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2011 Income Taxes

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2011 Income Taxes

2011 income taxes Index A Adoption Taxpayer identification number, Adoption taxpayer identification number (ATIN). 2011 income taxes Aliens, Individual taxpayer identification number (ITIN) for aliens. 2011 income taxes Alternative minimum tax (AMT), Limit on credit. 2011 income taxes Amount of credit, Amount of Credit, Payments for prior year's expenses. 2011 income taxes Limit on, Limit on credit. 2011 income taxes Assistance (see Tax help) C Calculation of credit, How To Figure the Credit, Payments for prior year's expenses. 2011 income taxes Camp, overnight, Camp. 2011 income taxes Care Dependent care benefits, Dependent care benefits. 2011 income taxes , Dependent care benefits. 2011 income taxes Employer-provided benefits, Dependent Care Benefits Outside home, Care outside your home. 2011 income taxes Provider identification, Provider Identification Test Qualifying person, Care of a Qualifying Person Children Divorced or separated parents, Child of divorced or separated parents or parents living apart. 2011 income taxes Physically or mentally disabled, Qualifying Person Test Under age 13, Qualifying Person Test Work-related expense payments to relatives, Payments to Relatives or Dependents Church employee, Clergy or church employee. 2011 income taxes Claiming of credit, How To Claim the Credit Tests to claim credit, Tests To Claim the Credit Clergy, Clergy or church employee. 2011 income taxes Community property, Community property laws. 2011 income taxes D Death of spouse, Death of spouse. 2011 income taxes Dependent care benefits, Dependent care benefits. 2011 income taxes , Dependent Care Benefits Dependent care centers, Dependent care center. 2011 income taxes Dependent defined, Dependent defined. 2011 income taxes Dependents (see Qualifying person test) Deposits, Fees and deposits. 2011 income taxes Disabilities, persons with Dependents, Qualifying Person Test Physically or mentally not able to care for self, Physically or mentally not able to care for oneself. 2011 income taxes Spouse, Qualifying Person Test, Rule for student-spouse or spouse not able to care for self. 2011 income taxes , Working or Looking for Work, You or your spouse is a student or not able to care for self. 2011 income taxes Divorced parents, Child of divorced or separated parents or parents living apart. 2011 income taxes Dollar limit, Dollar Limit, Yearly limit. 2011 income taxes Reduced dollar limit, Tests To Claim the Credit, Reduced Dollar Limit Domestic help, Housekeeper. 2011 income taxes Due diligence, Due diligence. 2011 income taxes E Earned income Dependent care benefits, Exclusion or deduction. 2011 income taxes For figuring credit, Earned Income Test Limit on, Earned Income Limit Net loss, Net loss. 2011 income taxes Nonworking spouse, Rule for student-spouse or spouse not able to care for self. 2011 income taxes Self-employment earnings, Self-employment earnings. 2011 income taxes Statutory employees, Statutory employee. 2011 income taxes What is not, What is not earned income? Earned income test, Earned Income Test, Full-time student. 2011 income taxes Determination, Tests To Claim the Credit Education expenses, Education. 2011 income taxes Employer-provided dependent care benefits, Dependent care benefits. 2011 income taxes , Dependent Care Benefits Employment taxes, Reminders, Taxes paid on wages. 2011 income taxes , How To Claim the Credit Exclusion from income Employer-provided dependent care benefits, Dependent care benefits. 2011 income taxes , Exclusion or deduction. 2011 income taxes Expenses, How To Figure the Credit (see also Work-related expenses) 2012 expenses paid in 2013 (Worksheet A), Worksheet A. 2011 income taxes Worksheet for 2012 Expenses Paid in 2013 Education, Education. 2011 income taxes Medical, Medical expenses. 2011 income taxes Not for care, Expenses not for care. 2011 income taxes Prepaid, Expenses prepaid in an earlier year. 2011 income taxes Reimbursed, Expenses reimbursed. 2011 income taxes F Fees, Fees and deposits. 2011 income taxes Figures, Tests To Claim the Credit Figuring credit, How To Figure the Credit, Payments for prior year's expenses. 2011 income taxes Earned income, Earned income. 2011 income taxes Filing status Joint return test, Joint Return Test Tests to claim credit, Tests To Claim the Credit Form 1040 Claiming the credit, Tests To Claim the Credit, Form 1040, Form 1040A, or Form 1040NR. 2011 income taxes Form 1040A Claiming the credit, Tests To Claim the Credit Form 2441, Form 1040, Form 1040A, or Form 1040NR. 2011 income taxes Form 4029, Members of certain religious faiths opposed to social security. 2011 income taxes , Form 4029. 2011 income taxes Form 4361, Members of certain religious faiths opposed to social security. 2011 income taxes , Form 4361. 2011 income taxes Form W-10, Getting the information. 2011 income taxes Form W-2 Dependent care benefits, Statement for employee. 2011 income taxes Form W-7, Individual taxpayer identification number (ITIN) for aliens. 2011 income taxes Free tax services, Free help with your tax return. 2011 income taxes H Help (see Tax help) Household services, Care of a Qualifying Person, Household Services, Meals and lodging provided for housekeeper. 2011 income taxes Employment taxes, How To Claim the Credit Housekeepers, Housekeeper. 2011 income taxes I Identification of provider, Provider Identification Test, Provider refusal. 2011 income taxes Individual taxpayer identification numbers (ITINs) For aliens, Individual taxpayer identification number (ITIN) for aliens. 2011 income taxes Inmate, What is not earned income? J Joint return test, Joint Return Test, Costs of keeping up a home. 2011 income taxes Tests to claim credit, Tests To Claim the Credit L Limits Amount of credit, Limit on credit. 2011 income taxes Dollar, Dollar Limit Earned income, Earned Income Limit Reduced dollar, Tests To Claim the Credit, Reduced Dollar Limit Looking for work, Working or Looking for Work Losses, Net loss. 2011 income taxes M Married and living apart, Married and living apart. 2011 income taxes Meals and lodging for housekeeper, Meals and lodging provided for housekeeper. 2011 income taxes Medical expenses, Medical expenses. 2011 income taxes Minister, Clergy or church employee. 2011 income taxes Missing children, photographs of, Reminders N Nonrefundability of credit, Tax credit not refundable. 2011 income taxes Not able to care for self Qualifying person test, Physically or mentally not able to care for oneself. 2011 income taxes Spouse, Qualifying Person Test, Rule for student-spouse or spouse not able to care for self. 2011 income taxes , Working or Looking for Work, You or your spouse is a student or not able to care for self. 2011 income taxes O Outside of home care, Care outside your home. 2011 income taxes P Part of year Persons qualifying for, Person qualifying for part of year. 2011 income taxes Work or looking for work, Work for part of year. 2011 income taxes Part-time work, Part-time work. 2011 income taxes Prepaid expenses, Expenses prepaid in an earlier year. 2011 income taxes Prisoner, What is not earned income? Provider identification test, Tests To Claim the Credit, Provider Identification Test, Provider refusal. 2011 income taxes Publications (see Tax help) Q Qualifying child, Qualifying child. 2011 income taxes Qualifying person Care for, Care of a Qualifying Person Expenses not for care, Expenses not for care. 2011 income taxes Qualifying person test, Qualifying Person Test, Child of divorced or separated parents or parents living apart. 2011 income taxes Tests to claim credit, Tests To Claim the Credit R Recordkeeping requirements, How To Claim the Credit Reduced dollar limit, Reduced Dollar Limit Tests to claim credit, Tests To Claim the Credit Refusal by provider to give information, Provider refusal. 2011 income taxes Reimbursed expenses, Expenses reimbursed. 2011 income taxes Relatives, payments to, Tests To Claim the Credit, Payments to Relatives or Dependents Religious faiths opposed to social security programs, Members of certain religious faiths opposed to social security. 2011 income taxes S School expenses, Education. 2011 income taxes Self-employed persons, Self-employment earnings. 2011 income taxes Separated parents, Child of divorced or separated parents or parents living apart. 2011 income taxes , Legally separated. 2011 income taxes Separated spouse, Separated spouse. 2011 income taxes Sick days, Temporary absence from work. 2011 income taxes Social Security, Employment Taxes for Household Employers (see also Employment taxes) Religious faiths opposed to, Members of certain religious faiths opposed to social security. 2011 income taxes Social security numbers, Information needed. 2011 income taxes Spouse Both spouses qualifying, Both spouses qualify. 2011 income taxes Death of, Death of spouse. 2011 income taxes Nonworking, earned income, Rule for student-spouse or spouse not able to care for self. 2011 income taxes Not able to care for self, Qualifying Person Test, Rule for student-spouse or spouse not able to care for self. 2011 income taxes , Working or Looking for Work, You or your spouse is a student or not able to care for self. 2011 income taxes Qualifying person, Qualifying Person Test Separated, Separated spouse. 2011 income taxes Student, Rule for student-spouse or spouse not able to care for self. 2011 income taxes , You or your spouse is a student or not able to care for self. 2011 income taxes Surviving, Surviving spouse. 2011 income taxes Working, Spouse works. 2011 income taxes Students Full-time, Full-time student. 2011 income taxes Spouse, Rule for student-spouse or spouse not able to care for self. 2011 income taxes , You or your spouse is a student or not able to care for self. 2011 income taxes T Tax help, How To Get Tax Help Taxes on wages (see Employment taxes) Taxpayer identification number (TINs), Reminders, Taxpayer identification number. 2011 income taxes Adoption, Adoption taxpayer identification number (ATIN). 2011 income taxes Aliens, Individual taxpayer identification number (ITIN) for aliens. 2011 income taxes Providers, Information needed. 2011 income taxes Temporary absence, Temporary absence from work. 2011 income taxes Tests to claim credit, Tests To Claim the Credit, Exclusion or deduction. 2011 income taxes Determination, Tests To Claim the Credit Earned income, Earned Income Test Qualifying persons, Qualifying Person Test Work-related expenses, Work-Related Expense Test Transportation, Transportation. 2011 income taxes TTY/TDD information, How To Get Tax Help U Unearned income, What is not earned income? V Vacation, Temporary absence from work. 2011 income taxes Volunteer work, Volunteer work. 2011 income taxes W Wages, taxes on (see Employment taxes) Withholding Federal income tax, Employment Taxes for Household Employers Work-related expense test, Work-Related Expense Test, Payments to Relatives or Dependents Partly work-related expenses, Expenses partly work-related. 2011 income taxes Tests to claim credit, Tests To Claim the Credit Work-related expenses Earned income limit, Earned Income Limit Figuring of credit, Figuring Total Work-Related Expenses Medical, Medical expenses. 2011 income taxes Paid following year, Expenses not paid until the following year. 2011 income taxes , Payments for prior year's expenses. 2011 income taxes , Worksheet A. 2011 income taxes Worksheet for 2012 Expenses Paid in 2013 Partly work-related expenses, Expenses partly work-related. 2011 income taxes Prepaid, Expenses prepaid in an earlier year. 2011 income taxes Recordkeeping, How To Claim the Credit Reimbursed, Expenses reimbursed. 2011 income taxes Worksheets 2012 expenses paid in 2013 (Worksheet A), Worksheet A. 2011 income taxes Worksheet for 2012 Expenses Paid in 2013 Prev  Up     Home   More Online Publications
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The 2011 Income Taxes

2011 income taxes 2. 2011 income taxes   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 income taxes Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. 2011 income taxes Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. 2011 income taxes 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 income taxes The annual accounting period for your income tax return is called a tax year. 2011 income taxes You can use one of the following tax years. 2011 income taxes A calendar tax year. 2011 income taxes A fiscal tax year. 2011 income taxes Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. 2011 income taxes A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. 2011 income taxes Calendar tax year. 2011 income taxes   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. 2011 income taxes   You must adopt the calendar tax year if any of the following apply. 2011 income taxes You do not keep books. 2011 income taxes You have no annual accounting period. 2011 income taxes Your present tax year does not qualify as a fiscal year. 2011 income taxes Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. 2011 income taxes   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 income taxes For more information, see Change in tax year, later. 2011 income taxes   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 income taxes Fiscal tax year. 2011 income taxes   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. 2011 income taxes 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 income taxes   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 income taxes   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. 2011 income taxes Change in tax year. 2011 income taxes   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 income taxes See the Instructions for Form 1128 for exceptions. 2011 income taxes If you qualify for an automatic approval request, a user fee is not required. 2011 income taxes If you do not qualify for automatic approval, a ruling must be requested. 2011 income taxes See the instructions for Form 1128 for information about user fees if you are requesting a ruling. 2011 income taxes Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. 2011 income taxes 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 income taxes 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 income taxes After that, if you want to change your accounting method, you must generally get IRS approval. 2011 income taxes See Change in Accounting Method, later. 2011 income taxes Kinds of methods. 2011 income taxes   Generally, you can use any of the following accounting methods. 2011 income taxes Cash method. 2011 income taxes An accrual method. 2011 income taxes Special methods of accounting for certain items of income and expenses. 2011 income taxes Combination method using elements of two or more of the above. 2011 income taxes You must use the same accounting method to figure your taxable income and to keep your books. 2011 income taxes Also, you must use an accounting method that clearly shows your income. 2011 income taxes Business and personal items. 2011 income taxes   You can account for business and personal items under different accounting methods. 2011 income taxes For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. 2011 income taxes Two or more businesses. 2011 income taxes   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 income taxes They are separate and distinct only if you maintain complete and separate books and records for each business. 2011 income taxes 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 income taxes 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 income taxes For more information, see Inventories, later. 2011 income taxes Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. 2011 income taxes If you receive property or services, you must include their fair market value in income. 2011 income taxes Example. 2011 income taxes On December 30, 2012, Mrs. 2011 income taxes Sycamore sent you a check for interior decorating services you provided to her. 2011 income taxes You received the check on January 2, 2013. 2011 income taxes You must include the amount of the check in income for 2013. 2011 income taxes Constructive receipt. 2011 income taxes   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. 2011 income taxes You do not need to have possession of it. 2011 income taxes 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 income taxes Example. 2011 income taxes Interest is credited to your bank account in December 2013. 2011 income taxes You do not withdraw it or enter it into your passbook until 2014. 2011 income taxes You must include it in your gross income for 2013. 2011 income taxes Delaying receipt of income. 2011 income taxes   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 income taxes You must report the income in the year the property is received or made available to you without restriction. 2011 income taxes Example. 2011 income taxes Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. 2011 income taxes She was told in December that her payment was available. 2011 income taxes At her request, she was not paid until January 2014. 2011 income taxes She must include this payment in her 2013 income because it was constructively received in 2013. 2011 income taxes Checks. 2011 income taxes   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 income taxes Example. 2011 income taxes Dr. 2011 income taxes Redd received a check for $500 on December 31, 2013, from a patient. 2011 income taxes She could not deposit the check in her business account until January 2, 2014. 2011 income taxes She must include this fee in her income for 2013. 2011 income taxes Debts paid by another person or canceled. 2011 income taxes   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 income taxes If you receive income in this way, you constructively receive the income when the debt is canceled or paid. 2011 income taxes For more information, see Canceled Debt under Kinds of Income in chapter 5. 2011 income taxes Repayment of income. 2011 income taxes   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 income taxes If the amount you repay is over $3,000, a special rule applies. 2011 income taxes For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. 2011 income taxes Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. 2011 income taxes This includes business expenses for which you contest liability. 2011 income taxes 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 income taxes Expenses paid in advance. 2011 income taxes   You can deduct an expense you pay in advance only in the year to which it applies. 2011 income taxes Example. 2011 income taxes 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 income taxes You can deduct $500 in 2013 and $500 in 2014. 2011 income taxes 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 income taxes The purpose of an accrual method of accounting is to match income and expenses in the correct year. 2011 income taxes 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 income taxes Example. 2011 income taxes You are a calendar year accrual method taxpayer. 2011 income taxes You sold a computer on December 28, 2013. 2011 income taxes You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. 2011 income taxes You must include the amount received for the computer in your 2013 income. 2011 income taxes Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. 2011 income taxes Estimated income. 2011 income taxes   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 income taxes Change in payment schedule for services. 2011 income taxes   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 income taxes Advance payments for services. 2011 income taxes   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 income taxes 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 income taxes However, you cannot postpone including any payment beyond that tax year. 2011 income taxes   For more information, see Advance Payment for Services under Accrual Method in Publication 538. 2011 income taxes That publication also explains special rules for reporting the following types of income. 2011 income taxes Advance payments for service agreements. 2011 income taxes Prepaid rent. 2011 income taxes Advance payments for sales. 2011 income taxes   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 income taxes 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 income taxes An agreement includes a gift certificate that can be redeemed for goods. 2011 income taxes Treat amounts that are due and payable as amounts you received. 2011 income taxes   You generally include an advance payment in income for the tax year in which you receive it. 2011 income taxes However, you can use an alternative method. 2011 income taxes For information about the alternative method, see Publication 538. 2011 income taxes Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. 2011 income taxes The all-events test has been met. 2011 income taxes 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 income taxes Economic performance has occurred. 2011 income taxes Economic performance. 2011 income taxes   You generally cannot deduct or capitalize a business expense until economic performance occurs. 2011 income taxes 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 income taxes If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 2011 income taxes An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. 2011 income taxes For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. 2011 income taxes Example. 2011 income taxes You are a calendar year taxpayer and use an accrual method of accounting. 2011 income taxes You buy office supplies in December 2013. 2011 income taxes You receive the supplies and the bill in December, but you pay the bill in January 2014. 2011 income taxes 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 income taxes Your office supplies may qualify as a recurring expense. 2011 income taxes In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). 2011 income taxes Keeping inventories. 2011 income taxes   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 income taxes If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. 2011 income taxes For more information, see Inventories , later. 2011 income taxes Special rule for related persons. 2011 income taxes   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 income taxes 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 income taxes 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 income taxes   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. 2011 income taxes For a list of other related persons, see section 267 of the Internal Revenue Code. 2011 income taxes 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 income taxes However, the following restrictions apply. 2011 income taxes If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. 2011 income taxes (See, however, Inventories, later. 2011 income taxes ) You can use the cash method for all other items of income and expenses. 2011 income taxes If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. 2011 income taxes If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 2011 income taxes If you use a combination method that includes the cash method, treat that combination method as the cash method. 2011 income taxes 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 income taxes However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. 2011 income taxes These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). 2011 income taxes A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. 2011 income taxes A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. 2011 income taxes Qualifying taxpayer. 2011 income taxes   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 income taxes (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 income taxes ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. 2011 income taxes Qualifying small business taxpayer. 2011 income taxes   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 income taxes (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 income taxes ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. 2011 income taxes Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). 2011 income taxes Business not owned or not in existence for 3 years. 2011 income taxes   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 income taxes 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 income taxes Materials and supplies that are not incidental. 2011 income taxes   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 income taxes 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 income taxes Changing accounting method. 2011 income taxes   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 income taxes See Change in Accounting Method, later. 2011 income taxes More information. 2011 income taxes    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. 2011 income taxes For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. 2011 income taxes Items included in inventory. 2011 income taxes   If you are required to account for inventories, include the following items when accounting for your inventory. 2011 income taxes Merchandise or stock in trade. 2011 income taxes Raw materials. 2011 income taxes Work in process. 2011 income taxes Finished products. 2011 income taxes Supplies that physically become a part of the item intended for sale. 2011 income taxes Valuing inventory. 2011 income taxes   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 income taxes 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 income taxes   Inventory valuation rules cannot be the same for all kinds of businesses. 2011 income taxes The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 2011 income taxes Your inventory practices must be consistent from year to year. 2011 income taxes More information. 2011 income taxes   For more information about inventories, see Publication 538. 2011 income taxes 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 income taxes Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 2011 income taxes You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2011 income taxes Activities subject to the uniform capitalization rules. 2011 income taxes   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 income taxes Produce real or tangible personal property. 2011 income taxes For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 2011 income taxes Acquire property for resale. 2011 income taxes Exceptions. 2011 income taxes   These rules do not apply to the following property. 2011 income taxes Personal property you acquire for resale if your average annual gross receipts are $10 million or less. 2011 income taxes Property you produce if you meet either of the following conditions. 2011 income taxes Your indirect costs of producing the property are $200,000 or less. 2011 income taxes You use the cash method of accounting and do not account for inventories. 2011 income taxes For more information, see Inventories, earlier. 2011 income taxes Special Methods There are special methods of accounting for certain items of income or expense. 2011 income taxes These include the following. 2011 income taxes Amortization, discussed in chapter 8 of Publication 535, Business Expenses. 2011 income taxes Bad debts, discussed in chapter 10 of Publication 535. 2011 income taxes Depletion, discussed in chapter 9 of Publication 535. 2011 income taxes Depreciation, discussed in Publication 946, How To Depreciate Property. 2011 income taxes Installment sales, discussed in Publication 537, Installment Sales. 2011 income taxes 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 income taxes 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 income taxes To get approval, you must file Form 3115, Application for Change in Accounting Method. 2011 income taxes You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. 2011 income taxes You may have to pay a user fee. 2011 income taxes For more information, see the form instructions. 2011 income taxes Automatic change procedures. 2011 income taxes   Certain taxpayers can presume to have IRS approval to change their method of accounting. 2011 income taxes 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 income taxes No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. 2011 income taxes   Generally, you must use Form 3115 to request an automatic change. 2011 income taxes For more information, see the Instructions for Form 3115. 2011 income taxes Prev  Up  Next   Home   More Online Publications