File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2011 Federal Tax Forms And Instructions

Sc Tax Forms 1040ezAmendment To 2011 Tax Return1040nr Tax ReturnsFederal Tax Amendment Form1040ez Tax Forms To PrintFile 1040 X OnlineFree H&r BlockHow To Amend Tax ReturnIrs Amended FormsFiling A Amended Tax Return2012 Tax Return SoftwareWwwhrblock Com1040 Ez Form 2011Filing Amended Tax Return 2013H & R Block Free TaxMilitary Taxes OnlineFile Previous Years TaxesFree Amended Tax Return OnlineE File State Taxes Only For FreeWhere Can I File 2012 Taxes Online FreeHow To Amend 2012 Federal Tax ReturnHr Block Free Tax FilingFreetaxusa2011 TaxesFile State Taxes For FreeFree File 1040ezH&r Block Military Key CodePrint 1040ezTurbotax Online 2012Where Do I File 2011 Taxes2011 Tax Act OnlineTax Form 1040ez2012 1040Amend Federal Tax ReturnFree Turbotax 2012 DownloadOnlinetaxes Hrblock ComIrs Amended Tax Return FormIrs Tax FilingWhere To Mail 1040xFree Tax Filing Military1040 Ez

2011 Federal Tax Forms And Instructions

2011 federal tax forms and instructions 6. 2011 federal tax forms and instructions   Basis of Assets Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Cost BasisReal Property Allocating the Basis Uniform Capitalization Rules Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostTaxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Received as a Gift Property Transferred From a Spouse Inherited Property Property Distributed From a Partnership or Corporation Introduction Your basis is the amount of your investment in property for tax purposes. 2011 federal tax forms and instructions Use basis to figure the gain or loss on the sale, exchange, or other disposition of property. 2011 federal tax forms and instructions Also use basis to figure depreciation, amortization, depletion, and casualty losses. 2011 federal tax forms and instructions If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. 2011 federal tax forms and instructions Only the basis allocated to the business or investment use of the property can be depreciated. 2011 federal tax forms and instructions Your original basis in property is adjusted (increased or decreased) by certain events. 2011 federal tax forms and instructions For example, if you make improvements to the property, increase your basis. 2011 federal tax forms and instructions If you take deductions for depreciation, or casualty losses, or claim certain credits, reduce your basis. 2011 federal tax forms and instructions Keep accurate records of all items that affect the basis of your assets. 2011 federal tax forms and instructions For information on keeping records, see chapter 1. 2011 federal tax forms and instructions Topics - This chapter discusses: Cost basis Adjusted basis Basis other than cost Useful Items - You may want to see: Publication 535 Business Expenses 544 Sales and Other Dispositions of Assets 551 Basis of Assets 946 How To Depreciate Property See chapter 16 for information about getting publications and forms. 2011 federal tax forms and instructions Cost Basis The basis of property you buy is usually its cost. 2011 federal tax forms and instructions Cost is the amount you pay in cash, debt obligations, other property, or services. 2011 federal tax forms and instructions Your cost includes amounts you pay for sales tax, freight, installation, and testing. 2011 federal tax forms and instructions The basis of real estate and business assets will include other items, discussed later. 2011 federal tax forms and instructions Basis generally does not include interest payments. 2011 federal tax forms and instructions However, see Carrying charges and Capitalized interest in chapter 4 of Publication 535. 2011 federal tax forms and instructions You also may have to capitalize (add to basis) certain other costs related to buying or producing property. 2011 federal tax forms and instructions Under the uniform capitalization rules, discussed later, you may have to capitalize direct costs and certain indirect costs of producing property. 2011 federal tax forms and instructions Loans with low or no interest. 2011 federal tax forms and instructions   If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus the amount considered to be unstated interest. 2011 federal tax forms and instructions You generally have unstated interest if your interest rate is less than the applicable federal rate. 2011 federal tax forms and instructions See the discussion of unstated interest in Publication 537, Installment Sales. 2011 federal tax forms and instructions Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. 2011 federal tax forms and instructions If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. 2011 federal tax forms and instructions Some of these expenses are discussed next. 2011 federal tax forms and instructions Lump sum purchase. 2011 federal tax forms and instructions   If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. 2011 federal tax forms and instructions Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. 2011 federal tax forms and instructions Figure the basis of each asset by multiplying the lump sum by a fraction. 2011 federal tax forms and instructions The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. 2011 federal tax forms and instructions Fair market value (FMV). 2011 federal tax forms and instructions   FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. 2011 federal tax forms and instructions Sales of similar property on or about the same date may help in figuring the FMV of the property. 2011 federal tax forms and instructions If you are not certain of the FMV of the land and improvements, you can allocate the basis according to their assessed values for real estate tax purposes. 2011 federal tax forms and instructions Real estate taxes. 2011 federal tax forms and instructions   If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. 2011 federal tax forms and instructions   If you reimburse the seller for taxes the seller paid for you, you generally can deduct that amount as a tax expense. 2011 federal tax forms and instructions Whether or not you reimburse the seller, do not include that amount in the basis of your property. 2011 federal tax forms and instructions Settlement costs. 2011 federal tax forms and instructions   Your basis includes the settlement fees and closing costs for buying the property. 2011 federal tax forms and instructions See Publication 551 for a detailed list of items you can and cannot include in basis. 2011 federal tax forms and instructions   Do not include fees and costs for getting a loan on the property. 2011 federal tax forms and instructions Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 2011 federal tax forms and instructions Points. 2011 federal tax forms and instructions   If you pay points to get a loan (including a mortgage, second mortgage, or line-of-credit), do not add the points to the basis of the related property. 2011 federal tax forms and instructions You may be able to deduct the points currently or over the term of the loan. 2011 federal tax forms and instructions For more information about deducting points, see Points in chapter 4 of Publication 535. 2011 federal tax forms and instructions Assumption of a mortgage. 2011 federal tax forms and instructions   If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount you owe on the mortgage. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions If you buy a farm for $100,000 cash and assume a mortgage of $400,000, your basis is $500,000. 2011 federal tax forms and instructions Constructing assets. 2011 federal tax forms and instructions   If you build property or have assets built for you, your expenses for this construction are part of your basis. 2011 federal tax forms and instructions Some of these expenses include the following costs: Land, Labor and materials, Architect's fees, Building permit charges, Payments to contractors, Payments for rental equipment, and Inspection fees. 2011 federal tax forms and instructions   In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses. 2011 federal tax forms and instructions You must capitalize them (include them in the asset's basis). 2011 federal tax forms and instructions Employee wages paid for the construction work, reduced by any employment credits allowed. 2011 federal tax forms and instructions Depreciation on equipment you own while it is used in the construction. 2011 federal tax forms and instructions Operating and maintenance costs for equipment used in the construction. 2011 federal tax forms and instructions The cost of business supplies and materials used in the construction. 2011 federal tax forms and instructions    Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. 2011 federal tax forms and instructions Allocating the Basis In some instances, the rules for determining basis apply to a group of assets acquired in the same transaction or to property that consists of separate items. 2011 federal tax forms and instructions To determine the basis of these assets or separate items, there must be an allocation of basis. 2011 federal tax forms and instructions Group of assets acquired. 2011 federal tax forms and instructions   If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. 2011 federal tax forms and instructions Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. 2011 federal tax forms and instructions You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. 2011 federal tax forms and instructions If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation generally will be accepted. 2011 federal tax forms and instructions Farming business acquired. 2011 federal tax forms and instructions   If you buy a group of assets that makes up a farming business, there are special rules you must use to allocate the purchase price among the assets. 2011 federal tax forms and instructions Generally, reduce the purchase price by any cash received. 2011 federal tax forms and instructions Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMV and in a certain order. 2011 federal tax forms and instructions See Trade or Business Acquired under Allocating the Basis in Publication 551 for more information. 2011 federal tax forms and instructions Transplanted embryo. 2011 federal tax forms and instructions   If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. 2011 federal tax forms and instructions Allocate the rest of the purchase price to the basis of the calf. 2011 federal tax forms and instructions Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense. 2011 federal tax forms and instructions Uniform Capitalization Rules Under the uniform capitalization rules, you must include certain direct and indirect costs in the basis of property you produce or in your inventory costs, rather than claim them as a current deduction. 2011 federal tax forms and instructions You recover these costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2011 federal tax forms and instructions Generally, you are subject to the uniform capitalization rules if you do any of the following: Produce real or tangible personal property, or Acquire property for resale. 2011 federal tax forms and instructions However, this rule does not apply to personal property if your average annual gross receipts for the 3-tax-year period ending with the year preceding the current tax year are $10 million or less. 2011 federal tax forms and instructions You produce property if you construct, build, install, manufacture, develop, improve, or create the property. 2011 federal tax forms and instructions You are not subject to the uniform capitalization rules if the property is produced for personal use. 2011 federal tax forms and instructions In a farming business, you produce property if you raise or grow any agricultural or horticultural commodity, including plants and animals. 2011 federal tax forms and instructions Plants. 2011 federal tax forms and instructions   A plant produced in a farming business includes the following items: A fruit, nut, or other crop-bearing tree; An ornamental tree; A vine; A bush; Sod; and The crop or yield of a plant that will have more than one crop or yield. 2011 federal tax forms and instructions Animals. 2011 federal tax forms and instructions   An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life. 2011 federal tax forms and instructions The direct and indirect costs of producing plants or animals include preparatory costs and preproductive period costs. 2011 federal tax forms and instructions Preparatory costs include the acquisition costs of the seed, seedling, plant, or animal. 2011 federal tax forms and instructions For plants, preproductive period costs include the costs of items such as irrigation, pruning, frost protection, spraying, and harvesting. 2011 federal tax forms and instructions For animals, preproductive period costs include the costs of items such as feed, maintaining pasture or pen areas, breeding, veterinary services, and bedding. 2011 federal tax forms and instructions Exceptions. 2011 federal tax forms and instructions   In a farming business, the uniform capitalization rules do not apply to: Any animal, Any plant with a preproductive period of 2 years or less, or Any costs of replanting certain plants lost or damaged due to casualty. 2011 federal tax forms and instructions   Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2011 federal tax forms and instructions See Accrual Method Required under Accounting Methods in chapter 2. 2011 federal tax forms and instructions   In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. 2011 federal tax forms and instructions If you make this election, special rules apply. 2011 federal tax forms and instructions This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. 2011 federal tax forms and instructions This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted. 2011 federal tax forms and instructions    If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. 2011 federal tax forms and instructions See chapter 7, for additional information on depreciation. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You grow trees that have a preproductive period of more than 2 years. 2011 federal tax forms and instructions The trees produce an annual crop. 2011 federal tax forms and instructions You are an individual and the uniform capitalization rules apply to your farming business. 2011 federal tax forms and instructions You must capitalize the direct costs and an allocable part of indirect costs incurred due to the production of the trees. 2011 federal tax forms and instructions You are not required to capitalize the costs of producing the annual crop because its preproductive period is 2 years or less. 2011 federal tax forms and instructions Preproductive period of more than 2 years. 2011 federal tax forms and instructions   The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. 2011 federal tax forms and instructions Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. 2011 federal tax forms and instructions Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years. 2011 federal tax forms and instructions More information. 2011 federal tax forms and instructions   For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1. 2011 federal tax forms and instructions 263A-4. 2011 federal tax forms and instructions Table 6-1. 2011 federal tax forms and instructions Plants With a Preproductive Period of More Than 2 Years Plants producing the following crops or yields have a nationwide weighted average preproductive period of more than 2 years. 2011 federal tax forms and instructions Almonds Apples Apricots Avocados Blueberries Cherries Chestnuts Coffee beans Currants Dates Figs Grapefruit Grapes Guavas Kiwifruit Kumquats Lemons Limes Macadamia nuts Mangoes Nectarines Olives Oranges Peaches Pears Pecans Persimmons Pistachio nuts Plums Pomegranates Prunes Tangelos Tangerines Tangors Walnuts Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments to the cost basis or basis other than cost (discussed later) of the property. 2011 federal tax forms and instructions The adjustments to the original basis are increases or decreases to the cost basis or other basis which result in the adjusted basis of the property. 2011 federal tax forms and instructions Increases to Basis Increase the basis of any property by all items properly added to a capital account. 2011 federal tax forms and instructions These include the cost of any improvements having a useful life of more than 1 year. 2011 federal tax forms and instructions The following costs increase the basis of property. 2011 federal tax forms and instructions The cost of extending utility service lines to property. 2011 federal tax forms and instructions Legal fees, such as the cost of defending and perfecting title. 2011 federal tax forms and instructions Legal fees for seeking a decrease in an assessment levied against property to pay for local improvements. 2011 federal tax forms and instructions Assessments for items such as paving roads and building ditches that increase the value of the property assessed. 2011 federal tax forms and instructions Do not deduct these expenses as taxes. 2011 federal tax forms and instructions However, you can deduct as taxes amounts assessed for maintenance or repairs, or for meeting interest charges related to the improvements. 2011 federal tax forms and instructions If you make additions or improvements to business property, depreciate the basis of each addition or improvement as separate depreciable property using the rules that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. 2011 federal tax forms and instructions See chapter 7. 2011 federal tax forms and instructions Deducting vs. 2011 federal tax forms and instructions capitalizing costs. 2011 federal tax forms and instructions   Do not add to your basis costs you can deduct as current expenses. 2011 federal tax forms and instructions For example, amounts paid for incidental repairs or maintenance are deductible as business expenses and are not added to basis. 2011 federal tax forms and instructions However, you can elect either to deduct or to capitalize certain other costs. 2011 federal tax forms and instructions See chapter 7 in Publication 535. 2011 federal tax forms and instructions Decreases to Basis The following are some items that reduce the basis of property. 2011 federal tax forms and instructions Section 179 deduction. 2011 federal tax forms and instructions Deductions previously allowed or allowable for amortization, depreciation, and depletion. 2011 federal tax forms and instructions Alternative motor vehicle credit. 2011 federal tax forms and instructions See Form 8910. 2011 federal tax forms and instructions Alternative fuel vehicle refueling property credit. 2011 federal tax forms and instructions See Form 8911. 2011 federal tax forms and instructions Residential energy efficient property credits. 2011 federal tax forms and instructions See Form 5695. 2011 federal tax forms and instructions Investment credit (part or all) taken. 2011 federal tax forms and instructions Casualty and theft losses and insurance reimbursements. 2011 federal tax forms and instructions Payments you receive for granting an easement. 2011 federal tax forms and instructions Exclusion from income of subsidies for energy conservation measures. 2011 federal tax forms and instructions Certain canceled debt excluded from income. 2011 federal tax forms and instructions Rebates from a manufacturer or seller. 2011 federal tax forms and instructions Patronage dividends received from a cooperative association as a result of a purchase of property. 2011 federal tax forms and instructions See Patronage Dividends in chapter 3. 2011 federal tax forms and instructions Gas-guzzler tax. 2011 federal tax forms and instructions See Form 6197. 2011 federal tax forms and instructions Some of these items are discussed next. 2011 federal tax forms and instructions For a more detailed list of items that decrease basis, see section 1016 of the Internal Revenue Code and Publication 551. 2011 federal tax forms and instructions Depreciation and section 179 deduction. 2011 federal tax forms and instructions   The adjustments you must make to the basis of the property if you take the section 179 deduction or depreciate the property are explained next. 2011 federal tax forms and instructions For more information on these deductions, see chapter 7. 2011 federal tax forms and instructions Section 179 deduction. 2011 federal tax forms and instructions   If you take the section 179 expense deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. 2011 federal tax forms and instructions Depreciation. 2011 federal tax forms and instructions   Decrease the basis of property by the depreciation you deducted or could have deducted on your tax returns under the method of depreciation you chose. 2011 federal tax forms and instructions If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. 2011 federal tax forms and instructions If you did not take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. 2011 federal tax forms and instructions   If you deducted more depreciation than you should have, decrease your basis by the amount you should have deducted plus the part of the excess depreciation you deducted that actually reduced your tax liability for any year. 2011 federal tax forms and instructions   See chapter 7 for information on figuring the depreciation you should have claimed. 2011 federal tax forms and instructions   In decreasing your basis for depreciation, take into account the amount deducted on your tax returns as depreciation and any depreciation you must capitalize under the uniform capitalization rules. 2011 federal tax forms and instructions Casualty and theft losses. 2011 federal tax forms and instructions   If you have a casualty or theft loss, decrease the basis of the property by any insurance or other reimbursement. 2011 federal tax forms and instructions Also, decrease it by any deductible loss not covered by insurance. 2011 federal tax forms and instructions See chapter 11 for information about figuring your casualty or theft loss. 2011 federal tax forms and instructions   You must increase your basis in the property by the amount you spend on clean-up costs (such as debris removal) and repairs that restore the property to its pre-casualty condition. 2011 federal tax forms and instructions To make this determination, compare the repaired property to the property before the casualty. 2011 federal tax forms and instructions Easements. 2011 federal tax forms and instructions   The amount you receive for granting an easement is usually considered to be proceeds from the sale of an interest in the real property. 2011 federal tax forms and instructions It reduces the basis of the affected part of the property. 2011 federal tax forms and instructions If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. 2011 federal tax forms and instructions See Easements and rights-of-way in chapter 3. 2011 federal tax forms and instructions Exclusion from income of subsidies for energy conservation measures. 2011 federal tax forms and instructions   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. 2011 federal tax forms and instructions Reduce the basis of the property by the excluded amount. 2011 federal tax forms and instructions Canceled debt excluded from income. 2011 federal tax forms and instructions   If a debt you owe is canceled or forgiven, other than as a gift or bequest, you generally must include the canceled amount in your gross income for tax purposes. 2011 federal tax forms and instructions A debt includes any indebtedness for which you are liable or which attaches to property you hold. 2011 federal tax forms and instructions   You can exclude your canceled debt from income if the debt is any of the following. 2011 federal tax forms and instructions Debt canceled in a bankruptcy case or when you are insolvent. 2011 federal tax forms and instructions Qualified farm debt. 2011 federal tax forms and instructions Qualified real property business debt (provided you are not a C corporation). 2011 federal tax forms and instructions Qualified principal residence indebtedness. 2011 federal tax forms and instructions Discharge of certain indebtedness of a qualified individual because of Midwestern disasters. 2011 federal tax forms and instructions If you exclude canceled debt described in (1) or (2), you may have to reduce the basis of your depreciable and nondepreciable property. 2011 federal tax forms and instructions If you exclude canceled debt described in (3), you must only reduce the basis of your depreciable property by the excluded amount. 2011 federal tax forms and instructions   For more information about canceled debt in a bankruptcy case, see Publication 908, Bankruptcy Tax Guide. 2011 federal tax forms and instructions For more information about insolvency and canceled debt that is qualified farm debt or qualified principal residence indebtedness, see chapter 3. 2011 federal tax forms and instructions For more information about qualified real property business debt, see Publication 334, Tax Guide for Small Business. 2011 federal tax forms and instructions For more information about canceled debt in Midwestern disaster areas, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2011 federal tax forms and instructions Basis Other Than Cost There are times when you cannot use cost as basis. 2011 federal tax forms and instructions In these situations, the fair market value or the adjusted basis of property may be used. 2011 federal tax forms and instructions Examples are discussed next. 2011 federal tax forms and instructions Property changed from personal to business or rental use. 2011 federal tax forms and instructions   When you hold property for personal use and then change it to business use or use it to produce rent, you must figure its basis for depreciation. 2011 federal tax forms and instructions An example of changing property from personal to business use would be changing the use of your pickup truck that you originally purchased for your personal use to use in your farming business. 2011 federal tax forms and instructions   The basis for depreciation is the lesser of: The FMV of the property on the date of the change, or Your adjusted basis on the date of the change. 2011 federal tax forms and instructions   If you later sell or dispose of this property, the basis you use will depend on whether you are figuring a gain or loss. 2011 federal tax forms and instructions The basis for figuring a gain is your adjusted basis in the property when you sell the property. 2011 federal tax forms and instructions Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. 2011 federal tax forms and instructions Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . 2011 federal tax forms and instructions Property received for services. 2011 federal tax forms and instructions   If you receive property for services, include the property's FMV in income. 2011 federal tax forms and instructions The amount you include in income becomes your basis. 2011 federal tax forms and instructions If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions George Smith is an accountant and also operates a farming business. 2011 federal tax forms and instructions George agreed to do some accounting work for his neighbor in exchange for a dairy cow. 2011 federal tax forms and instructions The accounting work and the cow are each worth $1,500. 2011 federal tax forms and instructions George must include $1,500 in income for his accounting services. 2011 federal tax forms and instructions George's basis in the cow is $1,500. 2011 federal tax forms and instructions Taxable Exchanges A taxable exchange is one in which the gain is taxable, or the loss is deductible. 2011 federal tax forms and instructions A taxable gain or deductible loss also is known as a recognized gain or loss. 2011 federal tax forms and instructions A taxable exchange occurs when you receive cash or get property that is not similar or related in use to the property exchanged. 2011 federal tax forms and instructions If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You trade a tract of farmland with an adjusted basis of $2,000 for a tractor that has an FMV of $6,000. 2011 federal tax forms and instructions You must report a taxable gain of $4,000 for the land. 2011 federal tax forms and instructions The tractor has a basis of $6,000. 2011 federal tax forms and instructions Involuntary Conversions If you receive property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property you receive using the basis of the converted property. 2011 federal tax forms and instructions Similar or related property. 2011 federal tax forms and instructions   If the replacement property is similar or related in service or use to the converted property, the replacement property's basis is the same as the old property's basis on the date of the conversion. 2011 federal tax forms and instructions However, make the following adjustments. 2011 federal tax forms and instructions Decrease the basis by the following amounts. 2011 federal tax forms and instructions Any loss you recognize on the involuntary conversion. 2011 federal tax forms and instructions Any money you receive that you do not spend on similar property. 2011 federal tax forms and instructions Increase the basis by the following amounts. 2011 federal tax forms and instructions Any gain you recognize on the involuntary conversion. 2011 federal tax forms and instructions Any cost of acquiring the replacement property. 2011 federal tax forms and instructions Money or property not similar or related. 2011 federal tax forms and instructions   If you receive money or property not similar or related in service or use to the converted property and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the involuntary conversion. 2011 federal tax forms and instructions Allocating the basis. 2011 federal tax forms and instructions   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. 2011 federal tax forms and instructions Basis for depreciation. 2011 federal tax forms and instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. 2011 federal tax forms and instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2011 federal tax forms and instructions For more information about involuntary conversions, see chapter 11. 2011 federal tax forms and instructions Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. 2011 federal tax forms and instructions A nontaxable gain or loss also is known as an unrecognized gain or loss. 2011 federal tax forms and instructions If you receive property in a nontaxable exchange, its basis is usually the same as the basis of the property you transferred. 2011 federal tax forms and instructions Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. 2011 federal tax forms and instructions For an exchange to qualify as a like-kind exchange, you must hold for business or investment purposes both the property you transfer and the property you receive. 2011 federal tax forms and instructions There must also be an exchange of like-kind property. 2011 federal tax forms and instructions For more information, see Like-Kind Exchanges in  chapter 8. 2011 federal tax forms and instructions The basis of the property you receive generally is the same as the adjusted basis of the property you gave up. 2011 federal tax forms and instructions Example 1. 2011 federal tax forms and instructions You traded a truck you used in your farming business for a new smaller truck to use in farming. 2011 federal tax forms and instructions The adjusted basis of the old truck was $10,000. 2011 federal tax forms and instructions The FMV of the new truck is $30,000. 2011 federal tax forms and instructions Because this is a nontaxable exchange, you do not recognize any gain, and your basis in the new truck is $10,000, the same as the adjusted basis of the truck you traded. 2011 federal tax forms and instructions Example 2. 2011 federal tax forms and instructions You trade a field cultivator (adjusted basis of $8,000) for a planter (FMV of $9,000). 2011 federal tax forms and instructions You use both the field cultivator and the planter in your farming business. 2011 federal tax forms and instructions The basis of the planter you receive is $8,000, the same as the field cultivator traded Exchange expenses. 2011 federal tax forms and instructions   Exchange expenses generally are the closing costs that you pay. 2011 federal tax forms and instructions They include such items as brokerage commissions, attorney fees, and deed preparation fees. 2011 federal tax forms and instructions Add them to the basis of the like-kind property you receive. 2011 federal tax forms and instructions Property plus cash. 2011 federal tax forms and instructions   If you trade property in a like-kind exchange and also pay money, the basis of the property you receive is the adjusted basis of the property you gave up plus the money you paid. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You trade in a truck (adjusted basis of $3,000) for another truck (FMV of $7,500) and pay $4,000. 2011 federal tax forms and instructions Your basis in the new truck is $7,000 (the $3,000 adjusted basis of the old truck plus the $4,000 cash). 2011 federal tax forms and instructions Special rules for related persons. 2011 federal tax forms and instructions   If a like-kind exchange takes place directly or indirectly between related persons and either party disposes of the property within 2 years after the exchange, the exchange no longer qualifies for like-kind exchange treatment. 2011 federal tax forms and instructions Each person must report any gain or loss not recognized on the original exchange unless the loss is not deductible under the related party rules. 2011 federal tax forms and instructions Each person reports it on the tax return filed for the year in which the later disposition occurred. 2011 federal tax forms and instructions If this rule applies, the basis of the property received in the original exchange will be its FMV. 2011 federal tax forms and instructions For more information, see chapter 8. 2011 federal tax forms and instructions Exchange of business property. 2011 federal tax forms and instructions   Exchanging the property of one business for the property of another business generally is a multiple property exchange. 2011 federal tax forms and instructions For information on figuring basis, see Multiple Property Exchanges in chapter 1 of Publication 544. 2011 federal tax forms and instructions Basis for depreciation. 2011 federal tax forms and instructions   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind transaction. 2011 federal tax forms and instructions For information, see Figuring the Deduction for Property Acquired in a Nontaxable Exchange under Figuring Depreciation Under MACRS in chapter 7. 2011 federal tax forms and instructions Partially Nontaxable Exchanges A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. 2011 federal tax forms and instructions The basis of the property you receive is the same as the adjusted basis of the property you gave up with the following adjustments. 2011 federal tax forms and instructions Decrease the basis by the following amounts. 2011 federal tax forms and instructions Any money you receive. 2011 federal tax forms and instructions Any loss you recognize on the exchange. 2011 federal tax forms and instructions Increase the basis by the following amounts. 2011 federal tax forms and instructions Any additional costs you incur. 2011 federal tax forms and instructions Any gain you recognize on the exchange. 2011 federal tax forms and instructions If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. 2011 federal tax forms and instructions Example 1. 2011 federal tax forms and instructions You trade farmland (basis of $100,000) for another tract of farmland (FMV of $110,000) and $30,000 cash. 2011 federal tax forms and instructions You realize a gain of $40,000. 2011 federal tax forms and instructions This is the FMV of the land received plus the cash minus the basis of the land you traded ($110,000 + $30,000 − $100,000). 2011 federal tax forms and instructions Include your gain in income (recognize gain) only to the extent of the cash received. 2011 federal tax forms and instructions Your basis in the land you received is figured as follows. 2011 federal tax forms and instructions Basis of land traded $100,000 Minus: Cash received (adjustment 1(a)) − 30,000   $70,000 Plus: Gain recognized (adjustment 2(b)) + 30,000 Basis of land received $100,000 Example 2. 2011 federal tax forms and instructions You trade a truck (adjusted basis of $22,750) for another truck (FMV of $20,000) and $10,000 cash. 2011 federal tax forms and instructions You realize a gain of $7,250. 2011 federal tax forms and instructions This is the FMV of the truck received plus the cash minus the adjusted basis of the truck you traded ($20,000 + $10,000 − $22,750). 2011 federal tax forms and instructions You include all the gain in your income (recognize gain) because the gain is less than the cash you received. 2011 federal tax forms and instructions Your basis in the truck you received is figured as follows. 2011 federal tax forms and instructions Adjusted basis of truck traded $22,750 Minus: Cash received (adjustment 1(a)) −10,000   $12,750 Plus: Gain recognized (adjustment 2(b)) + 7,250 Basis of truck received $20,000 Allocation of basis. 2011 federal tax forms and instructions   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. 2011 federal tax forms and instructions The rest is the basis of the like-kind property. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You traded a tractor with an adjusted basis of $15,000 for another tractor that had an FMV of $12,500. 2011 federal tax forms and instructions You also received $1,000 cash and a truck that had an FMV of $3,000. 2011 federal tax forms and instructions The truck is unlike property. 2011 federal tax forms and instructions You realized a gain of $1,500. 2011 federal tax forms and instructions This is the FMV of the tractor received plus the FMV of the truck received plus the cash minus the adjusted basis of the tractor you traded ($12,500 + $3,000 + $1,000 − $15,000). 2011 federal tax forms and instructions You include in income (recognize) all $1,500 of the gain because it is less than the FMV of the unlike property plus the cash received. 2011 federal tax forms and instructions Your basis in the properties you received is figured as follows. 2011 federal tax forms and instructions Adjusted basis of old tractor $15,000 Minus: Cash received (adjustment 1(a)) − 1,000   $14,000 Plus: Gain recognized (adjustment 2(b)) + 1,500 Total basis of properties received $15,500 Allocate the total basis of $15,500 first to the unlike property—the truck ($3,000). 2011 federal tax forms and instructions This is the truck's FMV. 2011 federal tax forms and instructions The rest ($12,500) is the basis of the tractor. 2011 federal tax forms and instructions Sale and Purchase If you sell property and buy similar property in two mutually dependent transactions, you may have to treat the sale and purchase as a single nontaxable exchange. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You used a tractor on your farm for 3 years. 2011 federal tax forms and instructions Its adjusted basis is $22,000 and its FMV is $40,000. 2011 federal tax forms and instructions You are interested in a new tractor, which sells for $60,000. 2011 federal tax forms and instructions Ordinarily, you would trade your old tractor for the new one and pay the dealer $20,000. 2011 federal tax forms and instructions Your basis for depreciating the new tractor would then be $42,000 ($20,000 + $22,000, the adjusted basis of your old tractor). 2011 federal tax forms and instructions However, you want a higher basis for depreciating the new tractor, so you agree to pay the dealer $60,000 for the new tractor if he will pay you $40,000 for your old tractor. 2011 federal tax forms and instructions Because the two transactions are dependent on each other, you are treated as having exchanged your old tractor for the new one and paid $20,000 ($60,000 − $40,000). 2011 federal tax forms and instructions Your basis for depreciating the new tractor is $42,000, the same as if you traded the old tractor. 2011 federal tax forms and instructions Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you. 2011 federal tax forms and instructions You also must know its FMV at the time it was given to you and any gift tax paid on it. 2011 federal tax forms and instructions FMV equal to or greater than donor's adjusted basis. 2011 federal tax forms and instructions   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis when you received the gift. 2011 federal tax forms and instructions Increase your basis by all or part of any gift tax paid, depending on the date of the gift. 2011 federal tax forms and instructions   Also, for figuring gain or loss from a sale or other disposition of the property, or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. 2011 federal tax forms and instructions See Adjusted Basis , earlier. 2011 federal tax forms and instructions   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. 2011 federal tax forms and instructions Figure the increase by multiplying the gift tax paid by the following fraction. 2011 federal tax forms and instructions Net increase in value of the gift Amount of the gift   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. 2011 federal tax forms and instructions The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions In 2013, you received a gift of property from your mother that had an FMV of $50,000. 2011 federal tax forms and instructions Her adjusted basis was $20,000. 2011 federal tax forms and instructions The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). 2011 federal tax forms and instructions She paid a gift tax of $7,320. 2011 federal tax forms and instructions Your basis, $26,076, is figured as follows. 2011 federal tax forms and instructions Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000 Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . 2011 federal tax forms and instructions 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. 2011 federal tax forms and instructions If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. 2011 federal tax forms and instructions However, your basis cannot exceed the FMV of the gift when it was given to you. 2011 federal tax forms and instructions FMV less than donor's adjusted basis. 2011 federal tax forms and instructions   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. 2011 federal tax forms and instructions Your basis for figuring gain is the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. 2011 federal tax forms and instructions Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. 2011 federal tax forms and instructions (See Adjusted Basis , earlier. 2011 federal tax forms and instructions )   If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither gain nor loss on the sale or other disposition of the property. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You received farmland as a gift from your parents when they retired from farming. 2011 federal tax forms and instructions At the time of the gift, the land had an FMV of $80,000. 2011 federal tax forms and instructions Your parents' adjusted basis was $100,000. 2011 federal tax forms and instructions After you received the land, no events occurred that would increase or decrease your basis. 2011 federal tax forms and instructions If you sell the land for $120,000, you will have a $20,000 gain because you must use the donor's adjusted basis at the time of the gift ($100,000) as your basis to figure a gain. 2011 federal tax forms and instructions If you sell the land for $70,000, you will have a $10,000 loss because you must use the FMV at the time of the gift ($80,000) as your basis to figure a loss. 2011 federal tax forms and instructions If the sales price is between $80,000 and $100,000, you have neither gain nor loss. 2011 federal tax forms and instructions For instance, if the sales price was $90,000 and you tried to figure a gain using the donor's adjusted basis ($100,000), you would get a $10,000 loss. 2011 federal tax forms and instructions If you then tried to figure a loss using the FMV ($80,000), you would get a $10,000 gain. 2011 federal tax forms and instructions Business property. 2011 federal tax forms and instructions   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. 2011 federal tax forms and instructions Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. 2011 federal tax forms and instructions The same rule applies to a transfer by your former spouse if the transfer is incident to divorce. 2011 federal tax forms and instructions However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed plus the liabilities to which the property is subject are more than the adjusted basis of the property transferred. 2011 federal tax forms and instructions The transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. 2011 federal tax forms and instructions For more information, see Property Settlements in Publication 504, Divorced or Separated Individuals. 2011 federal tax forms and instructions Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. 2011 federal tax forms and instructions If a federal estate return is filed, you can use its appraised value. 2011 federal tax forms and instructions The FMV on the alternate valuation date, if the personal representative for the estate elects to use alternate valuation. 2011 federal tax forms and instructions For information on the alternate valuation, see the Instructions for Form 706. 2011 federal tax forms and instructions The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. 2011 federal tax forms and instructions If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. 2011 federal tax forms and instructions Special-use valuation method. 2011 federal tax forms and instructions   Under certain conditions, when a person dies, the executor or personal representative of that person's estate may elect to value qualified real property at other than its FMV. 2011 federal tax forms and instructions If so, the executor or personal representative values the qualified real property based on its use as a farm or other closely held business. 2011 federal tax forms and instructions If the executor or personal representative elects this method of valuation for estate tax purposes, this value is the basis of the property for the qualified heirs. 2011 federal tax forms and instructions The qualified heirs should be able to get the necessary value from the executor or personal representative of the estate. 2011 federal tax forms and instructions   If you are a qualified heir who received special-use valuation property, increase your basis by any gain recognized by the estate or trust because of post-death appreciation. 2011 federal tax forms and instructions Post-death appreciation is the property's FMV on the date of distribution minus the property's FMV either on the date of the individual's death or on the alternate valuation date. 2011 federal tax forms and instructions Figure all FMVs without regard to the special-use valuation. 2011 federal tax forms and instructions   You may be liable for an additional estate tax if, within 10 years after the death of the decedent, you transfer the property or the property stops being used as a farm. 2011 federal tax forms and instructions This tax does not apply if you dispose of the property in a like-kind exchange or in an involuntary conversion in which all of the proceeds are reinvested in qualified replacement property. 2011 federal tax forms and instructions The tax also does not apply if you transfer the property to a member of your family and certain requirements are met. 2011 federal tax forms and instructions   You can elect to increase your basis in special-use valuation property if it becomes subject to the additional estate tax. 2011 federal tax forms and instructions To increase your basis, you must make an irrevocable election and pay interest on the additional estate tax figured from the date 9 months after the decedent's death until the date of payment of the additional estate tax. 2011 federal tax forms and instructions If you meet these requirements, increase your basis in the property to its FMV on the date of the decedent's death or the alternate valuation date. 2011 federal tax forms and instructions The increase in your basis is considered to have occurred immediately before the event that resulted in the additional estate tax. 2011 federal tax forms and instructions   You make the election by filing, with Form 706-A, United States Additional Estate Tax Return, a statement that: Contains your (and the estate's) name, address, and taxpayer identification number; Identifies the election as an election under section 1016(c) of the Internal Revenue Code; Specifies the property for which you are making the election; and Provides any additional information required by the Form 706-A instructions. 2011 federal tax forms and instructions   For more information, see Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706-A, and the related instructions. 2011 federal tax forms and instructions Property inherited from a decedent who died in 2010. 2011 federal tax forms and instructions   If you inherited property from a decedent who died in 2010, different rules may apply. 2011 federal tax forms and instructions See Publication 4895, Tax Treatment of Property Acquired From a Decendent Dying in 2010, for details. 2011 federal tax forms and instructions Property Distributed From a Partnership or Corporation The following rules apply to determine a partner's basis and a shareholder's basis in property distributed respectively from a partnership to the partner with respect to the partner's interest in the partnership and from a corporation to the shareholder with respect to the shareholder's ownership of stock in the corporation. 2011 federal tax forms and instructions Partner's basis. 2011 federal tax forms and instructions   Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed by a partnership to the partner is its adjusted basis to the partnership immediately before the distribution. 2011 federal tax forms and instructions However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. 2011 federal tax forms and instructions For more information, see Partner's Basis for Distributed Property in Publication 541, Partnerships. 2011 federal tax forms and instructions Shareholder's basis. 2011 federal tax forms and instructions   The basis of property distributed by a corporation to a shareholder is its fair market value. 2011 federal tax forms and instructions For more information about corporate distributions, see Distributions to Shareholders in Publication 542, Corporations. 2011 federal tax forms and instructions Prev  Up  Next   Home   More Online Publications
Español

  • BBB Small Business Advice: Your Company's Identity at Risk
    The Better Business Bureau is offering advice on how to avoid the different forms of business ID theft, as well as guidance for small business owners if their company's identity has been compromised.
  • BBB Warns Small Business Owners to Beware of Telephone Relay Fraud
    Better Business Bureau warns small business owners that reports of scammers plying their trade through telephone relay services -- typically used by the hearing impaired to make phone calls -- are cropping up all across the country. BBB has received reports from many types of businesses that received suspicious orders through TTY or telephone relay services.
  • Beware of Phony Invoices
    Unauthorized invoices and unordered merchandise continue to show up at places of business across British Columbia due to some misleading telemarketing tactics. Better Business Bureau would like to advise businesses that they need a trained and prepared staff for handling these slick sellers.
  • Businesses Beware of Mass Marketing Scams
    Illicit mass marketers know that the keepers of corporate funds may be just as susceptible to fake ploys as anyone else. And while business-oriented fraud usually results in losses of a few hundreds dollars the first time a company is hit, employees may continue to fall victim to these scams if the company has insufficient internal controls. Read on to learn more about the mass marketing frauds that are perpetrated against businesses and the steps a business can take to protect themselves.
  • Fraudulent E- Mails Claiming to Be From the FDIC
    The Federal Deposit Insurance Corporation (FDIC) has received numerous reports of fraudulent e-mails that have the appearance of being from the FDIC.
  • Seven Scams that Target Small Businesses
    Being vigilant against fraud is not only important for a company's bottom line, it also strengthens customer trust in the business. Becoming a victim of fraud can have a negative financial and reputational impact on a business and the Better Business Bureau recommends owners train their staff to look out for seven common scams that prey on small companies.
  • Small Businesses Looking for Funding are Increasingly Becoming Victims of Fraud
    As the credit crunch bears down on the U.S., small businesses are forced to search for alternative sources of funding and Better Business Bureau (BBB) warns that business owners are becoming victims of fraud when turning to the Internet for loans and grants.

The 2011 Federal Tax Forms And Instructions

2011 federal tax forms and instructions 2. 2011 federal tax forms and instructions   Accounting Periods and Methods Table of Contents Introduction Useful Items - You may want to see: Accounting Periods Accounting MethodsCash Method Accrual Method Combination Method Inventories Uniform Capitalization Rules Special Methods Change in Accounting Method Introduction You must figure your taxable income and file an income tax return for an annual accounting period called a tax year. 2011 federal tax forms and instructions Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. 2011 federal tax forms and instructions Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. 2011 federal tax forms and instructions Accounting Periods When preparing a statement of income and expenses (generally your income tax return), you must use your books and records for a specific interval of time called an accounting period. 2011 federal tax forms and instructions The annual accounting period for your income tax return is called a tax year. 2011 federal tax forms and instructions You can use one of the following tax years. 2011 federal tax forms and instructions A calendar tax year. 2011 federal tax forms and instructions A fiscal tax year. 2011 federal tax forms and instructions Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. 2011 federal tax forms and instructions A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. 2011 federal tax forms and instructions Calendar tax year. 2011 federal tax forms and instructions   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. 2011 federal tax forms and instructions   You must adopt the calendar tax year if any of the following apply. 2011 federal tax forms and instructions You do not keep books. 2011 federal tax forms and instructions You have no annual accounting period. 2011 federal tax forms and instructions Your present tax year does not qualify as a fiscal year. 2011 federal tax forms and instructions Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. 2011 federal tax forms and instructions   If you filed your first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. 2011 federal tax forms and instructions For more information, see Change in tax year, later. 2011 federal tax forms and instructions   If you adopt the calendar tax year, you must maintain your books and records and report your income and expenses for the period from January 1 through December 31 of each year. 2011 federal tax forms and instructions Fiscal tax year. 2011 federal tax forms and instructions   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. 2011 federal tax forms and 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. 2011 federal tax forms and instructions   If you adopt a fiscal tax year, you must maintain your books and records and report your income and expenses using the same tax year. 2011 federal tax forms and instructions   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. 2011 federal tax forms and instructions Change in tax year. 2011 federal tax forms and instructions   Generally, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year, to request IRS approval to change your tax year. 2011 federal tax forms and instructions See the Instructions for Form 1128 for exceptions. 2011 federal tax forms and instructions If you qualify for an automatic approval request, a user fee is not required. 2011 federal tax forms and instructions If you do not qualify for automatic approval, a ruling must be requested. 2011 federal tax forms and instructions See the instructions for Form 1128 for information about user fees if you are requesting a ruling. 2011 federal tax forms and instructions Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. 2011 federal tax forms and instructions Your accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item. 2011 federal tax forms and instructions You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. 2011 federal tax forms and instructions After that, if you want to change your accounting method, you must generally get IRS approval. 2011 federal tax forms and instructions See Change in Accounting Method, later. 2011 federal tax forms and instructions Kinds of methods. 2011 federal tax forms and instructions   Generally, you can use any of the following accounting methods. 2011 federal tax forms and instructions Cash method. 2011 federal tax forms and instructions An accrual method. 2011 federal tax forms and instructions Special methods of accounting for certain items of income and expenses. 2011 federal tax forms and instructions Combination method using elements of two or more of the above. 2011 federal tax forms and instructions You must use the same accounting method to figure your taxable income and to keep your books. 2011 federal tax forms and instructions Also, you must use an accounting method that clearly shows your income. 2011 federal tax forms and instructions Business and personal items. 2011 federal tax forms and instructions   You can account for business and personal items under different accounting methods. 2011 federal tax forms and instructions For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. 2011 federal tax forms and instructions Two or more businesses. 2011 federal tax forms and instructions   If you have two or more separate and distinct businesses, you can use a different accounting method for each if the method clearly reflects the income of each business. 2011 federal tax forms and instructions They are separate and distinct only if you maintain complete and separate books and records for each business. 2011 federal tax forms and instructions Cash Method Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. 2011 federal tax forms and instructions However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. 2011 federal tax forms and instructions For more information, see Inventories, later. 2011 federal tax forms and instructions Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. 2011 federal tax forms and instructions If you receive property or services, you must include their fair market value in income. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions On December 30, 2012, Mrs. 2011 federal tax forms and instructions Sycamore sent you a check for interior decorating services you provided to her. 2011 federal tax forms and instructions You received the check on January 2, 2013. 2011 federal tax forms and instructions You must include the amount of the check in income for 2013. 2011 federal tax forms and instructions Constructive receipt. 2011 federal tax forms and instructions   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. 2011 federal tax forms and instructions You do not need to have possession of it. 2011 federal tax forms and instructions If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions Interest is credited to your bank account in December 2013. 2011 federal tax forms and instructions You do not withdraw it or enter it into your passbook until 2014. 2011 federal tax forms and instructions You must include it in your gross income for 2013. 2011 federal tax forms and instructions Delaying receipt of income. 2011 federal tax forms and instructions   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. 2011 federal tax forms and instructions You must report the income in the year the property is received or made available to you without restriction. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. 2011 federal tax forms and instructions She was told in December that her payment was available. 2011 federal tax forms and instructions At her request, she was not paid until January 2014. 2011 federal tax forms and instructions She must include this payment in her 2013 income because it was constructively received in 2013. 2011 federal tax forms and instructions Checks. 2011 federal tax forms and instructions   Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions Dr. 2011 federal tax forms and instructions Redd received a check for $500 on December 31, 2013, from a patient. 2011 federal tax forms and instructions She could not deposit the check in her business account until January 2, 2014. 2011 federal tax forms and instructions She must include this fee in her income for 2013. 2011 federal tax forms and instructions Debts paid by another person or canceled. 2011 federal tax forms and instructions   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. 2011 federal tax forms and instructions If you receive income in this way, you constructively receive the income when the debt is canceled or paid. 2011 federal tax forms and instructions For more information, see Canceled Debt under Kinds of Income in chapter 5. 2011 federal tax forms and instructions Repayment of income. 2011 federal tax forms and instructions   If you include an amount in income and in a later year you have to repay all or part of it, you can usually deduct the repayment in the year in which you make it. 2011 federal tax forms and instructions If the amount you repay is over $3,000, a special rule applies. 2011 federal tax forms and instructions For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. 2011 federal tax forms and instructions Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. 2011 federal tax forms and instructions This includes business expenses for which you contest liability. 2011 federal tax forms and instructions However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. 2011 federal tax forms and instructions Expenses paid in advance. 2011 federal tax forms and instructions   You can deduct an expense you pay in advance only in the year to which it applies. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You are a calendar year taxpayer and you pay $1,000 in 2013 for a business insurance policy effective for one year, beginning July 1. 2011 federal tax forms and instructions You can deduct $500 in 2013 and $500 in 2014. 2011 federal tax forms and instructions Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. 2011 federal tax forms and instructions The purpose of an accrual method of accounting is to match income and expenses in the correct year. 2011 federal tax forms and instructions Income—General Rule Under an accrual method, you generally include an amount in your gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You are a calendar year accrual method taxpayer. 2011 federal tax forms and instructions You sold a computer on December 28, 2013. 2011 federal tax forms and instructions You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. 2011 federal tax forms and instructions You must include the amount received for the computer in your 2013 income. 2011 federal tax forms and instructions Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. 2011 federal tax forms and instructions Estimated income. 2011 federal tax forms and instructions   If you include a reasonably estimated amount in gross income, and later determine the exact amount is different, take the difference into account in the tax year in which you make the determination. 2011 federal tax forms and instructions Change in payment schedule for services. 2011 federal tax forms and instructions   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a lower rate until you complete the services and then receive the difference. 2011 federal tax forms and instructions Advance payments for services. 2011 federal tax forms and instructions   Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. 2011 federal tax forms and instructions However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. 2011 federal tax forms and instructions However, you cannot postpone including any payment beyond that tax year. 2011 federal tax forms and instructions   For more information, see Advance Payment for Services under Accrual Method in Publication 538. 2011 federal tax forms and instructions That publication also explains special rules for reporting the following types of income. 2011 federal tax forms and instructions Advance payments for service agreements. 2011 federal tax forms and instructions Prepaid rent. 2011 federal tax forms and instructions Advance payments for sales. 2011 federal tax forms and instructions   Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods you hold primarily for sale to your customers in the ordinary course of your business. 2011 federal tax forms and instructions If the advance payments are for contracts involving both the sale and service of goods, it may be necessary to treat them as two agreements. 2011 federal tax forms and instructions An agreement includes a gift certificate that can be redeemed for goods. 2011 federal tax forms and instructions Treat amounts that are due and payable as amounts you received. 2011 federal tax forms and instructions   You generally include an advance payment in income for the tax year in which you receive it. 2011 federal tax forms and instructions However, you can use an alternative method. 2011 federal tax forms and instructions For information about the alternative method, see Publication 538. 2011 federal tax forms and instructions Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. 2011 federal tax forms and instructions The all-events test has been met. 2011 federal tax forms and instructions The test has been met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. 2011 federal tax forms and instructions Economic performance has occurred. 2011 federal tax forms and instructions Economic performance. 2011 federal tax forms and instructions   You generally cannot deduct or capitalize a business expense until economic performance occurs. 2011 federal tax forms and instructions If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. 2011 federal tax forms and instructions If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 2011 federal tax forms and instructions An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. 2011 federal tax forms and instructions For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. 2011 federal tax forms and instructions Example. 2011 federal tax forms and instructions You are a calendar year taxpayer and use an accrual method of accounting. 2011 federal tax forms and instructions You buy office supplies in December 2013. 2011 federal tax forms and instructions You receive the supplies and the bill in December, but you pay the bill in January 2014. 2011 federal tax forms and instructions You can deduct the expense in 2013 because all events that fix the fact of liability have occurred, the amount of the liability could be reasonably determined, and economic performance occurred in that year. 2011 federal tax forms and instructions Your office supplies may qualify as a recurring expense. 2011 federal tax forms and instructions In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). 2011 federal tax forms and instructions Keeping inventories. 2011 federal tax forms and instructions   When the production, purchase, or sale of merchandise is an income-producing factor in your business, you must generally take inventories into account at the beginning and the end of your tax year. 2011 federal tax forms and instructions If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. 2011 federal tax forms and instructions For more information, see Inventories , later. 2011 federal tax forms and instructions Special rule for related persons. 2011 federal tax forms and instructions   You cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until you make the payment and the corresponding amount is includible in the related person's gross income. 2011 federal tax forms and instructions Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. 2011 federal tax forms and instructions If a deduction is not allowed under this rule, the rule will continue to apply even if your relationship with the person ends before the expense or interest is includible in the gross income of that person. 2011 federal tax forms and instructions   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 2011 federal tax forms and instructions For a list of other related persons, see section 267 of the Internal Revenue Code. 2011 federal tax forms and instructions Combination Method You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. 2011 federal tax forms and instructions However, the following restrictions apply. 2011 federal tax forms and instructions If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. 2011 federal tax forms and instructions (See, however, Inventories, later. 2011 federal tax forms and instructions ) You can use the cash method for all other items of income and expenses. 2011 federal tax forms and instructions If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. 2011 federal tax forms and instructions If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 2011 federal tax forms and instructions If you use a combination method that includes the cash method, treat that combination method as the cash method. 2011 federal tax forms and instructions Inventories Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. 2011 federal tax forms and instructions However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. 2011 federal tax forms and instructions These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). 2011 federal tax forms and instructions A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. 2011 federal tax forms and instructions A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. 2011 federal tax forms and instructions Qualifying taxpayer. 2011 federal tax forms and instructions   You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. 2011 federal tax forms and instructions (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3. 2011 federal tax forms and instructions ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. 2011 federal tax forms and instructions Qualifying small business taxpayer. 2011 federal tax forms and instructions   You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. 2011 federal tax forms and instructions (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. 2011 federal tax forms and instructions ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. 2011 federal tax forms and instructions Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). 2011 federal tax forms and instructions Business not owned or not in existence for 3 years. 2011 federal tax forms and instructions   If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor. 2011 federal tax forms and instructions If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts. 2011 federal tax forms and instructions Materials and supplies that are not incidental. 2011 federal tax forms and instructions   If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. 2011 federal tax forms and instructions If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. 2011 federal tax forms and instructions Changing accounting method. 2011 federal tax forms and instructions   If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115, Application for Change in Accounting Method. 2011 federal tax forms and instructions See Change in Accounting Method, later. 2011 federal tax forms and instructions More information. 2011 federal tax forms and instructions    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. 2011 federal tax forms and instructions For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. 2011 federal tax forms and instructions Items included in inventory. 2011 federal tax forms and instructions   If you are required to account for inventories, include the following items when accounting for your inventory. 2011 federal tax forms and instructions Merchandise or stock in trade. 2011 federal tax forms and instructions Raw materials. 2011 federal tax forms and instructions Work in process. 2011 federal tax forms and instructions Finished products. 2011 federal tax forms and instructions Supplies that physically become a part of the item intended for sale. 2011 federal tax forms and instructions Valuing inventory. 2011 federal tax forms and instructions   You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42). 2011 federal tax forms and instructions To determine the value of your inventory, you need a method for identifying the items in your inventory and a method for valuing these items. 2011 federal tax forms and instructions   Inventory valuation rules cannot be the same for all kinds of businesses. 2011 federal tax forms and instructions The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 2011 federal tax forms and instructions Your inventory practices must be consistent from year to year. 2011 federal tax forms and instructions More information. 2011 federal tax forms and instructions   For more information about inventories, see Publication 538. 2011 federal tax forms and instructions Uniform Capitalization Rules Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. 2011 federal tax forms and instructions Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 2011 federal tax forms and instructions You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2011 federal tax forms and instructions Activities subject to the uniform capitalization rules. 2011 federal tax forms and instructions   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 2011 federal tax forms and instructions Produce real or tangible personal property. 2011 federal tax forms and instructions For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 2011 federal tax forms and instructions Acquire property for resale. 2011 federal tax forms and instructions Exceptions. 2011 federal tax forms and instructions   These rules do not apply to the following property. 2011 federal tax forms and instructions Personal property you acquire for resale if your average annual gross receipts are $10 million or less. 2011 federal tax forms and instructions Property you produce if you meet either of the following conditions. 2011 federal tax forms and instructions Your indirect costs of producing the property are $200,000 or less. 2011 federal tax forms and instructions You use the cash method of accounting and do not account for inventories. 2011 federal tax forms and instructions For more information, see Inventories, earlier. 2011 federal tax forms and instructions Special Methods There are special methods of accounting for certain items of income or expense. 2011 federal tax forms and instructions These include the following. 2011 federal tax forms and instructions Amortization, discussed in chapter 8 of Publication 535, Business Expenses. 2011 federal tax forms and instructions Bad debts, discussed in chapter 10 of Publication 535. 2011 federal tax forms and instructions Depletion, discussed in chapter 9 of Publication 535. 2011 federal tax forms and instructions Depreciation, discussed in Publication 946, How To Depreciate Property. 2011 federal tax forms and instructions Installment sales, discussed in Publication 537, Installment Sales. 2011 federal tax forms and instructions Change in Accounting Method Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. 2011 federal tax forms and instructions A change in your accounting method includes a change in: Your overall method, such as from cash to an accrual method, and Your treatment of any material item. 2011 federal tax forms and instructions To get approval, you must file Form 3115, Application for Change in Accounting Method. 2011 federal tax forms and instructions You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. 2011 federal tax forms and instructions You may have to pay a user fee. 2011 federal tax forms and instructions For more information, see the form instructions. 2011 federal tax forms and instructions Automatic change procedures. 2011 federal tax forms and instructions   Certain taxpayers can presume to have IRS approval to change their method of accounting. 2011 federal tax forms and instructions The approval is granted for the tax year for which the taxpayer requests a change (year of change), if the taxpayer complies with the provisions of the automatic change procedures. 2011 federal tax forms and instructions No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. 2011 federal tax forms and instructions   Generally, you must use Form 3115 to request an automatic change. 2011 federal tax forms and instructions For more information, see the Instructions for Form 3115. 2011 federal tax forms and instructions Prev  Up  Next   Home   More Online Publications