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Amend Irs Return

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Amend Irs Return

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Page Last Reviewed or Updated: 14-Mar-2014

The Amend Irs Return

Amend irs return 5. Amend irs return   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Amend irs return Short-term lease. Amend irs return Retail space. Amend irs return Qualified long-term real property. Amend irs return Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Amend irs return If there is a connection between any income you receive and your business, the income is business income. Amend irs return A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Amend irs return You can have business income even if you are not involved in the activity on a regular full-time basis. Amend irs return Income from work you do on the side in addition to your regular job can be business income. Amend irs return You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Amend irs return But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Amend irs return For information on selling business assets, see chapter 3. Amend irs return Nonemployee compensation. Amend irs return Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Amend irs return This includes amounts reported as nonemployee compensation in box 7 of the form. Amend irs return You can find more information in the instructions on the back of the Form 1099-MISC you received. Amend irs return Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Amend irs return In most cases, your business income will be in the form of cash, checks, and credit card charges. Amend irs return But business income can be in other forms, such as property or services. Amend irs return These and other types of income are explained next. Amend irs return If you are a U. Amend irs return S. Amend irs return citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Amend irs return S. Amend irs return law. Amend irs return If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Amend irs return For details, see Publication 54, Tax Guide for U. Amend irs return S. Amend irs return Citizens and Resident Aliens Abroad. Amend irs return Bartering for Property or Services Bartering is an exchange of property or services. Amend irs return You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Amend irs return If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Amend irs return Example 1. Amend irs return You are a self-employed lawyer. Amend irs return You perform legal services for a client, a small corporation. Amend irs return In payment for your services, you receive shares of stock in the corporation. Amend irs return You must include the fair market value of the shares in income. Amend irs return Example 2. Amend irs return You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Amend irs return You must include the fair rental value of the apartment in your gross receipts. Amend irs return Your landlord must include the fair market value of the work of art in his or her rental income. Amend irs return Example 3. Amend irs return You are a self-employed accountant. Amend irs return Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Amend irs return Members get in touch with other members directly and bargain for the value of the services to be performed. Amend irs return In return for accounting services you provided for the house painter's business, the house painter painted your home. Amend irs return You must include in gross receipts the fair market value of the services you received from the house painter. Amend irs return The house painter must include the fair market value of your accounting services in his or her gross receipts. Amend irs return Example 4. Amend irs return You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Amend irs return As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Amend irs return You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Amend irs return The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Amend irs return It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Amend irs return See Publication 15 (Circular E), Employer's Tax Guide. Amend irs return Example 5. Amend irs return You operate a plumbing business and use the cash method of accounting. Amend irs return You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Amend irs return Each member has access to a directory that lists the members of the club and the services available. Amend irs return Members contact each other directly and request services to be performed. Amend irs return You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Amend irs return You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Amend irs return Information returns. Amend irs return   If you are involved in a bartering transaction, you may have to file either of the following forms. Amend irs return Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Amend irs return Form 1099-MISC, Miscellaneous Income. Amend irs return For information about these forms, see the General Instructions for Certain Information Returns. Amend irs return Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Amend irs return , who provides services (maid services, etc. Amend irs return ) for guests, report the rental income and expenses on Schedule C or C-EZ. Amend irs return If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Amend irs return For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Amend irs return Real estate dealer. Amend irs return   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Amend irs return Rent you receive from real estate held for sale to customers is subject to SE tax. Amend irs return However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Amend irs return Trailer park owner. Amend irs return   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Amend irs return    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Amend irs return Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Amend irs return   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Amend irs return   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Amend irs return Hotels, boarding houses, and apartments. Amend irs return   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Amend irs return   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Amend irs return An example of a service that is not normally provided for the convenience of the occupants is maid service. Amend irs return However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Amend irs return Prepaid rent. Amend irs return   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Amend irs return This is true no matter what accounting method or period you use. Amend irs return Lease bonus. Amend irs return   A bonus you receive from a lessee for granting a lease is an addition to the rent. Amend irs return Include it in your gross receipts in the year received. Amend irs return Lease cancellation payments. Amend irs return   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Amend irs return Payments to third parties. Amend irs return   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Amend irs return A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Amend irs return Settlement payments. Amend irs return   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Amend irs return Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Amend irs return ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Amend irs return Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Amend irs return If you receive any of those payments, include them in your gross receipts as explained in that discussion. Amend irs return Interest and Dividend Income Interest and dividends may be considered business income. Amend irs return Interest. Amend irs return   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Amend irs return Interest received on loans is business income if you are in the business of lending money. Amend irs return Uncollectible loans. Amend irs return   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Amend irs return If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Amend irs return See Bad Debts in chapter 8. Amend irs return Unstated interest. Amend irs return   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Amend irs return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Amend irs return Dividends. Amend irs return   Generally, dividends are business income to dealers in securities. Amend irs return For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Amend irs return If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Amend irs return   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Amend irs return To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Amend irs return Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Amend irs return General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Amend irs return Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Amend irs return If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Amend irs return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Amend irs return Price reduced after purchase. Amend irs return   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Amend irs return Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Amend irs return Deductible debt. Amend irs return   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Amend irs return Example. Amend irs return You get accounting services for your business on credit. Amend irs return Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Amend irs return Your accountant forgives part of the amount you owe for the accounting services. Amend irs return How you treat the canceled debt depends on your method of accounting. Amend irs return Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Amend irs return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Amend irs return   For information on the cash and accrual methods of accounting, see chapter 2. Amend irs return Exclusions Do not include canceled debt in income in the following situations. Amend irs return However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Amend irs return For more information, see Form 982. Amend irs return The cancellation takes place in a bankruptcy case under title 11 of the U. Amend irs return S. Amend irs return Code (relating to bankruptcy). Amend irs return See Publication 908, Bankruptcy Tax Guide. Amend irs return The cancellation takes place when you are insolvent. Amend irs return You can exclude the canceled debt to the extent you are insolvent. Amend irs return See Publication 908. Amend irs return The canceled debt is a qualified farm debt owed to a qualified person. Amend irs return See chapter 3 in Publication 225, Farmer's Tax Guide. Amend irs return The canceled debt is a qualified real property business debt. Amend irs return This situation is explained later. Amend irs return The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Amend irs return See Form 982. Amend irs return If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Amend irs return If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Amend irs return Debt. Amend irs return   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Amend irs return Qualified real property business debt. Amend irs return   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Amend irs return If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Amend irs return Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Amend irs return However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Amend irs return Cancellation of qualified real property business debt. Amend irs return   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Amend irs return It was incurred or assumed in connection with real property used in a trade or business. Amend irs return It was secured by such real property. Amend irs return It was incurred or assumed at either of the following times. Amend irs return Before January 1, 1993. Amend irs return After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Amend irs return It is debt to which you choose to apply these rules. Amend irs return   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Amend irs return   You cannot exclude more than either of the following amounts. Amend irs return The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Amend irs return The total adjusted bases of depreciable real property held by you immediately before the cancellation. Amend irs return These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Amend irs return Do not take into account depreciable real property acquired in contemplation of the cancellation. Amend irs return Election. Amend irs return   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Amend irs return You must file your return by the due date (including extensions). Amend irs return If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Amend irs return For more information, see When To File in the form instructions. Amend irs return Other Income The following discussion explains how to treat other types of business income you may receive. Amend irs return Restricted property. Amend irs return   Restricted property is property that has certain restrictions that affect its value. Amend irs return If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Amend irs return However, you can choose to be taxed in the year you receive the property. Amend irs return For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Amend irs return Gains and losses. Amend irs return   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Amend irs return Instead, you must report these gains and losses on other forms. Amend irs return For more information, see chapter 3. Amend irs return Promissory notes. Amend irs return   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Amend irs return In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Amend irs return Lost income payments. Amend irs return   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Amend irs return Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Amend irs return Damages. Amend irs return   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Amend irs return Patent infringement. Amend irs return Breach of contract or fiduciary duty. Amend irs return Antitrust injury. Amend irs return Economic injury. Amend irs return   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Amend irs return Your deduction is the smaller of the following amounts. Amend irs return The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Amend irs return Your loss from the injury that you have not yet deducted. Amend irs return Punitive damages. Amend irs return   You must also include punitive damages in income. Amend irs return Kickbacks. Amend irs return   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Amend irs return However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Amend irs return Recovery of items previously deducted. Amend irs return   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Amend irs return However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Amend irs return If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Amend irs return Example. Amend irs return Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Amend irs return He also had 2 personal exemptions for a total of $7,800. Amend irs return He would not pay income tax even if he did not deduct the bad debt. Amend irs return Therefore, he will not report as income any part of the $300 he may recover in any future year. Amend irs return Exception for depreciation. Amend irs return   This rule does not apply to depreciation. Amend irs return You recover depreciation using the rules explained next. Amend irs return Recapture of depreciation. Amend irs return   In the following situations, you have to recapture the depreciation deduction. Amend irs return This means you include in income part or all of the depreciation you deducted in previous years. Amend irs return Listed property. Amend irs return   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Amend irs return You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Amend irs return Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Amend irs return For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Amend irs return That chapter explains how to determine whether property is used more than 50% in your business. Amend irs return Section 179 property. Amend irs return   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Amend irs return You do this by including in income on Schedule C part of the deduction you took. Amend irs return Use Part IV of Form 4797 to figure the amount to include on Schedule C. Amend irs return See chapter 2 in Publication 946 to find out when you recapture the deduction. Amend irs return Sale or exchange of depreciable property. Amend irs return   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Amend irs return You figure the income due to depreciation recapture in Part III of Form 4797. Amend irs return For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Amend irs return Items That Are Not Income In some cases the property or money you receive is not income. Amend irs return Appreciation. Amend irs return   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Amend irs return Consignments. Amend irs return   Consignments of merchandise to others to sell for you are not sales. Amend irs return The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Amend irs return Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Amend irs return Merchandise you have shipped out on consignment is included in your inventory until it is sold. Amend irs return   Do not include merchandise you receive on consignment in your inventory. Amend irs return Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Amend irs return Construction allowances. Amend irs return   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Amend irs return Under a short-term lease of retail space. Amend irs return For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Amend irs return Amount you can exclude. Amend irs return   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Amend irs return Short-term lease. Amend irs return   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Amend irs return The following rules apply in determining whether the lease is for 15 years or less. Amend irs return Take into account options to renew when figuring whether the lease is for 15 years or less. Amend irs return But do not take into account any option to renew at fair market value determined at the time of renewal. Amend irs return Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Amend irs return Retail space. Amend irs return   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Amend irs return Qualified long-term real property. Amend irs return   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Amend irs return Exchange of like-kind property. Amend irs return   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Amend irs return This means that the gain is not taxable and the loss is not deductible. Amend irs return A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Amend irs return For more information, see Form 8824. Amend irs return Leasehold improvements. Amend irs return   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Amend irs return However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Amend irs return Loans. Amend irs return   Money borrowed through a bona fide loan is not income. Amend irs return Sales tax. Amend irs return   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Amend irs return Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Amend irs return Direct seller. Amend irs return   You must report all income you receive as a direct seller on Schedule C or C-EZ. Amend irs return This includes any of the following. Amend irs return Income from sales—payments you receive from customers for products they buy from you. Amend irs return Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Amend irs return Prizes, awards, and gifts you receive from your selling business. Amend irs return You must report this income regardless of whether it is reported to you on an information return. Amend irs return   You are a direct seller if you meet all the following conditions. Amend irs return You are engaged in one of the following trades or businesses. Amend irs return Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Amend irs return Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Amend irs return Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Amend irs return Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Amend irs return Executor or administrator. Amend irs return   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Amend irs return A nonprofessional fiduciary (personal representative) and both of the following apply. Amend irs return The estate includes an active trade or business in which you actively participate. Amend irs return Your fees are related to the operation of that trade or business. Amend irs return A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Amend irs return    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Amend irs return Fishing crew member. Amend irs return    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Amend irs return Insurance agent, former. Amend irs return   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Amend irs return You received payments after your agreement to perform services for the company ended. Amend irs return You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Amend irs return You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Amend irs return The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Amend irs return The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Amend irs return Insurance agent, retired. Amend irs return   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Amend irs return Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Amend irs return   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Amend irs return Newspaper carrier or distributor. Amend irs return   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Amend irs return You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Amend irs return Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Amend irs return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Amend irs return   This rule applies whether or not you hire others to help you make deliveries. Amend irs return It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Amend irs return Newspaper or magazine vendor. Amend irs return   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Amend irs return You sell newspapers or magazines to ultimate consumers. Amend irs return You sell them at a fixed price. Amend irs return Your earnings are based on the difference between the sales price and your cost of goods sold. Amend irs return   This rule applies whether or not you are guaranteed a minimum amount of earnings. Amend irs return It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Amend irs return Notary public. Amend irs return   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Amend irs return These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Amend irs return Public official. Amend irs return   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Amend irs return This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Amend irs return Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Amend irs return   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Amend irs return Real estate agent or direct seller. Amend irs return   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Amend irs return Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Amend irs return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Amend irs return Securities dealer. Amend irs return   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Amend irs return For more information, see sections 1256 and 1402(i). Amend irs return Securities trader. Amend irs return   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Amend irs return As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Amend irs return However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Amend irs return For more information about securities traders, see Publication 550, Investment Income and Expenses. Amend irs return Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Amend irs return This section discusses some of the more common differences that may affect business transactions. Amend irs return Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Amend irs return If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Amend irs return Dealers in real estate are not allowed to use inventories. Amend irs return For more information on inventories, see chapter 2. Amend irs return Income paid to a third party. Amend irs return   All income you earn is taxable to you. Amend irs return You cannot avoid tax by having the income paid to a third party. Amend irs return Example. Amend irs return You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Amend irs return The amount paid to your son is gross income to you. Amend irs return Cash discounts. Amend irs return   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Amend irs return For income tax purposes, you can use either of the following two methods to account for cash discounts. Amend irs return Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Amend irs return Credit the cash discount to a discount income account. Amend irs return You must use the chosen method every year for all your purchase discounts. Amend irs return   If you use the second method, the credit balance in the account at the end of your tax year is business income. Amend irs return Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Amend irs return When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Amend irs return Trade discounts. Amend irs return   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Amend irs return Do not enter these discounts on your books of account. Amend irs return Instead, use only the net amount as the cost of the merchandise purchased. Amend irs return For more information, see Trade discounts in chapter 6. Amend irs return Payment placed in escrow. Amend irs return   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Amend irs return However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Amend irs return Sales returns and allowances. Amend irs return   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Amend irs return Advance payments. Amend irs return   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Amend irs return Insurance proceeds. Amend irs return   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Amend irs return You cannot deduct the reimbursed part of a casualty or theft loss. Amend irs return   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Amend irs return Prev  Up  Next   Home   More Online Publications