez 2011 instructions You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. 1040ez 2011 instructions The Social Security Administration (SSA) time limit for posting self-employment income. 1040ez 2011 instructions   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. 1040ez 2011 instructions If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. 1040ez 2011 instructions The SSA will not change its records to increase your self-employment income. 1040ez 2011 instructions Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. 1040ez 2011 instructions Employment taxes include the following. 1040ez 2011 instructions Social security and Medicare taxes. 1040ez 2011 instructions Federal income tax withholding. 1040ez 2011 instructions Federal unemployment (FUTA) tax. 1040ez 2011 instructions If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. 1040ez 2011 instructions If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. 1040ez 2011 instructions These publications explain your tax responsibilities as an employer. 1040ez 2011 instructions If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. 1040ez 2011 instructions That publication has information to help you determine whether an individual is an employee or an independent contractor. 1040ez 2011 instructions If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. 1040ez 2011 instructions An independent contractor is someone who is self-employed. 1040ez 2011 instructions Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. 1040ez 2011 instructions Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. 1040ez 2011 instructions To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. 1040ez 2011 instructions Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). 1040ez 2011 instructions Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. 1040ez 2011 instructions Medicare tax pays for benefits under the hospital insurance part of FICA. 1040ez 2011 instructions You withhold part of these taxes from your employee's wages and you pay a part yourself. 1040ez 2011 instructions To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. 1040ez 2011 instructions Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. 1040ez 2011 instructions (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. 1040ez 2011 instructions ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. 1040ez 2011 instructions You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. 1040ez 2011 instructions You pay FUTA tax only from your own funds. 1040ez 2011 instructions Employees do not pay this tax or have it withheld from their pay. 1040ez 2011 instructions Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. 1040ez 2011 instructions See Publication 15 to find out if you can use this form. 1040ez 2011 instructions Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. 1040ez 2011 instructions Form I-9. 1040ez 2011 instructions   You must verify that each new employee is legally eligible to work in the United States. 1040ez 2011 instructions Both you and the employee must complete the U. 1040ez 2011 instructions S. 1040ez 2011 instructions Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. 1040ez 2011 instructions You can get the form from USCIS offices or from the USCIS website at www. 1040ez 2011 instructions uscis. 1040ez 2011 instructions gov. 1040ez 2011 instructions Call the USCIS at 1-800-375-5283 for more information about your responsibilities. 1040ez 2011 instructions Form W-4. 1040ez 2011 instructions   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. 1040ez 2011 instructions You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. 1040ez 2011 instructions For more information, see Publication 15. 1040ez 2011 instructions Employees claiming more than 10 withholding allowances. 1040ez 2011 instructions   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. 1040ez 2011 instructions See section 16 of Publication 15. 1040ez 2011 instructions Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. 1040ez 2011 instructions You must also send copies to the Social Security Administration. 1040ez 2011 instructions See Information Returns, later, for more information on Form W-2. 1040ez 2011 instructions Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. 1040ez 2011 instructions Manufacture or sell certain products. 1040ez 2011 instructions Operate certain kinds of businesses. 1040ez 2011 instructions Use various kinds of equipment, facilities, or products. 1040ez 2011 instructions Receive payment for certain services. 1040ez 2011 instructions For more information on excise taxes, see Publication 510, Excise Taxes. 1040ez 2011 instructions Form 720. 1040ez 2011 instructions   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. 1040ez 2011 instructions Environmental taxes. 1040ez 2011 instructions Communications and air transportation taxes. 1040ez 2011 instructions Fuel taxes. 1040ez 2011 instructions Tax on the first retail sale of heavy trucks, trailers, and tractors. 1040ez 2011 instructions Manufacturers taxes on the sale or use of a variety of different articles. 1040ez 2011 instructions Form 2290. 1040ez 2011 instructions   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. 1040ez 2011 instructions The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. 1040ez 2011 instructions Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. 1040ez 2011 instructions For more information, see the instructions for Form 2290. 1040ez 2011 instructions Form 730. 1040ez 2011 instructions   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. 1040ez 2011 instructions Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. 1040ez 2011 instructions Form 11-C. 1040ez 2011 instructions   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. 1040ez 2011 instructions Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. 1040ez 2011 instructions Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). 1040ez 2011 instructions Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. 1040ez 2011 instructions Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. 1040ez 2011 instructions Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. 1040ez 2011 instructions The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. 1040ez 2011 instructions You must give a copy of each information return you are required to file to the recipient or payer. 1040ez 2011 instructions In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. 1040ez 2011 instructions For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. 1040ez 2011 instructions Form 1099-MISC. 1040ez 2011 instructions   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. 1040ez 2011 instructions These payments include the following items. 1040ez 2011 instructions Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. 1040ez 2011 instructions Rent payments of $600 or more, other than rents paid to real estate agents. 1040ez 2011 instructions Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. 1040ez 2011 instructions Royalty payments of $10 or more. 1040ez 2011 instructions Payments to certain crew members by operators of fishing boats. 1040ez 2011 instructions You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. 1040ez 2011 instructions Form W-2. 1040ez 2011 instructions   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. 1040ez 2011 instructions For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. 1040ez 2011 instructions Form 8300. 1040ez 2011 instructions   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. 1040ez 2011 instructions Cash includes U. 1040ez 2011 instructions S. 1040ez 2011 instructions and foreign coin and currency. 1040ez 2011 instructions It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. 1040ez 2011 instructions For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). 1040ez 2011 instructions Penalties The law provides penalties for not filing returns or paying taxes as required. 1040ez 2011 instructions Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. 1040ez 2011 instructions Failure to file tax returns. 1040ez 2011 instructions   If you do not file your tax return by the due date, you may have to pay a penalty. 1040ez 2011 instructions The penalty is based on the tax not paid by the due date. 1040ez 2011 instructions See your tax return instructions for more information about this penalty. 1040ez 2011 instructions Failure to pay tax. 1040ez 2011 instructions   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. 1040ez 2011 instructions For more information, see your tax return instructions. 1040ez 2011 instructions Failure to withhold, deposit, or pay taxes. 1040ez 2011 instructions   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. 1040ez 2011 instructions You may also be subject to penalties if you deposit the taxes late. 1040ez 2011 instructions For more information, see Publication 15. 1040ez 2011 instructions Failure to follow information reporting requirements. 1040ez 2011 instructions   The following penalties apply if you are required to file information returns. 1040ez 2011 instructions For more information, see the General Instructions for Certain Information Returns. 1040ez 2011 instructions Failure to file information returns. 1040ez 2011 instructions A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. 1040ez 2011 instructions Failure to furnish correct payee statements. 1040ez 2011 instructions A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. 1040ez 2011 instructions Waiver of penalty. 1040ez 2011 instructions   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. 1040ez 2011 instructions   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. 1040ez 2011 instructions (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. 1040ez 2011 instructions ) Failure to supply taxpayer identification number. 1040ez 2011 instructions   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. 1040ez 2011 instructions You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. 1040ez 2011 instructions Business Expenses You can deduct business expenses on your income tax return. 1040ez 2011 instructions These are the current operating costs of running your business. 1040ez 2011 instructions To be deductible, a business expense must be both ordinary and necessary. 1040ez 2011 instructions An ordinary expense is one that is common and accepted in your field of business, trade, or profession. 1040ez 2011 instructions A necessary expense is one that is helpful and appropriate for your business, trade, or profession. 1040ez 2011 instructions An expense does not have to be indispensable to be considered necessary. 1040ez 2011 instructions The following are brief explanations of some expenses that are of interest to people starting a business. 1040ez 2011 instructions There are many other expenses that you may be able to deduct. 1040ez 2011 instructions See your form instructions and Publication 535, Business Expenses. 1040ez 2011 instructions Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. 1040ez 2011 instructions Your business start-up costs will depend on the type of business you are starting. 1040ez 2011 instructions They may include costs for advertising, travel, surveys, and training. 1040ez 2011 instructions These costs are generally capital expenses. 1040ez 2011 instructions You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). 1040ez 2011 instructions You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. 1040ez 2011 instructions The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 1040ez 2011 instructions Any remaining cost must be amortized. 1040ez 2011 instructions For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. 1040ez 2011 instructions Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. 1040ez 2011 instructions You must spread the cost over more than one tax year and deduct part of it each year. 1040ez 2011 instructions This method of deducting the cost of business property is called depreciation. 1040ez 2011 instructions Business property you must depreciate includes the following items. 1040ez 2011 instructions Office furniture. 1040ez 2011 instructions Buildings. 1040ez 2011 instructions Machinery and equipment. 1040ez 2011 instructions You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. 1040ez 2011 instructions This deduction is known as the “section 179 deduction. 1040ez 2011 instructions ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. 1040ez 2011 instructions Depreciation must be taken in the year it is allowable. 1040ez 2011 instructions Allowable depreciation not taken in a prior year cannot be taken in the current year. 1040ez 2011 instructions If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. 1040ez 2011 instructions S. 1040ez 2011 instructions Individual Income Tax Return, or by changing your accounting method. 1040ez 2011 instructions For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. 1040ez 2011 instructions Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. 1040ez 2011 instructions Even then, your deduction may be limited. 1040ez 2011 instructions To qualify to claim expenses for business use of your home, you must meet both the following tests. 1040ez 2011 instructions Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. 1040ez 2011 instructions Exclusive use. 1040ez 2011 instructions   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. 1040ez 2011 instructions The area used for business can be a room or other separately identifiable space. 1040ez 2011 instructions The space does not need to be marked off by a permanent partition. 1040ez 2011 instructions   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. 1040ez 2011 instructions Exceptions to exclusive use. 1040ez 2011 instructions   You do not have to meet the exclusive use test if either of the following applies. 1040ez 2011 instructions You use part of your home for the storage of inventory or product samples. 1040ez 2011 instructions You use part of your home as a daycare facility. 1040ez 2011 instructions For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). 1040ez 2011 instructions Principal place of business. 1040ez 2011 instructions   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. 1040ez 2011 instructions You use it exclusively and regularly for administrative or management activities of your trade or business. 1040ez 2011 instructions You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 1040ez 2011 instructions   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. 1040ez 2011 instructions The relative importance of the activities performed at each location. 1040ez 2011 instructions If the relative importance factor does not determine your principal place of business, the time spent at each location. 1040ez 2011 instructions    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. 1040ez 2011 instructions However, for other ways to qualify to deduct home office expenses, see Publication 587. 1040ez 2011 instructions Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. 1040ez 2011 instructions If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. 1040ez 2011 instructions More information. 1040ez 2011 instructions   For more information about business use of your home, see Publication 587. 1040ez 2011 instructions Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. 1040ez 2011 instructions You generally can deduct either your actual expenses or the standard mileage rate. 1040ez 2011 instructions Actual expenses. 1040ez 2011 instructions   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. 1040ez 2011 instructions You can divide your expenses based on the miles driven for each purpose. 1040ez 2011 instructions Example. 1040ez 2011 instructions You are the sole proprietor of a flower shop. 1040ez 2011 instructions You drove your van 20,000 miles during the year. 1040ez 2011 instructions 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. 1040ez 2011 instructions You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. 1040ez 2011 instructions Standard mileage rate. 1040ez 2011 instructions   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. 1040ez 2011 instructions You can use the standard mileage rate for a vehicle you own or lease. 1040ez 2011 instructions The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. 1040ez 2011 instructions It is announced annually by the IRS. 1040ez 2011 instructions To figure your deduction, multiply your business miles by the standard mileage rate for the year. 1040ez 2011 instructions    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. 1040ez 2011 instructions However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. 1040ez 2011 instructions Choosing the standard mileage rate. 1040ez 2011 instructions   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. 1040ez 2011 instructions In later years, you can choose to use either the standard mileage rate or actual expenses. 1040ez 2011 instructions   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). 1040ez 2011 instructions Additional information. 1040ez 2011 instructions   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. 1040ez 2011 instructions Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. 1040ez 2011 instructions It also explains how long you must keep your records for federal tax purposes. 1040ez 2011 instructions A sample recordkeeping system is illustrated at the end of this part. 1040ez 2011 instructions Why Keep Records? Everyone in business must keep records. 1040ez 2011 instructions Good records will help you do the following. 1040ez 2011 instructions Monitor the progress of your business. 1040ez 2011 instructions   You need good records to monitor the progress of your business. 1040ez 2011 instructions Records can show whether your business is improving, which items are selling, or what changes you need to make. 1040ez 2011 instructions Good records can increase the likelihood of business success. 1040ez 2011 instructions Prepare your financial statements. 1040ez 2011 instructions   You need good records to prepare accurate financial statements. 1040ez 2011 instructions These include income (profit and loss) statements and balance sheets. 1040ez 2011 instructions These statements can help you in dealing with your bank or creditors and help you manage your business. 1040ez 2011 instructions An income statement shows the income and expenses of the business for a given period of time. 1040ez 2011 instructions A balance sheet shows the assets, liabilities, and your equity in the business on a given date. 1040ez 2011 instructions Identify source of receipts. 1040ez 2011 instructions   You will receive money or property from many sources. 1040ez 2011 instructions Your records can identify the source of your receipts. 1040ez 2011 instructions You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. 1040ez 2011 instructions Keep track of deductible expenses. 1040ez 2011 instructions   You may forget expenses when you prepare your tax return unless you record them when they occur. 1040ez 2011 instructions Prepare your tax returns. 1040ez 2011 instructions   You need good records to prepare your tax returns. 1040ez 2011 instructions These records must support the income, expenses, and credits you report. 1040ez 2011 instructions Generally, these are the same records you use to monitor your business and prepare your financial statements. 1040ez 2011 instructions Support items reported on tax returns. 1040ez 2011 instructions   You must keep your business records available at all times for inspection by the IRS. 1040ez 2011 instructions If the IRS examines any of your tax returns, you may be asked to explain the items reported. 1040ez 2011 instructions A complete set of records will speed up the examination. 1040ez 2011 instructions Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. 1040ez 2011 instructions You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. 1040ez 2011 instructions The business you are in affects the type of records you need to keep for federal tax purposes. 1040ez 2011 instructions You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. 1040ez 2011 instructions See Accounting Method, earlier. 1040ez 2011 instructions If you are in more than one business, you should keep a complete and separate set of records for each business. 1040ez 2011 instructions A corporation should keep minutes of board of directors' meetings. 1040ez 2011 instructions Your recordkeeping system should include a summary of your business transactions. 1040ez 2011 instructions This summary is ordinarily made in your books (for example, accounting journals and ledgers). 1040ez 2011 instructions Your books must show your gross income, as well as your deductions and credits. 1040ez 2011 instructions For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. 1040ez 2011 instructions In addition, you must keep supporting documents, explained later. 1040ez 2011 instructions Electronic records. 1040ez 2011 instructions   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. 1040ez 2011 instructions When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. 1040ez 2011 instructions An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. 1040ez 2011 instructions The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. 1040ez 2011 instructions All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. 1040ez 2011 instructions Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. 1040ez 2011 instructions   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. 1040ez 2011 instructions You still have the responsibility of retaining any other books and records that are required to be retained. 1040ez 2011 instructions   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. 1040ez 2011 instructions This test is not considered an examination and the results must be shared with you. 1040ez 2011 instructions If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. 1040ez 2011 instructions If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. 1040ez 2011 instructions For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. 1040ez 2011 instructions Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. 1040ez 2011 instructions Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. 1040ez 2011 instructions These documents contain information you need to record in your books. 1040ez 2011 instructions It is important to keep these documents because they support the entries in your books and on your tax return. 1040ez 2011 instructions Keep them in an orderly fashion and in a safe place. 1040ez 2011 instructions For instance, organize them by year and type of income or expense. 1040ez 2011 instructions Gross receipts. 1040ez 2011 instructions   Gross receipts are the income you receive from your business. 1040ez 2011 instructions You should keep supporting documents that show the amounts and sources of your gross receipts. 1040ez 2011 instructions Documents that show gross receipts include the following. 1040ez 2011 instructions Cash register tapes. 1040ez 2011 instructions Bank deposit slips. 1040ez 2011 instructions Receipt books. 1040ez 2011 instructions Invoices. 1040ez 2011 instructions Credit card charge slips. 1040ez 2011 instructions Forms 1099-MISC. 1040ez 2011 instructions Purchases. 1040ez 2011 instructions   Purchases are the items you buy and resell to customers. 1040ez 2011 instructions If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. 1040ez 2011 instructions Your supporting documents should show the amount paid and that the amount was for purchases. 1040ez 2011 instructions Documents for purchases include the following. 1040ez 2011 instructions Canceled checks. 1040ez 2011 instructions Cash register tape receipts. 1040ez 2011 instructions Credit card sales slips. 1040ez 2011 instructions Invoices. 1040ez 2011 instructions These records will help you determine the value of your inventory at the end of the year. 1040ez 2011 instructions See Publication 538 for information on methods for valuing inventory. 1040ez 2011 instructions Expenses. 1040ez 2011 instructions   Expenses are the costs you incur (other than purchases) to carry on your business. 1040ez 2011 instructions Your supporting documents should show the amount paid and that the amount was for a business expense. 1040ez 2011 instructions Documents for expenses include the following. 1040ez 2011 instructions Canceled checks. 1040ez 2011 instructions Cash register tapes. 1040ez 2011 instructions Account statements. 1040ez 2011 instructions Credit card sales slips. 1040ez 2011 instructions Invoices. 1040ez 2011 instructions Petty cash slips for small cash payments. 1040ez 2011 instructions    A petty cash fund allows you to make small payments without having to write checks for small amounts. 1040ez 2011 instructions Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. 1040ez 2011 instructions Travel, transportation, entertainment, and gift expenses. 1040ez 2011 instructions   Specific recordkeeping rules apply to these expenses. 1040ez 2011 instructions For more information, see Publication 463. 1040ez 2011 instructions Employment taxes. 1040ez 2011 instructions   There are specific employment tax records you must keep. 1040ez 2011 instructions For a list, see Publication 15. 1040ez 2011 instructions Assets. 1040ez 2011 instructions   Assets are the property, such as machinery and furniture you own and use in your business. 1040ez 2011 instructions You must keep records to verify certain information about your business assets. 1040ez 2011 instructions You need records to figure the annual depreciation and the gain or loss when you sell the assets. 1040ez 2011 instructions Your records should show the following information. 1040ez 2011 instructions When and how you acquired the asset. 1040ez 2011 instructions Purchase price. 1040ez 2011 instructions Cost of any improvements. 1040ez 2011 instructions Section 179 deduction taken. 1040ez 2011 instructions Deductions taken for depreciation. 1040ez 2011 instructions Deductions taken for casualty losses, such as losses resulting from fires or storms. 1040ez 2011 instructions How you used the asset. 1040ez 2011 instructions When and how you disposed of the asset. 1040ez 2011 instructions Selling price. 1040ez 2011 instructions Expenses of sale. 1040ez 2011 instructions   The following documents may show this information. 1040ez 2011 instructions Purchase and sales invoices. 1040ez 2011 instructions Real estate closing statements. 1040ez 2011 instructions Canceled checks. 1040ez 2011 instructions What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. 1040ez 2011 instructions These include account statements prepared for the financial institution by a third party. 1040ez 2011 instructions These account statements must be highly legible. 1040ez 2011 instructions The following table lists acceptable account statements. 1040ez 2011 instructions  IF payment is by. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions THEN the statement must show the. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions Check Check number. 1040ez 2011 instructions Amount. 1040ez 2011 instructions Payee's name. 1040ez 2011 instructions Date the check amount was posted to the account by the financial institution. 1040ez 2011 instructions Electronic funds transfer Amount transferred. 1040ez 2011 instructions Payee's name. 1040ez 2011 instructions Date the transfer was posted to the account by the financial institution. 1040ez 2011 instructions Credit card Amount charged. 1040ez 2011 instructions Payee's name. 1040ez 2011 instructions Transaction date. 1040ez 2011 instructions    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. 1040ez 2011 instructions You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. 1040ez 2011 instructions Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. 1040ez 2011 instructions (Your business transactions are shown on the supporting documents just discussed. 1040ez 2011 instructions ) Business transactions are ordinarily summarized in books called journals and ledgers. 1040ez 2011 instructions You can buy them at your local stationery or office supply store. 1040ez 2011 instructions A journal is a book where you record each business transaction shown on your supporting documents. 1040ez 2011 instructions You may have to keep separate journals for transactions that occur frequently. 1040ez 2011 instructions A ledger is a book that contains the totals from all of your journals. 1040ez 2011 instructions It is organized into different accounts. 1040ez 2011 instructions Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. 1040ez 2011 instructions For example, a recordkeeping system for a small business might include the following items. 1040ez 2011 instructions Business checkbook. 1040ez 2011 instructions Daily summary of cash receipts. 1040ez 2011 instructions Monthly summary of cash receipts. 1040ez 2011 instructions Check disbursements journal. 1040ez 2011 instructions Depreciation worksheet. 1040ez 2011 instructions Employee compensation record. 1040ez 2011 instructions The business checkbook is explained next. 1040ez 2011 instructions The other items are illustrated later under Sample Record System. 1040ez 2011 instructions The system you use to record business transactions will be more effective if you follow good recordkeeping practices. 1040ez 2011 instructions For example, record expenses when they occur, and identify the source of recorded receipts. 1040ez 2011 instructions Generally, it is best to record transactions on a daily basis. 1040ez 2011 instructions Business checkbook. 1040ez 2011 instructions   One of the first things you should do when you start a business is open a business checking account. 1040ez 2011 instructions You should keep your business account separate from your personal checking account. 1040ez 2011 instructions   The business checkbook is your basic source of information for recording your business expenses. 1040ez 2011 instructions You should deposit all daily receipts in your business checking account. 1040ez 2011 instructions You should check your account for errors by reconciling it. 1040ez 2011 instructions See Reconciling the checking account, later. 1040ez 2011 instructions   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. 1040ez 2011 instructions You should also note on the deposit slip the source of the deposit and keep copies of all slips. 1040ez 2011 instructions   You should make all payments by check to document business expenses. 1040ez 2011 instructions Write checks payable to yourself only when making withdrawals from your business for personal use. 1040ez 2011 instructions Avoid writing checks payable to cash. 1040ez 2011 instructions If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. 1040ez 2011 instructions If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. 1040ez 2011 instructions    Use the business account for business purposes only. 1040ez 2011 instructions Indicate the source of deposits and the type of expense in the checkbook. 1040ez 2011 instructions Reconciling the checking account. 1040ez 2011 instructions   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. 1040ez 2011 instructions The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. 1040ez 2011 instructions   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. 1040ez 2011 instructions    You should reconcile your checking account each month. 1040ez 2011 instructions     Before you reconcile your monthly bank statement, check your own figures. 1040ez 2011 instructions Begin with the balance shown in your checkbook at the end of the previous month. 1040ez 2011 instructions To this balance, add the total cash deposited during the month and subtract the total cash disbursements. 1040ez 2011 instructions   After checking your figures, the result should agree with your checkbook balance at the end of the month. 1040ez 2011 instructions If the result does not agree, you may have made an error in recording a check or deposit. 1040ez 2011 instructions You can find the error by doing the following. 1040ez 2011 instructions Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. 1040ez 2011 instructions If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. 1040ez 2011 instructions Adding the deposit amounts in your checkbook. 1040ez 2011 instructions Compare that total with the monthly total in your cash receipt book, if you have one. 1040ez 2011 instructions If the totals do not agree, check the individual amounts to find any errors. 1040ez 2011 instructions   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. 1040ez 2011 instructions   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. 1040ez 2011 instructions Many banks print a reconciliation worksheet on the back of the statement. 1040ez 2011 instructions   To reconcile your account, follow these steps. 1040ez 2011 instructions Compare the deposits listed on the bank statement with the deposits shown in your checkbook. 1040ez 2011 instructions Note all differences in the dollar amounts. 1040ez 2011 instructions Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. 1040ez 2011 instructions Note all differences in the dollar amounts. 1040ez 2011 instructions Mark the check number in the checkbook as having cleared the bank. 1040ez 2011 instructions After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. 1040ez 2011 instructions Prepare a bank reconciliation. 1040ez 2011 instructions One is illustrated later under Sample Record System. 1040ez 2011 instructions Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. 1040ez 2011 instructions At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. 1040ez 2011 instructions If you still have differences, check the previous steps to find the errors. 1040ez 2011 instructions   Table 3. 1040ez 2011 instructions Period of Limitations IF you. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions   THEN the period is. 1040ez 2011 instructions . 1040ez 2011 instructions . 1040ez 2011 instructions 1. 1040ez 2011 instructions Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. 1040ez 2011 instructions Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. 1040ez 2011 instructions File a fraudulent return   Not limited 4. 1040ez 2011 instructions Do not file a return   Not limited 5. 1040ez 2011 instructions File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. 1040ez 2011 instructions File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. 1040ez 2011 instructions The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. 1040ez 2011 instructions You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. 1040ez 2011 instructions Single-entry. 1040ez 2011 instructions   A single-entry system is based on the income statement (profit or loss statement). 1040ez 2011 instructions It can be a simple and practical system if you are starting a small business. 1040ez 2011 instructions The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. 1040ez 2011 instructions Double-entry. 1040ez 2011 instructions   A double-entry bookkeeping system uses journals and ledgers. 1040ez 2011 instructions Transactions are first entered in a journal and then posted to ledger accounts. 1040ez 2011 instructions These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). 1040ez 2011 instructions You close income and expense accounts at the end of each tax year. 1040ez 2011 instructions You keep asset, liability, and net worth accounts open on a permanent basis. 1040ez 2011 instructions   In the double-entry system, each account has a left side for debits and a right side for credits. 1040ez 2011 instructions It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. 1040ez 2011 instructions   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. 1040ez 2011 instructions If the amounts do not balance, you have made an error and you must find and correct it. 1040ez 2011 instructions   An example of a journal entry exhibiting a payment of rent in October is shown next. 1040ez 2011 instructions General Journal Date Description of Entry Debit  Credit Oct. 1040ez 2011 instructions 5 Rent expense 780. 1040ez 2011 instructions 00     Cash   780. 1040ez 2011 instructions 00                 Computerized System There are computer software packages you can use for recordkeeping. 1040ez 2011 instructions They can be purchased in many retail stores. 1040ez 2011 instructions These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. 1040ez 2011 instructions If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. 1040ez 2011 instructions To meet this qualification, the machine-sensible records must reconcile with your books and return. 1040ez 2011 instructions These records must provide enough detail to identify the underlying source documents. 1040ez 2011 instructions You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. 1040ez 2011 instructions This documentation must be sufficiently detailed to show all of the following items. 1040ez 2011 instructions Functions being performed as the data flows through the system. 1040ez 2011 instructions Controls used to ensure accurate and reliable processing. 1040ez 2011 instructions Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. 1040ez 2011 instructions Charts of accounts and detailed account descriptions. 1040ez 2011 instructions See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. 1040ez 2011 instructions How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. 1040ez 2011 instructions Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. 1040ez 2011 instructions The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. 1040ez 2011 instructions Table 3 contains the periods of limitations that apply to income tax returns. 1040ez 2011 instructions Unless otherwise stated, the years refer to the period after the return was filed. 1040ez 2011 instructions Returns filed before the due date are treated as filed on the due date. 1040ez 2011 instructions Keep copies of your filed tax returns. 1040ez 2011 instructions They help in preparing future tax returns and making computations if you file an amended return. 1040ez 2011 instructions Employment taxes. 1040ez 2011 instructions   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. 1040ez 2011 instructions For more information about recordkeeping for employment taxes, see Publication 15. 1040ez 2011 instructions Assets. 1040ez 2011 instructions   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. 1040ez 2011 instructions You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. 1040ez 2011 instructions   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. 1040ez 2011 instructions You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. 1040ez 2011 instructions Records for nontax purposes. 1040ez 2011 instructions   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. 1040ez 2011 instructions For example, your insurance company or creditors may require you to keep them longer than the IRS does. 1040ez 2011 instructions Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. 1040ez 2011 instructions Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. 1040ez 2011 instructions These sample records should not be viewed as a recommendation of how to keep your records. 1040ez 2011 instructions They are intended only to show how one business keeps its records. 1040ez 2011 instructions 1. 1040ez 2011 instructions Daily Summary of Cash Receipts This summary is a record of cash sales for the day. 1040ez 2011 instructions It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. 1040ez 2011 instructions Henry takes the cash sales entry from his cash register tape. 1040ez 2011 instructions If he had no cash register, he would simply total his cash sale slips and any other cash received that day. 1040ez 2011 instructions He carries the total receipts shown in this summary for January 3 ($267. 1040ez 2011 instructions 80), including cash sales ($263. 1040ez 2011 instructions 60) and sales tax ($4. 1040ez 2011 instructions 20), to the Monthly Summary of Cash Receipts. 1040ez 2011 instructions Petty cash fund. 1040ez 2011 instructions   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. 1040ez 2011 instructions Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. 1040ez 2011 instructions He sets up a fixed amount ($50) in his petty cash fund. 1040ez 2011 instructions The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. 1040ez 2011 instructions When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. 1040ez 2011 instructions (See the Check Disbursements Journal entry for check number 92. 1040ez 2011 instructions ) This restores the fund to its fixed amount of $50. 1040ez 2011 instructions He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. 1040ez 2011 instructions 2. 1040ez 2011 instructions Monthly Summary of Cash Receipts This shows the income activity for the month. 1040ez 2011 instructions Henry carries the total monthly net sales shown in this summary for January ($4,865. 1040ez 2011 instructions 05) to his Annual Summary. 1040ez 2011 instructions To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. 1040ez 2011 instructions He cannot take a deduction for sales tax turned over to the state because he only collected the tax. 1040ez 2011 instructions He does not include the tax in his income. 1040ez 2011 instructions 3. 1040ez 2011 instructions Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. 1040ez 2011 instructions All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. 1040ez 2011 instructions Frequent expenses have their own headings across the sheet. 1040ez 2011 instructions He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. 1040ez 2011 instructions Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. 1040ez 2011 instructions Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. 1040ez 2011 instructions If he did, he would record them in the journal, even though he could not deduct them as business expenses. 1040ez 2011 instructions Henry carries the January total of expenses for materials ($1,083. 1040ez 2011 instructions 50) to the Annual Summary. 1040ez 2011 instructions Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. 1040ez 2011 instructions , in the appropriate columns of that summary. 1040ez 2011 instructions 4. 1040ez 2011 instructions Employee Compensation Record This record shows the following information. 1040ez 2011 instructions The number of hours Henry's employee worked in a pay period. 1040ez 2011 instructions The employee's total pay for the period. 1040ez 2011 instructions The deductions Henry withheld in figuring the employee's net pay. 1040ez 2011 instructions The monthly gross payroll. 1040ez 2011 instructions Henry carries the January gross payroll ($520) to the Annual Summary. 1040ez 2011 instructions 5. 1040ez 2011 instructions Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. 1040ez 2011 instructions He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. 1040ez 2011 instructions He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. 1040ez 2011 instructions As in the journal, he keeps each major expense in a separate column. 1040ez 2011 instructions Henry carries the cash receipts total shown in the annual summary ($47,440. 1040ez 2011 instructions 9