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Amend A Tax Return

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Amend A Tax Return

Amend a tax return Publication 575 - Introductory Material Table of Contents What's New Reminders IntroductionThe General Rule. Amend a tax return Individual retirement arrangements (IRAs). Amend a tax return Civil service retirement benefits. Amend a tax return Social security and equivalent tier 1 railroad retirement benefits. Amend a tax return Tax-sheltered annuity plans (403(b) plans). Amend a tax return Ordering forms and publications. Amend a tax return Tax questions. Amend a tax return Useful Items - You may want to see: What's New For purposes of the net investment income tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Amend a tax return However, these distributions are taken into account when determining the modified adjusted gross income threshold. Amend a tax return Distributions from a nonqualified retirement plan are included in net investment income. Amend a tax return See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Amend a tax return Reminders Future developments. Amend a tax return  For the latest information about developments related to Publication 575, such as legislation enacted after it was published, go to www. Amend a tax return irs. Amend a tax return gov/pub575. Amend a tax return In-plan Roth rollovers. Amend a tax return   Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. Amend a tax return For more information, see In-plan Roth rollovers under Rollovers, discussed later. Amend a tax return Photographs of missing children. Amend a tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Amend a tax return Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Amend a tax return You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Amend a tax return Introduction This publication discusses the tax treatment of distributions you receive from pension and annuity plans and also shows you how to report the income on your federal income tax return. Amend a tax return How these distributions are taxed depends on whether they are periodic payments (amounts received as an annuity) that are paid at regular intervals over several years or nonperiodic payments (amounts not received as an annuity). Amend a tax return What is covered in this publication?   This publication contains information that you need to understand the following topics. Amend a tax return How to figure the tax-free part of periodic payments under a pension or annuity plan, including using a simple worksheet for payments under a qualified plan. Amend a tax return How to figure the tax-free part of nonperiodic payments from qualified and nonqualified plans, and how to use the optional methods to figure the tax on lump-sum distributions from pension, stock bonus, and profit-sharing plans. Amend a tax return How to roll over certain distributions from a retirement plan into another retirement plan or IRA. Amend a tax return How to report disability payments, and how beneficiaries and survivors of employees and retirees must report benefits paid to them. Amend a tax return How to report railroad retirement benefits. Amend a tax return When additional taxes on certain distributions may apply (including the tax on early distributions and the tax on excess accumulation). Amend a tax return For additional information on how to report pension or annuity payments on your federal income tax return, be sure to review the instructions on the back of Copies B, C, and 2 of the Form 1099-R that you received and the instructions for Form 1040, lines 16a and 16b (Form 1040A, lines 12a and 12b or Form 1040NR, lines 17a and 17b). Amend a tax return A “corrected” Form 1099-R replaces the corresponding original Form 1099-R if the original Form 1099-R contained an error. Amend a tax return Make sure you use the amounts shown on the corrected Form 1099-R when reporting information on your tax return. Amend a tax return What is not covered in this publication?   The following topics are not discussed in this publication. Amend a tax return The General Rule. Amend a tax return   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). Amend a tax return For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. Amend a tax return Although this publication will help you determine whether you can use the General Rule, it will not help you use it to determine the tax treatment of your pension or annuity income. Amend a tax return For that and other information on the General Rule, see Publication 939, General Rule for Pensions and Annuities. Amend a tax return Individual retirement arrangements (IRAs). Amend a tax return   Information on the tax treatment of amounts you receive from an IRA is in Publication 590, Individual Retirement Arrangements (IRAs). Amend a tax return Civil service retirement benefits. Amend a tax return   If you are retired from the federal government (regular, phased, or disability retirement) or are the survivor or beneficiary of a federal employee or retiree who died, get Publication 721, Tax Guide to U. Amend a tax return S. Amend a tax return Civil Service Retirement Benefits. Amend a tax return Publication 721 covers the tax treatment of federal retirement benefits, primarily those paid under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Amend a tax return It also covers benefits paid from the Thrift Savings Plan (TSP). Amend a tax return Social security and equivalent tier 1 railroad retirement benefits. Amend a tax return   For information about the tax treatment of these benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Amend a tax return However, this publication (575) covers the tax treatment of the non-social security equivalent benefit portion of tier 1 railroad retirement benefits, tier 2 benefits, vested dual benefits, and supplemental annuity benefits paid by the U. Amend a tax return S. Amend a tax return Railroad Retirement Board. Amend a tax return Tax-sheltered annuity plans (403(b) plans). Amend a tax return   If you work for a public school or certain tax-exempt organizations, you may be eligible to participate in a 403(b) retirement plan offered by your employer. Amend a tax return Although this publication covers the treatment of benefits under 403(b) plans and discusses in-plan Roth rollovers from 403(b) plans to designated Roth accounts, it does not cover other tax provisions that apply to these plans. Amend a tax return For that and other information on 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations. Amend a tax return Comments and suggestions. Amend a tax return   We welcome your comments about this publication and your suggestions for future editions. Amend a tax return   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Amend a tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Amend a tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Amend a tax return   You can send your comments from www. Amend a tax return irs. Amend a tax return gov/formspubs/. Amend a tax return Click on “More Information” and then on “Comment on Tax Forms and Publications. Amend a tax return ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Amend a tax return Ordering forms and publications. Amend a tax return   Visit www. Amend a tax return irs. Amend a tax return gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Amend a tax return Internal Revenue Service 1201 N. Amend a tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Amend a tax return   If you have a tax question, check the information available on IRS. Amend a tax return gov or call 1-800-829-1040. Amend a tax return We cannot answer tax questions sent to either of the above addresses. Amend a tax return Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 571 Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. Amend a tax return S. Amend a tax return Civil Service Retirement Benefits 915 Social Security and Equivalent Railroad Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Amend a tax return 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Amend a tax return Prev  Up  Next   Home   More Online Publications
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The Amend A Tax Return

Amend a tax return Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Amend a tax return More information. Amend a tax return Exception—Community Income. Amend a tax return Exception—Qualified joint venture. Amend a tax return More information. Amend a tax return More information. Amend a tax return Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Amend a tax return Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Amend a tax return Table 1 can help you learn what those responsibilities are. Amend a tax return Ask yourself each question listed in the table, then see the related discussion to find the answer. Amend a tax return In addition to knowing about federal taxes, you need to make some basic business decisions. Amend a tax return Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Amend a tax return For information on how to contact the SBA, see How to Get More Information, later. Amend a tax return Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Amend a tax return When beginning a business, you must decide which form of business to use. Amend a tax return Legal and tax considerations enter into this decision. Amend a tax return Only tax considerations are discussed in this publication. Amend a tax return Your form of business determines which income tax return form you have to file. Amend a tax return See Table 2 to find out which form you have to file. Amend a tax return Sole proprietorships. Amend a tax return   A sole proprietorship is an unincorporated business that is owned by one individual. Amend a tax return It is the simplest form of business organization to start and maintain. Amend a tax return The business has no existence apart from you, the owner. Amend a tax return Its liabilities are your personal liabilities. Amend a tax return You undertake the risks of the business for all assets owned, whether or not used in the business. Amend a tax return You include the income and expenses of the business on your personal tax return. Amend a tax return More information. Amend a tax return   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Amend a tax return If you are a farmer, see Publication 225, Farmer's Tax Guide. Amend a tax return Partnerships. Amend a tax return   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Amend a tax return Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Amend a tax return   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Amend a tax return , from its operations, but it does not pay income tax. Amend a tax return Instead, it “passes through” any profits or losses to its partners. Amend a tax return Each partner includes his or her share of the partnership's items on his or her tax return. Amend a tax return More information. Amend a tax return   For more information on partnerships, see Publication 541, Partnerships. Amend a tax return Husband and wife business. Amend a tax return   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Amend a tax return Do not use Schedule C or C-EZ. Amend a tax return Instead, file Form 1065, U. Amend a tax return S. Amend a tax return Return of Partnership Income. Amend a tax return For more information, see Publication 541, Partnerships. Amend a tax return Exception—Community Income. Amend a tax return   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Amend a tax return S. Amend a tax return possession, you can treat the business either as a sole proprietorship or a partnership. Amend a tax return The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Amend a tax return A change in your reporting position will be treated as a conversion of the entity. Amend a tax return Exception—Qualified joint venture. Amend a tax return   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Amend a tax return Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Amend a tax return For an explanation of "material participation," see the Instructions for Schedule C, line G. Amend a tax return   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Amend a tax return Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Amend a tax return For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Amend a tax return Corporations. Amend a tax return   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Amend a tax return A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Amend a tax return A corporation can also take special deductions. Amend a tax return   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Amend a tax return However, shareholders cannot deduct any loss of the corporation. Amend a tax return More information. Amend a tax return   For more information on corporations, see Publication 542, Corporations. Amend a tax return S corporations. Amend a tax return   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Amend a tax return Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Amend a tax return On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Amend a tax return More information. Amend a tax return   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Amend a tax return S. Amend a tax return Income Tax Return for an S Corporation. Amend a tax return Limited liability company. Amend a tax return   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Amend a tax return The members of an LLC are not personally liable for its debts. Amend a tax return An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Amend a tax return 7701-3. Amend a tax return For more information, see the instructions for Form 8832, Entity Classification Election. Amend a tax return Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Amend a tax return The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Amend a tax return An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Amend a tax return An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Amend a tax return You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Amend a tax return You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Amend a tax return This includes returns or documents filed to report the following information. Amend a tax return Interest, dividends, royalties, etc. Amend a tax return , paid to you. Amend a tax return Any amount paid to you as a dependent care provider. Amend a tax return Certain other amounts paid to you that total $600 or more for the year. Amend a tax return If you do not furnish your identification number as required, you may be subject to penalties. Amend a tax return See Penalties, later. Amend a tax return Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Amend a tax return If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Amend a tax return Applying for an EIN. Amend a tax return   You may apply for an EIN: Online—Click on the EIN link at www. Amend a tax return irs. Amend a tax return gov/businesses/small. Amend a tax return The EIN is issued immediately once the application information is validated. Amend a tax return By telephone at 1-800-829-4933. Amend a tax return By mailing or faxing Form SS-4, Application for Employer Identification Number. Amend a tax return When to apply. Amend a tax return   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Amend a tax return If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Amend a tax return If you apply by telephone or through the IRS website, you can get an EIN immediately. Amend a tax return If you apply by fax, you can get an EIN within 4 business days. Amend a tax return   If you do not receive your EIN by the time a return is due, file your return anyway. Amend a tax return Write “Applied for” and the date you applied for the number in the space for the EIN. Amend a tax return Do not use your social security number as a substitute for an EIN on your tax returns. Amend a tax return More than one EIN. Amend a tax return   You should have only one EIN. Amend a tax return If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Amend a tax return Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Amend a tax return The IRS will tell you which number to use. Amend a tax return More information. Amend a tax return   For more information about EINs, see Publication 1635, Understanding Your EIN. Amend a tax return Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Amend a tax return The forms used to report these payments must include the payee's identification number. Amend a tax return Employee. Amend a tax return   If you have employees, you must get an SSN from each of them. Amend a tax return Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Amend a tax return If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Amend a tax return This may occur, for example, if the employee's name has changed due to marriage or divorce. Amend a tax return   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Amend a tax return This form is available at SSA offices or by calling 1-800-772-1213. Amend a tax return It is also available from the SSA website at www. Amend a tax return ssa. Amend a tax return gov. Amend a tax return Other payee. Amend a tax return   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Amend a tax return If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Amend a tax return   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Amend a tax return This form is available from IRS offices or by calling 1-800-829-3676. Amend a tax return It is also available from the IRS website at IRS. Amend a tax return gov. Amend a tax return    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Amend a tax return For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Amend a tax return Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Amend a tax return A tax year is usually 12 consecutive months. Amend a tax return There are two kinds of tax years. Amend a tax return Calendar tax year. Amend a tax return A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Amend a tax return Fiscal tax year. Amend a tax return A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Amend a tax return 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. Amend a tax return If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Amend a tax return You must use a calendar tax year if: You keep no books. Amend a tax return You have no annual accounting period. Amend a tax return Your present tax year does not qualify as a fiscal year. Amend a tax return You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Amend a tax return For more information, see Publication 538, Accounting Periods and Methods. Amend a tax return First-time filer. Amend a tax return   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Amend a tax return You adopt a tax year by filing your first income tax return using that tax year. Amend a tax return You have not adopted a tax year if you merely did any of the following. Amend a tax return Filed an application for an extension of time to file an income tax return. Amend a tax return Filed an application for an employer identification number. Amend a tax return Paid estimated taxes for that tax year. Amend a tax return Changing your tax year. Amend a tax return   Once you have adopted your tax year, you may have to get IRS approval to change it. Amend a tax return To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Amend a tax return You may have to pay a fee. Amend a tax return For more information, see Publication 538. Amend a tax return Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Amend a tax return You choose an accounting method for your business when you file your first income tax return. Amend a tax return There are two basic accounting methods. Amend a tax return Cash method. Amend a tax return Under the cash method, you report income in the tax year you receive it. Amend a tax return You usually deduct or capitalize expenses in the tax year you pay them. Amend a tax return Accrual method. Amend a tax return Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Amend a tax return You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Amend a tax return For other methods, see Publication 538. Amend a tax return If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Amend a tax return Inventories include goods held for sale in the normal course of business. Amend a tax return They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Amend a tax return Inventories are explained in Publication 538. Amend a tax return Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Amend a tax return For more information, see Publication 538. Amend a tax return You must use the same accounting method to figure your taxable income and to keep your books. Amend a tax return Also, you must use an accounting method that clearly shows your income. Amend a tax return In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Amend a tax return An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Amend a tax return More than one business. Amend a tax return   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Amend a tax return You must keep a complete and separate set of books and records for each business. Amend a tax return Changing your method of accounting. Amend a tax return   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Amend a tax return A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Amend a tax return For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Amend a tax return Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Amend a tax return The following are the four general kinds of business taxes. Amend a tax return Income tax. Amend a tax return Self-employment tax. Amend a tax return Employment taxes. Amend a tax return Excise taxes. Amend a tax return See Table 2 for the forms you file to report these taxes. Amend a tax return You may want to get Publication 509. Amend a tax return It has tax calendars that tell you when to file returns and make tax payments. Amend a tax return Income Tax All businesses except partnerships must file an annual income tax return. Amend a tax return Partnerships file an information return. Amend a tax return Which form you use depends on how your business is organized. Amend a tax return See Table 2 to find out which return you have to file. Amend a tax return The federal income tax is a pay-as-you-go tax. Amend a tax return You must pay the tax as you earn or receive income during the year. Amend a tax return An employee usually has income tax withheld from his or her pay. Amend a tax return If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Amend a tax return If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Amend a tax return Table 2. Amend a tax return Which Forms Must I File? IF you are a. Amend a tax return . Amend a tax return . Amend a tax return   THEN you may be liable for. Amend a tax return . Amend a tax return . Amend a tax return   Use Form. Amend a tax return . Amend a tax return . Amend a tax return Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Amend a tax return 2 Various other schedules may be needed. Amend a tax return Estimated tax. Amend a tax return   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Amend a tax return Sole proprietors, partners, and S corporation shareholders. Amend a tax return   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Amend a tax return Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Amend a tax return For more information, see Publication 505, Tax Withholding and Estimated Tax. Amend a tax return Corporations. Amend a tax return   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Amend a tax return Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Amend a tax return You must deposit the payments as explained later under Depositing Taxes. Amend a tax return For more information, see Publication 542. Amend a tax return Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Amend a tax return Your payments of SE tax contribute to your coverage under the social security system. Amend a tax return Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Amend a tax return You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Amend a tax return Your net earnings from self-employment were $400 or more. Amend a tax return You had church employee income of $108. Amend a tax return 28 or more. Amend a tax return Use Schedule SE (Form 1040) to figure your SE tax. Amend a tax return For more information, see Publication 334, Tax Guide for Small Business. Amend a tax return You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Amend a tax return The Social Security Administration (SSA) time limit for posting self-employment income. Amend a tax return   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Amend a tax return If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Amend a tax return The SSA will not change its records to increase your self-employment income. Amend a tax return Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Amend a tax return Employment taxes include the following. Amend a tax return Social security and Medicare taxes. Amend a tax return Federal income tax withholding. Amend a tax return Federal unemployment (FUTA) tax. Amend a tax return If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Amend a tax return If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Amend a tax return These publications explain your tax responsibilities as an employer. Amend a tax return If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Amend a tax return That publication has information to help you determine whether an individual is an employee or an independent contractor. Amend a tax return If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Amend a tax return An independent contractor is someone who is self-employed. Amend a tax return Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Amend a tax return Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Amend a tax return To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Amend a tax return Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Amend a tax return Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Amend a tax return Medicare tax pays for benefits under the hospital insurance part of FICA. Amend a tax return You withhold part of these taxes from your employee's wages and you pay a part yourself. Amend a tax return To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Amend a tax return Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Amend a tax return (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Amend a tax return ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Amend a tax return You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Amend a tax return You pay FUTA tax only from your own funds. Amend a tax return Employees do not pay this tax or have it withheld from their pay. Amend a tax return Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Amend a tax return See Publication 15 to find out if you can use this form. Amend a tax return Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Amend a tax return Form I-9. Amend a tax return   You must verify that each new employee is legally eligible to work in the United States. Amend a tax return Both you and the employee must complete the U. Amend a tax return S. Amend a tax return Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Amend a tax return You can get the form from USCIS offices or from the USCIS website at www. Amend a tax return uscis. Amend a tax return gov. Amend a tax return Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Amend a tax return Form W-4. Amend a tax return   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Amend a tax return You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Amend a tax return For more information, see Publication 15. Amend a tax return Employees claiming more than 10 withholding allowances. Amend a tax return   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Amend a tax return See section 16 of Publication 15. Amend a tax return Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Amend a tax return You must also send copies to the Social Security Administration. Amend a tax return See Information Returns, later, for more information on Form W-2. Amend a tax return Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Amend a tax return Manufacture or sell certain products. Amend a tax return Operate certain kinds of businesses. Amend a tax return Use various kinds of equipment, facilities, or products. Amend a tax return Receive payment for certain services. Amend a tax return For more information on excise taxes, see Publication 510, Excise Taxes. Amend a tax return Form 720. Amend a tax return   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Amend a tax return Environmental taxes. Amend a tax return Communications and air transportation taxes. Amend a tax return Fuel taxes. Amend a tax return Tax on the first retail sale of heavy trucks, trailers, and tractors. Amend a tax return Manufacturers taxes on the sale or use of a variety of different articles. Amend a tax return Form 2290. Amend a tax return   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Amend a tax return The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Amend a tax return Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Amend a tax return For more information, see the instructions for Form 2290. Amend a tax return Form 730. Amend a tax return   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Amend a tax return Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Amend a tax return Form 11-C. Amend a tax return   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Amend a tax return Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Amend a tax return Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Amend a tax return Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Amend a tax return Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Amend a tax return Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Amend a tax return The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Amend a tax return You must give a copy of each information return you are required to file to the recipient or payer. Amend a tax return In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Amend a tax return For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Amend a tax return Form 1099-MISC. Amend a tax return   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Amend a tax return These payments include the following items. Amend a tax return Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Amend a tax return Rent payments of $600 or more, other than rents paid to real estate agents. Amend a tax return Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Amend a tax return Royalty payments of $10 or more. Amend a tax return Payments to certain crew members by operators of fishing boats. Amend a tax return You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Amend a tax return Form W-2. Amend a tax return   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Amend a tax return For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Amend a tax return Form 8300. Amend a tax return   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Amend a tax return Cash includes U. Amend a tax return S. Amend a tax return and foreign coin and currency. Amend a tax return It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Amend a tax return For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Amend a tax return Penalties The law provides penalties for not filing returns or paying taxes as required. Amend a tax return Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Amend a tax return Failure to file tax returns. Amend a tax return   If you do not file your tax return by the due date, you may have to pay a penalty. Amend a tax return The penalty is based on the tax not paid by the due date. Amend a tax return See your tax return instructions for more information about this penalty. Amend a tax return Failure to pay tax. Amend a tax return   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Amend a tax return For more information, see your tax return instructions. Amend a tax return Failure to withhold, deposit, or pay taxes. Amend a tax return   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Amend a tax return You may also be subject to penalties if you deposit the taxes late. Amend a tax return For more information, see Publication 15. Amend a tax return Failure to follow information reporting requirements. Amend a tax return   The following penalties apply if you are required to file information returns. Amend a tax return For more information, see the General Instructions for Certain Information Returns. Amend a tax return Failure to file information returns. Amend a tax return A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Amend a tax return Failure to furnish correct payee statements. Amend a tax return A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Amend a tax return Waiver of penalty. Amend a tax return   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Amend a tax return   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Amend a tax return (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Amend a tax return ) Failure to supply taxpayer identification number. Amend a tax return   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Amend a tax return You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Amend a tax return Business Expenses You can deduct business expenses on your income tax return. Amend a tax return These are the current operating costs of running your business. Amend a tax return To be deductible, a business expense must be both ordinary and necessary. Amend a tax return An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Amend a tax return A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Amend a tax return An expense does not have to be indispensable to be considered necessary. Amend a tax return The following are brief explanations of some expenses that are of interest to people starting a business. Amend a tax return There are many other expenses that you may be able to deduct. Amend a tax return See your form instructions and Publication 535, Business Expenses. Amend a tax return Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Amend a tax return Your business start-up costs will depend on the type of business you are starting. Amend a tax return They may include costs for advertising, travel, surveys, and training. Amend a tax return These costs are generally capital expenses. Amend a tax return You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Amend a tax return You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Amend a tax return The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amend a tax return Any remaining cost must be amortized. Amend a tax return For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Amend a tax return Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Amend a tax return You must spread the cost over more than one tax year and deduct part of it each year. Amend a tax return This method of deducting the cost of business property is called depreciation. Amend a tax return Business property you must depreciate includes the following items. Amend a tax return Office furniture. Amend a tax return Buildings. Amend a tax return Machinery and equipment. Amend a tax return You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Amend a tax return This deduction is known as the “section 179 deduction. Amend a tax return ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Amend a tax return Depreciation must be taken in the year it is allowable. Amend a tax return Allowable depreciation not taken in a prior year cannot be taken in the current year. Amend a tax return If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Amend a tax return S. Amend a tax return Individual Income Tax Return, or by changing your accounting method. Amend a tax return For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Amend a tax return Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Amend a tax return Even then, your deduction may be limited. Amend a tax return To qualify to claim expenses for business use of your home, you must meet both the following tests. Amend a tax return Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Amend a tax return Exclusive use. Amend a tax return   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Amend a tax return The area used for business can be a room or other separately identifiable space. Amend a tax return The space does not need to be marked off by a permanent partition. Amend a tax return   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Amend a tax return Exceptions to exclusive use. Amend a tax return   You do not have to meet the exclusive use test if either of the following applies. Amend a tax return You use part of your home for the storage of inventory or product samples. Amend a tax return You use part of your home as a daycare facility. Amend a tax return For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Amend a tax return Principal place of business. Amend a tax return   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Amend a tax return You use it exclusively and regularly for administrative or management activities of your trade or business. Amend a tax return You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amend a tax return   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Amend a tax return The relative importance of the activities performed at each location. Amend a tax return If the relative importance factor does not determine your principal place of business, the time spent at each location. Amend a tax return    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Amend a tax return However, for other ways to qualify to deduct home office expenses, see Publication 587. Amend a tax return Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Amend a tax return If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Amend a tax return More information. Amend a tax return   For more information about business use of your home, see Publication 587. Amend a tax return Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Amend a tax return You generally can deduct either your actual expenses or the standard mileage rate. Amend a tax return Actual expenses. Amend a tax return   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Amend a tax return You can divide your expenses based on the miles driven for each purpose. Amend a tax return Example. Amend a tax return You are the sole proprietor of a flower shop. Amend a tax return You drove your van 20,000 miles during the year. Amend a tax return 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Amend a tax return You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Amend a tax return Standard mileage rate. Amend a tax return   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Amend a tax return You can use the standard mileage rate for a vehicle you own or lease. Amend a tax return The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Amend a tax return It is announced annually by the IRS. Amend a tax return To figure your deduction, multiply your business miles by the standard mileage rate for the year. Amend a tax return    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Amend a tax return However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Amend a tax return Choosing the standard mileage rate. Amend a tax return   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Amend a tax return In later years, you can choose to use either the standard mileage rate or actual expenses. Amend a tax return   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Amend a tax return Additional information. Amend a tax return   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Amend a tax return Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Amend a tax return It also explains how long you must keep your records for federal tax purposes. Amend a tax return A sample recordkeeping system is illustrated at the end of this part. Amend a tax return Why Keep Records? Everyone in business must keep records. Amend a tax return Good records will help you do the following. Amend a tax return Monitor the progress of your business. Amend a tax return   You need good records to monitor the progress of your business. Amend a tax return Records can show whether your business is improving, which items are selling, or what changes you need to make. Amend a tax return Good records can increase the likelihood of business success. Amend a tax return Prepare your financial statements. Amend a tax return   You need good records to prepare accurate financial statements. Amend a tax return These include income (profit and loss) statements and balance sheets. Amend a tax return These statements can help you in dealing with your bank or creditors and help you manage your business. Amend a tax return An income statement shows the income and expenses of the business for a given period of time. Amend a tax return A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Amend a tax return Identify source of receipts. Amend a tax return   You will receive money or property from many sources. Amend a tax return Your records can identify the source of your receipts. Amend a tax return You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Amend a tax return Keep track of deductible expenses. Amend a tax return   You may forget expenses when you prepare your tax return unless you record them when they occur. Amend a tax return Prepare your tax returns. Amend a tax return   You need good records to prepare your tax returns. Amend a tax return These records must support the income, expenses, and credits you report. Amend a tax return Generally, these are the same records you use to monitor your business and prepare your financial statements. Amend a tax return Support items reported on tax returns. Amend a tax return   You must keep your business records available at all times for inspection by the IRS. Amend a tax return If the IRS examines any of your tax returns, you may be asked to explain the items reported. Amend a tax return A complete set of records will speed up the examination. Amend a tax return Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Amend a tax return You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Amend a tax return The business you are in affects the type of records you need to keep for federal tax purposes. Amend a tax return You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Amend a tax return See Accounting Method, earlier. Amend a tax return If you are in more than one business, you should keep a complete and separate set of records for each business. Amend a tax return A corporation should keep minutes of board of directors' meetings. Amend a tax return Your recordkeeping system should include a summary of your business transactions. Amend a tax return This summary is ordinarily made in your books (for example, accounting journals and ledgers). Amend a tax return Your books must show your gross income, as well as your deductions and credits. Amend a tax return For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Amend a tax return In addition, you must keep supporting documents, explained later. Amend a tax return Electronic records. Amend a tax return   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Amend a tax return When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Amend a tax return An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Amend a tax return The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Amend a tax return All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Amend a tax return Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Amend a tax return   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Amend a tax return You still have the responsibility of retaining any other books and records that are required to be retained. Amend a tax return   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Amend a tax return This test is not considered an examination and the results must be shared with you. Amend a tax return If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Amend a tax return If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Amend a tax return For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Amend a tax return Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Amend a tax return Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Amend a tax return These documents contain information you need to record in your books. Amend a tax return It is important to keep these documents because they support the entries in your books and on your tax return. Amend a tax return Keep them in an orderly fashion and in a safe place. Amend a tax return For instance, organize them by year and type of income or expense. Amend a tax return Gross receipts. Amend a tax return   Gross receipts are the income you receive from your business. Amend a tax return You should keep supporting documents that show the amounts and sources of your gross receipts. Amend a tax return Documents that show gross receipts include the following. Amend a tax return Cash register tapes. Amend a tax return Bank deposit slips. Amend a tax return Receipt books. Amend a tax return Invoices. Amend a tax return Credit card charge slips. Amend a tax return Forms 1099-MISC. Amend a tax return Purchases. Amend a tax return   Purchases are the items you buy and resell to customers. Amend a tax return If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Amend a tax return Your supporting documents should show the amount paid and that the amount was for purchases. Amend a tax return Documents for purchases include the following. Amend a tax return Canceled checks. Amend a tax return Cash register tape receipts. Amend a tax return Credit card sales slips. Amend a tax return Invoices. Amend a tax return These records will help you determine the value of your inventory at the end of the year. Amend a tax return See Publication 538 for information on methods for valuing inventory. Amend a tax return Expenses. Amend a tax return   Expenses are the costs you incur (other than purchases) to carry on your business. Amend a tax return Your supporting documents should show the amount paid and that the amount was for a business expense. Amend a tax return Documents for expenses include the following. Amend a tax return Canceled checks. Amend a tax return Cash register tapes. Amend a tax return Account statements. Amend a tax return Credit card sales slips. Amend a tax return Invoices. Amend a tax return Petty cash slips for small cash payments. Amend a tax return    A petty cash fund allows you to make small payments without having to write checks for small amounts. Amend a tax return Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Amend a tax return Travel, transportation, entertainment, and gift expenses. Amend a tax return   Specific recordkeeping rules apply to these expenses. Amend a tax return For more information, see Publication 463. Amend a tax return Employment taxes. Amend a tax return   There are specific employment tax records you must keep. Amend a tax return For a list, see Publication 15. Amend a tax return Assets. Amend a tax return   Assets are the property, such as machinery and furniture you own and use in your business. Amend a tax return You must keep records to verify certain information about your business assets. Amend a tax return You need records to figure the annual depreciation and the gain or loss when you sell the assets. Amend a tax return Your records should show the following information. Amend a tax return When and how you acquired the asset. Amend a tax return Purchase price. Amend a tax return Cost of any improvements. Amend a tax return Section 179 deduction taken. Amend a tax return Deductions taken for depreciation. Amend a tax return Deductions taken for casualty losses, such as losses resulting from fires or storms. Amend a tax return How you used the asset. Amend a tax return When and how you disposed of the asset. Amend a tax return Selling price. Amend a tax return Expenses of sale. Amend a tax return   The following documents may show this information. Amend a tax return Purchase and sales invoices. Amend a tax return Real estate closing statements. Amend a tax return Canceled checks. Amend a tax return What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Amend a tax return These include account statements prepared for the financial institution by a third party. Amend a tax return These account statements must be highly legible. Amend a tax return The following table lists acceptable account statements. Amend a tax return  IF payment is by. Amend a tax return . Amend a tax return . Amend a tax return THEN the statement must show the. Amend a tax return . Amend a tax return . Amend a tax return Check Check number. Amend a tax return Amount. Amend a tax return Payee's name. Amend a tax return Date the check amount was posted to the account by the financial institution. Amend a tax return Electronic funds transfer Amount transferred. Amend a tax return Payee's name. Amend a tax return Date the transfer was posted to the account by the financial institution. Amend a tax return Credit card Amount charged. Amend a tax return Payee's name. Amend a tax return Transaction date. Amend a tax return    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Amend a tax return You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Amend a tax return Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Amend a tax return (Your business transactions are shown on the supporting documents just discussed. Amend a tax return ) Business transactions are ordinarily summarized in books called journals and ledgers. Amend a tax return You can buy them at your local stationery or office supply store. Amend a tax return A journal is a book where you record each business transaction shown on your supporting documents. Amend a tax return You may have to keep separate journals for transactions that occur frequently. Amend a tax return A ledger is a book that contains the totals from all of your journals. Amend a tax return It is organized into different accounts. Amend a tax return Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Amend a tax return For example, a recordkeeping system for a small business might include the following items. Amend a tax return Business checkbook. Amend a tax return Daily summary of cash receipts. Amend a tax return Monthly summary of cash receipts. Amend a tax return Check disbursements journal. Amend a tax return Depreciation worksheet. Amend a tax return Employee compensation record. Amend a tax return The business checkbook is explained next. Amend a tax return The other items are illustrated later under Sample Record System. Amend a tax return The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Amend a tax return For example, record expenses when they occur, and identify the source of recorded receipts. Amend a tax return Generally, it is best to record transactions on a daily basis. Amend a tax return Business checkbook. Amend a tax return   One of the first things you should do when you start a business is open a business checking account. Amend a tax return You should keep your business account separate from your personal checking account. Amend a tax return   The business checkbook is your basic source of information for recording your business expenses. Amend a tax return You should deposit all daily receipts in your business checking account. Amend a tax return You should check your account for errors by reconciling it. Amend a tax return See Reconciling the checking account, later. Amend a tax return   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Amend a tax return You should also note on the deposit slip the source of the deposit and keep copies of all slips. Amend a tax return   You should make all payments by check to document business expenses. Amend a tax return Write checks payable to yourself only when making withdrawals from your business for personal use. Amend a tax return Avoid writing checks payable to cash. Amend a tax return If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Amend a tax return If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Amend a tax return    Use the business account for business purposes only. Amend a tax return Indicate the source of deposits and the type of expense in the checkbook. Amend a tax return Reconciling the checking account. Amend a tax return   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Amend a tax return The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Amend a tax return   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Amend a tax return    You should reconcile your checking account each month. Amend a tax return     Before you reconcile your monthly bank statement, check your own figures. Amend a tax return Begin with the balance shown in your checkbook at the end of the previous month. Amend a tax return To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Amend a tax return   After checking your figures, the result should agree with your checkbook balance at the end of the month. Amend a tax return If the result does not agree, you may have made an error in recording a check or deposit. Amend a tax return You can find the error by doing the following. Amend a tax return Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Amend a tax return If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Amend a tax return Adding the deposit amounts in your checkbook. Amend a tax return Compare that total with the monthly total in your cash receipt book, if you have one. Amend a tax return If the totals do not agree, check the individual amounts to find any errors. Amend a tax return   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Amend a tax return   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Amend a tax return Many banks print a reconciliation worksheet on the back of the statement. Amend a tax return   To reconcile your account, follow these steps. Amend a tax return Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Amend a tax return Note all differences in the dollar amounts. Amend a tax return Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Amend a tax return Note all differences in the dollar amounts. Amend a tax return Mark the check number in the checkbook as having cleared the bank. Amend a tax return After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Amend a tax return Prepare a bank reconciliation. Amend a tax return One is illustrated later under Sample Record System. Amend a tax return Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Amend a tax return At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Amend a tax return If you still have differences, check the previous steps to find the errors. Amend a tax return   Table 3. Amend a tax return Period of Limitations IF you. Amend a tax return . Amend a tax return . Amend a tax return   THEN the period is. Amend a tax return . Amend a tax return . Amend a tax return 1. Amend a tax return Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Amend a tax return Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Amend a tax return File a fraudulent return   Not limited 4. Amend a tax return Do not file a return   Not limited 5. Amend a tax return File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Amend a tax return File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Amend a tax return The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Amend a tax return You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Amend a tax return Single-entry. Amend a tax return   A single-entry system is based on the income statement (profit or loss statement). Amend a tax return It can be a simple and practical system if you are starting a small business. Amend a tax return The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Amend a tax return Double-entry. Amend a tax return   A double-entry bookkeeping system uses journals and ledgers. Amend a tax return Transactions are first entered in a journal and then posted to ledger accounts. Amend a tax return These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Amend a tax return You close income and expense accounts at the end of each tax year. Amend a tax return You keep asset, liability, and net worth accounts open on a permanent basis. Amend a tax return   In the double-entry system, each account has a left side for debits and a right side for credits. Amend a tax return It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Amend a tax return   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Amend a tax return If the amounts do not balance, you have made an error and you must find and correct it. Amend a tax return   An example of a journal entry exhibiting a payment of rent in October is shown next. Amend a tax return General Journal Date Description of Entry Debit  Credit Oct. Amend a tax return 5 Rent expense 780. Amend a tax return 00     Cash   780. Amend a tax return 00                 Computerized System There are computer software packages you can use for recordkeeping. Amend a tax return They can be purchased in many retail stores. Amend a tax return These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Amend a tax return If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Amend a tax return To meet this qualification, the machine-sensible records must reconcile with your books and return. Amend a tax return These records must provide enough detail to identify the underlying source documents. Amend a tax return You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Amend a tax return This documentation must be sufficiently detailed to show all of the following items. Amend a tax return Functions being performed as the data flows through the system. Amend a tax return Controls used to ensure accurate and reliable processing. Amend a tax return Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Amend a tax return Charts of accounts and detailed account descriptions. Amend a tax return See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Amend a tax return How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Amend a tax return Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Amend a tax return The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Amend a tax return Table 3 contains the periods of limitations that apply to income tax returns. Amend a tax return Unless otherwise stated, the years refer to the period after the return was filed. Amend a tax return Returns filed before the due date are treated as filed on the due date. Amend a tax return Keep copies of your filed tax returns. Amend a tax return They help in preparing future tax returns and making computations if you file an amended return. Amend a tax return Employment taxes. Amend a tax return   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Amend a tax return For more information about recordkeeping for employment taxes, see Publication 15. Amend a tax return Assets. Amend a tax return   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Amend a tax return You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Amend a tax return   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Amend a tax return You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Amend a tax return Records for nontax purposes. Amend a tax return   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Amend a tax return For example, your insurance company or creditors may require you to keep them longer than the IRS does. Amend a tax return Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Amend a tax return Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Amend a tax return These sample records should not be viewed as a recommendation of how to keep your records. Amend a tax return They are intended only to show how one business keeps its records. Amend a tax return 1. Amend a tax return Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Amend a tax return It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Amend a tax return Henry takes the cash sales entry from his cash register tape. Amend a tax return If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Amend a tax return He carries the total receipts shown in this summary for January 3 ($267. Amend a tax return 80), including cash sales ($263. Amend a tax return 60) and sales tax ($4. Amend a tax return 20), to the Monthly Summary of Cash Receipts. Amend a tax return Petty cash fund. Amend a tax return   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Amend a tax return Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Amend a tax return He sets up a fixed amount ($50) in his petty cash fund. Amend a tax return The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Amend a tax return When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Amend a tax return (See the Check Disbursements Journal entry for check number 92. Amend a tax return ) This restores the fund to its fixed amount of $50. Amend a tax return He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Amend a tax return 2. Amend a tax return Monthly Summary of Cash Receipts This shows the income activity for the month. Amend a tax return Henry carries the total monthly net sales shown in this summary for January ($4,865. Amend a tax return 05) to his Annual Summary. Amend a tax return To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Amend a tax return He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Amend a tax return He does not include the tax in his income. Amend a tax return 3. Amend a tax return Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Amend a tax return All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Amend a tax return Frequent expenses have their own headings across the sheet. Amend a tax return He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Amend a tax return Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Amend a tax return Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Amend a tax return If he did, he would record them in the journal, even though he could not deduct them as business expenses. Amend a tax return Henry carries the January total of expenses for materials ($1,083. Amend a tax return 50) to the Annual Summary. Amend a tax return Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Amend a tax return , in the appropriate columns of that summary. Amend a tax return 4. Amend a tax return Employee Compensation Record This record shows the following information. Amend a tax return The number of hours Henry's employee worked in a pay period. Amend a tax return The employee's total pay for the period. Amend a tax return The deductions Henry withheld in figuring the employee's net pay. Amend a tax return The monthly gross payroll. Amend a tax return Henry carries the January gross payroll ($520) to the Annual Summary. Amend a tax return 5. Amend a tax return Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Amend a tax return He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Amend a tax return He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Amend a tax return As in the journal, he keeps each major expense in a separate column. Amend a tax return Henry carries the cash receipts total shown in the annual summary ($47,440. Amend a tax return 9