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1040ez Instruction Book

Amend A Tax ReturnFree Filing Of State TaxesWhere Do I File My State Taxes For FreeFiling Tax Return Someone Love DiedFree Income Tax HelpFreetaxusa20122012 Schedule A Tax FormCan You File 2012 Taxes Now1040 Ez Online2009 Federal Tax FormsHow To Amend 2010 Tax Return OnlineFile 1040nr Online FreeIrs Forms 1040ezFree 1040ez Tax ReturnHow To File An Amended ReturnCan I File My 2011 And 2012 Taxes TogetherFree Tax Calculator 2011Irs 1040 FormCan You File 2012 And 2013 Taxes TogetherHow Can I Amend My 2012 Tax ReturnWhere Can I File My 2011 Taxes For FreeTaxact.com 20101040ezSearch Freetaxusa Com1040ez Form InstructionsH & R Block Free File 2012Ammended Tax ReturnFile 2005 Tax Return FreeFree 2007 Tax SoftwareAmending TaxesE File ExtensionFile 2011 Federal Tax ReturnSearch FreetaxusaFree Tax Filing Online 2011Form 1040xFile An Amended Tax Return2011 Irs Form 1041File Federal And State Taxes Online FreeH And R Block Free Tax ReturnPrintable 1040ez Form

1040ez Instruction Book

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Understanding Your CP75D Notice

We’re auditing your tax return and we need documentation to verify the income and withholding you reported on your tax return. This may affect your eligibility for the Earned Income Credit (EIC), dependent exemption(s) and other refundable credits that you claimed. We are holding your refund pending the results of the audit.


What you need to do

  • Read the notice and the enclosed forms carefully. They explain the information you must send to us.
  • Provide copies of supporting documentation to verify the items we're auditing.
  • Complete the response form by indicating which items your supporting documentation addresses on the copies you're submitting and return the form with the documents you are submitting.

You may want to


Answers to Common Questions

Why was my return selected for audit?
While most returns are accepted as filed, some are selected for examination. The IRS examines (or audits) some federal tax returns to determine if income, expenses, and credits are reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination doesn't suggest you made an error or were dishonest.

Why are my wages being audited?
The amounts you reported on the wages and withholding lines of your tax return appear incorrect.

Can I claim the earned income credit for my fiancé’s child?
No. You must be married to the child’s parent during the tax year in question to receive EIC.

What do I need to send?
Refer to the applicable Form 886-H and Form 886-L you received with your notice. There is a separate form for each item being audited that explains what supporting documentation to send.

What if I can’t provide the requested documentation?
We’ll disallow the items being audited and send you an examination report that shows the proposed changes to your tax return.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Contact us at the number listed on the top right corner of your notice. You can also refer to the IRS Identity Theft resource page for more information.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

Avoid errors that can delay your refund or result in IRS denying your EITC claim. Find out the most common errors in claiming EITC here.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

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

The 1040ez Instruction Book

1040ez instruction book 10. 1040ez instruction book   Business Bad Debts Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Definition of Business Bad DebtAccrual method. 1040ez instruction book Cash method. 1040ez instruction book Debt acquired from a decedent. 1040ez instruction book Liquidation. 1040ez instruction book Types of Business Bad Debts When a Debt Becomes Worthless How To Claim a Business Bad DebtSpecific Charge-Off Method Nonaccrual-Experience Method Recovery of a Bad DebtNet operating loss (NOL) carryover. 1040ez instruction book Introduction You have a bad debt if you cannot collect money owed to you. 1040ez instruction book A bad debt is either a business bad debt or a nonbusiness bad debt. 1040ez instruction book This chapter discusses only business bad debts. 1040ez instruction book Generally, a business bad debt is one that comes from operating your trade or business. 1040ez instruction book You can deduct business bad debts on Schedule C (Form 1040) or your applicable business income tax return. 1040ez instruction book All other bad debts are nonbusiness bad debts and are deductible only as short-term capital losses. 1040ez instruction book For more information on nonbusiness bad debts, see Publication 550. 1040ez instruction book Topics - This chapter discusses: Definition of business bad debt When a debt becomes worthless How to claim a business bad debt Recovery of a bad debt Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 556 Examination of Returns, Appeal Rights, and Claims for Refund Form (and Instructions) Schedule C (Form 1040) Profit or Loss From Business 1040X Amended U. 1040ez instruction book S. 1040ez instruction book Individual Income Tax Return 1045 Application for Tentative Refund 1139 Corporation Application for Tentative Refund 3115 Application for Change in Accounting Method See chapter 12 for information about getting publications and forms. 1040ez instruction book Definition of Business Bad Debt A business bad debt is a loss from the worthlessness of a debt that was either: Created or acquired in your trade or business, or Closely related to your trade or business when it became partly or totally worthless. 1040ez instruction book A debt is closely related to your trade or business if your primary motive for incurring the debt is business related. 1040ez instruction book Bad debts of a corporation (other than an S corporation) are always business bad debts. 1040ez instruction book Credit sales. 1040ez instruction book   Business bad debts are mainly the result of credit sales to customers. 1040ez instruction book Goods that have been sold, but not yet paid for, and services that have been performed, but not yet paid for, are recorded in your books as either accounts receivable or notes receivable. 1040ez instruction book After a reasonable period of time, if you have tried to collect the amount due, but are unable to do so, the uncollectible part becomes a business bad debt. 1040ez instruction book   Accounts or notes receivable valued at fair market value (FMV) when received are deductible only at that value, even though the FMV may be less than the face value. 1040ez instruction book If you purchased an account receivable for less than its face value, and the receivable subsequently becomes worthless, the most you are allowed to deduct is the amount you paid to acquire it. 1040ez instruction book    You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. 1040ez instruction book This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest. 1040ez instruction book Accrual method. 1040ez instruction book   If you use the accrual method of accounting, you generally report income as you earn it. 1040ez instruction book You can only claim a bad debt deduction for an uncollectible receivable if you have previously included the uncollectible amount in income. 1040ez instruction book   If you qualify, you can use the nonaccrual-experience method of accounting discussed later. 1040ez instruction book Under this method, you do not have to accrue income that, based on your experience, you do not expect to collect. 1040ez instruction book Cash method. 1040ez instruction book   If you use the cash method of accounting, you generally report income when you receive payment. 1040ez instruction book You cannot claim a bad debt deduction for amounts owed to you because you never included those amounts in income. 1040ez instruction book For example, a cash basis architect cannot claim a bad debt deduction if a client fails to pay the bill because the architect's fee was never included in income. 1040ez instruction book Debts from a former business. 1040ez instruction book   If you sell your business but retain its receivables, these debts are business debts because they arose out of your trade or business. 1040ez instruction book If any of these receivables subsequently become worthless, the loss is still a business bad debt. 1040ez instruction book Debt acquired from a decedent. 1040ez instruction book   The character of a loss from debts of a business acquired from a decedent is determined in the same way as debts acquired on the purchase of a business. 1040ez instruction book The executor of the decedent's estate treats any loss from the debts as a business bad debt if the debts were closely related to the decedent's trade or business when they became worthless. 1040ez instruction book Otherwise, a loss from these debts becomes a nonbusiness bad debt for the decedent's estate. 1040ez instruction book Liquidation. 1040ez instruction book   If you liquidate your business and some of the accounts receivable that you retain become worthless, they become business bad debts. 1040ez instruction book Types of Business Bad Debts Business bad debts may result from the following. 1040ez instruction book Loans to clients and suppliers. 1040ez instruction book   If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt. 1040ez instruction book Debts owed by political parties. 1040ez instruction book   If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met. 1040ez instruction book You use the accrual method of accounting. 1040ez instruction book The debt arose from the sale of goods or services in the ordinary course of your trade or business. 1040ez instruction book More than 30% of your receivables accrued in the year of the sale were from sales to political parties. 1040ez instruction book You made substantial and continuing efforts to collect on the debt. 1040ez instruction book Loan or capital contribution. 1040ez instruction book   You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital. 1040ez instruction book Debts of an insolvent partner. 1040ez instruction book   If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. 1040ez instruction book If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share. 1040ez instruction book Business loan guarantee. 1040ez instruction book   If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met. 1040ez instruction book You made the guarantee in the course of your trade or business. 1040ez instruction book You have a legal duty to pay the debt. 1040ez instruction book You made the guarantee before the debt became worthless. 1040ez instruction book You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower. 1040ez instruction book You received reasonable consideration for making the guarantee. 1040ez instruction book You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose. 1040ez instruction book Example. 1040ez instruction book Jane Zayne owns the Zayne Dress Company. 1040ez instruction book She guaranteed payment of a $20,000 note for Elegant Fashions, a dress outlet. 1040ez instruction book Elegant Fashions is one of Zayne's largest clients. 1040ez instruction book Elegant Fashions later defaulted on the loan. 1040ez instruction book As a result, Ms. 1040ez instruction book Zayne paid the remaining balance of the loan in full to the bank. 1040ez instruction book She can claim a business bad debt deduction only for the amount she paid, since her guarantee was made in the course of her trade or business for a good faith business purpose. 1040ez instruction book She was motivated by the desire to retain one of her better clients and keep a sales outlet. 1040ez instruction book Deductible in the year paid. 1040ez instruction book   If you make a payment on a loan you guaranteed, you can deduct it in the year paid, unless you have rights against the borrower. 1040ez instruction book Rights against a borrower. 1040ez instruction book   When you make payment on a loan you guaranteed, you may have the right to take the place of the lender. 1040ez instruction book The debt is then owed to you. 1040ez instruction book If you have this right, or some other right to demand payment from the borrower, you cannot claim a bad debt deduction until these rights become partly or totally worthless. 1040ez instruction book Joint debtor. 1040ez instruction book   If two or more debtors jointly owe you money, your inability to collect from one does not enable you to deduct a proportionate amount as a bad debt. 1040ez instruction book Sale of mortgaged property. 1040ez instruction book   If mortgaged or pledged property is sold for less than the debt, the unpaid, uncollectible balance of the debt is a bad debt. 1040ez instruction book When a Debt Becomes Worthless A debt becomes worthless when there is no longer any chance the amount owed will be paid. 1040ez instruction book This may occur when the debt is due or prior to that date. 1040ez instruction book To demonstrate worthlessness, you must only show that you have taken reasonable steps to collect the debt but were unable to do so. 1040ez instruction book It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. 1040ez instruction book Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. 1040ez instruction book Property received for debt. 1040ez instruction book   If you receive property in partial settlement of a debt, reduce the debt by the property's FMV, which becomes the property's basis. 1040ez instruction book You can deduct the remaining debt as a bad debt if and when it becomes worthless. 1040ez instruction book   If you later sell the property for more than its basis, any gain on the sale is due to the appreciation of the property. 1040ez instruction book It is not a recovery of a bad debt. 1040ez instruction book For information on the sale of an asset, see Publication 544. 1040ez instruction book How To Claim a Business Bad Debt There are two methods to claim a business bad debt. 1040ez instruction book The specific charge-off method. 1040ez instruction book The nonaccrual-experience method. 1040ez instruction book Generally, you must use the specific charge-off method. 1040ez instruction book However, you may use the nonaccrual-experience method if you meet the requirements discussed later under Nonaccrual-Experience Method . 1040ez instruction book Specific Charge-Off Method If you use the specific charge-off method, you can deduct specific business bad debts that become either partly or totally worthless during the tax year. 1040ez instruction book However, with respect to partly worthless bad debts, your deduction is limited to the amount you charged off on your books during the year. 1040ez instruction book Partly worthless debts. 1040ez instruction book   You can deduct specific bad debts that become partly uncollectible during the tax year. 1040ez instruction book Your tax deduction is limited to the amount you charge off on your books during the year. 1040ez instruction book You do not have to charge off and deduct your partly worthless debts annually. 1040ez instruction book You can delay the charge off until a later year. 1040ez instruction book However, you cannot deduct any part of a debt after the year it becomes totally worthless. 1040ez instruction book Significantly modified debt. 1040ez instruction book   An exception to the charge-off rule exists for debt which has been significantly modified and on which the holder recognized gain. 1040ez instruction book For more information, see Regulations section 1. 1040ez instruction book 166-3(a)(3). 1040ez instruction book Deduction disallowed. 1040ez instruction book   Generally, you can claim a partial bad debt deduction only in the year you make the charge-off on your books. 1040ez instruction book If, under audit, the IRS does not allow your deduction and the debt becomes partly worthless in a later tax year, you can deduct the amount you charged off in that year plus the disallowed amount charged off in the earlier year. 1040ez instruction book The charge-off in the earlier year, unless reversed on your books, fulfills the charge-off requirement for the later year. 1040ez instruction book Totally worthless debts. 1040ez instruction book   If a debt becomes totally worthless in the current tax year, you can deduct the entire amount, less any amount deducted in an earlier tax year when the debt was only partly worthless. 1040ez instruction book   You do not have to make an actual charge-off on your books to claim a bad debt deduction for a totally worthless debt. 1040ez instruction book However, you may want to do so. 1040ez instruction book If you do not and the IRS later rules the debt is only partly worthless, you will not be allowed a deduction for the debt in that tax year because a deduction of a partly worthless bad debt is limited to the amount actually charged off. 1040ez instruction book See Partly worthless debts, earlier. 1040ez instruction book Filing a claim for refund. 1040ez instruction book   If you did not deduct a bad debt on your original return for the year it became worthless, you can file a claim for a credit or refund. 1040ez instruction book If the bad debt was totally worthless, you must file the claim by the later of the following dates. 1040ez instruction book 7 years from the date your original return was due (not including extensions). 1040ez instruction book 2 years from the date you paid the tax. 1040ez instruction book   If the claim is for a partly worthless bad debt, you must file the claim by the later of the following dates. 1040ez instruction book 3 years from the date you filed your original return. 1040ez instruction book 2 years from the date you paid the tax. 1040ez instruction book You may have longer to file the claim if you were unable to manage your financial affairs due to a physical or mental impairment. 1040ez instruction book Such an impairment requires proof of existence. 1040ez instruction book   For details and more information about filing a claim, see Publication 556. 1040ez instruction book Use one of the following forms to file a claim. 1040ez instruction book For more information, see the instructions for the applicable form. 1040ez instruction book Table 10-1. 1040ez instruction book Forms Used To File a Claim IF you filed as a. 1040ez instruction book . 1040ez instruction book . 1040ez instruction book THEN file. 1040ez instruction book . 1040ez instruction book . 1040ez instruction book Sole proprietor or farmer Form 1040X Corporation Form 1120X S corporation Form 1120S and check box H(4) Partnership Form 1065X if filing on paper or  Form 1065 and check box G(5) if filing electronically Nonaccrual-Experience Method If you use an accrual method of accounting and qualify under the rules explained in this section, you can use the nonaccrual-experience method for bad debts. 1040ez instruction book Under this method, you do not accrue service related income you expect to be uncollectible. 1040ez instruction book Because the expected uncollectible amounts are not included in income, these amounts are not later deducted from income. 1040ez instruction book Generally, you can use the nonaccrual-experience method for accounts receivable for services you performed only if: The services are provided in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, or the performing arts, or You meet the $5 million gross receipts test for all prior years. 1040ez instruction book Service related income. 1040ez instruction book   You can use the nonaccrual-experience method only for amounts earned by performing services. 1040ez instruction book You cannot use this method for amounts owed to you from activities such as lending money, selling goods, or acquiring receivables or other rights to receive payment. 1040ez instruction book Gross receipts test. 1040ez instruction book   To find out if you meet the $5 million gross receipts test for all prior years, you must figure the average annual gross receipts for each prior year. 1040ez instruction book If your average annual gross receipts for any year exceeds $5 million, you cannot use the non-accural experience method. 1040ez instruction book   The average annual gross receipts for any year is the average of gross receipts from the year in question and the 2 previous years. 1040ez instruction book For example, if you were figuring the average annual gross receipts for 2013, you would average your gross receipts for 2011, 2012, and 2013. 1040ez instruction book Interest or penalty charged. 1040ez instruction book   Generally, you cannot use the nonaccrual-experience method for amounts due on which you charge interest or a late payment penalty. 1040ez instruction book However, do not treat a discount offered for early payment as the charging of interest or a penalty if both the following apply. 1040ez instruction book You otherwise accrue the full amount due as gross income at the time you provide the services. 1040ez instruction book You treat the discount allowed for early payment as an adjustment to gross income in the year of payment. 1040ez instruction book Change in accounting method. 1040ez instruction book   Generally, you must obtain consent to change to a nonaccrual-experience method (other than one of the safe harbor methods) or to change from one method to another. 1040ez instruction book See Form 3115 and the Instructions for Form 3115 for more information. 1040ez instruction book Recovery of a Bad Debt If you claim a deduction for a bad debt on your income tax return and later recover (collect) all or part of it, you may have to include all or part of the recovery in gross income. 1040ez instruction book The amount you include is limited to the amount you actually deducted. 1040ez instruction book However, you can exclude the amount deducted that did not reduce your tax. 1040ez instruction book Report the recovery as “Other income” on the appropriate business form or schedule. 1040ez instruction book See Recoveries in Publication 525 for more information. 1040ez instruction book Net operating loss (NOL) carryover. 1040ez instruction book   If a bad debt deduction increases an NOL carryover that has not expired before the beginning of the tax year in which the recovery takes place, you treat the deduction as having reduced your tax. 1040ez instruction book A bad debt deduction that contributes to a NOL helps lower taxes in the year to which you carry the NOL. 1040ez instruction book For more information about NOLs, see Publication 536. 1040ez instruction book Also, see the Instructions for Form 1045, and the Instructions for Form 1139. 1040ez instruction book Prev  Up  Next   Home   More Online Publications