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2014 Tax Forms

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2014 Tax Forms

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

2014 tax forms 1. 2014 tax forms   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. 2014 tax forms General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. 2014 tax forms There are exceptions to this rule, discussed under Exceptions , later. 2014 tax forms Generally, you must include the canceled debt in your income. 2014 tax forms However, you may be able to exclude the canceled debt. 2014 tax forms See Exclusions , later. 2014 tax forms Example. 2014 tax forms John owed $1,000 to Mary. 2014 tax forms Mary agreed to accept and John paid $400 in satisfaction of the entire debt. 2014 tax forms John has canceled debt of $600. 2014 tax forms Example. 2014 tax forms Margaret owed $1,000 to Henry. 2014 tax forms Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. 2014 tax forms Margaret does not have canceled debt. 2014 tax forms Instead, she has income from services. 2014 tax forms A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. 2014 tax forms Debt for which you are personally liable is recourse debt. 2014 tax forms All other debt is nonrecourse debt. 2014 tax forms If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. 2014 tax forms See Discounts and loan modifications , later. 2014 tax forms However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. 2014 tax forms As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. 2014 tax forms For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. 2014 tax forms There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. 2014 tax forms See Exceptions and Exclusions, later. 2014 tax forms You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. 2014 tax forms Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. 2014 tax forms The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. 2014 tax forms For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. 2014 tax forms Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. 2014 tax forms An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. 2014 tax forms Identifiable event codes. 2014 tax forms    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. 2014 tax forms The codes shown in box 6 are explained below. 2014 tax forms Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. 2014 tax forms Note. 2014 tax forms Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. 2014 tax forms However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. 2014 tax forms Code A — Bankruptcy. 2014 tax forms Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. 2014 tax forms See Bankruptcy , later. 2014 tax forms Code B — Other judicial debt relief. 2014 tax forms Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. 2014 tax forms Code C — Statute of limitations or expiration of deficiency period. 2014 tax forms Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. 2014 tax forms In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. 2014 tax forms Code D — Foreclosure election. 2014 tax forms Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. 2014 tax forms This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. 2014 tax forms Code E — Debt relief from probate or similar proceeding. 2014 tax forms Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. 2014 tax forms Code F — By agreement. 2014 tax forms Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. 2014 tax forms Code G — Decision or policy to discontinue collection. 2014 tax forms Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. 2014 tax forms For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. 2014 tax forms Code H — Expiration of nonpayment testing period. 2014 tax forms Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. 2014 tax forms The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. 2014 tax forms This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. 2014 tax forms Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. 2014 tax forms Code I — Other actual discharge before identifiable event. 2014 tax forms Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. 2014 tax forms Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. 2014 tax forms Amount of canceled debt. 2014 tax forms    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. 2014 tax forms The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). 2014 tax forms Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. 2014 tax forms Interest included in canceled debt. 2014 tax forms    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. 2014 tax forms Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. 2014 tax forms See Deductible Debt under Exceptions, later. 2014 tax forms Persons who each receive a Form 1099-C showing the full amount of debt. 2014 tax forms    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. 2014 tax forms However, you may not have to report that entire amount as income. 2014 tax forms The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. 2014 tax forms See Example 3 under Insolvency, later. 2014 tax forms Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. 2014 tax forms However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. 2014 tax forms The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. 2014 tax forms For more details, see Exceptions and Exclusions, later. 2014 tax forms Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. 2014 tax forms   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. 2014 tax forms The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. 2014 tax forms The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. 2014 tax forms If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. 2014 tax forms The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. 2014 tax forms For more details, see Exceptions and Exclusions, later. 2014 tax forms Nonrecourse debt. 2014 tax forms   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. 2014 tax forms The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. 2014 tax forms The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. 2014 tax forms The character of the gain or loss is determined by the character of the property. 2014 tax forms More information. 2014 tax forms    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. 2014 tax forms Abandonments Recourse debt. 2014 tax forms   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. 2014 tax forms You must report this income on your tax return unless one of the exceptions or exclusions described later applies. 2014 tax forms For more details, see Exceptions and Exclusions, later. 2014 tax forms This income is separate from any amount realized from the abandonment of the property. 2014 tax forms For more details, see chapter 3. 2014 tax forms Nonrecourse debt. 2014 tax forms   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. 2014 tax forms Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. 2014 tax forms For more information, see Publication 542, Corporations. 2014 tax forms Prev  Up  Next   Home   More Online Publications