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Amended 2009 Tax Return

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Amended 2009 Tax Return

Amended 2009 tax return 5. Amended 2009 tax 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. Amended 2009 tax return Short-term lease. Amended 2009 tax return Retail space. Amended 2009 tax return Qualified long-term real property. Amended 2009 tax 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. Amended 2009 tax return If there is a connection between any income you receive and your business, the income is business income. Amended 2009 tax 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. Amended 2009 tax return You can have business income even if you are not involved in the activity on a regular full-time basis. Amended 2009 tax return Income from work you do on the side in addition to your regular job can be business income. Amended 2009 tax return You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Amended 2009 tax 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. Amended 2009 tax return For information on selling business assets, see chapter 3. Amended 2009 tax return Nonemployee compensation. Amended 2009 tax return Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Amended 2009 tax return This includes amounts reported as nonemployee compensation in box 7 of the form. Amended 2009 tax return You can find more information in the instructions on the back of the Form 1099-MISC you received. Amended 2009 tax return Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Amended 2009 tax return In most cases, your business income will be in the form of cash, checks, and credit card charges. Amended 2009 tax return But business income can be in other forms, such as property or services. Amended 2009 tax return These and other types of income are explained next. Amended 2009 tax return If you are a U. Amended 2009 tax return S. Amended 2009 tax 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. Amended 2009 tax return S. Amended 2009 tax return law. Amended 2009 tax return If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Amended 2009 tax return For details, see Publication 54, Tax Guide for U. Amended 2009 tax return S. Amended 2009 tax return Citizens and Resident Aliens Abroad. Amended 2009 tax return Bartering for Property or Services Bartering is an exchange of property or services. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Example 1. Amended 2009 tax return You are a self-employed lawyer. Amended 2009 tax return You perform legal services for a client, a small corporation. Amended 2009 tax return In payment for your services, you receive shares of stock in the corporation. Amended 2009 tax return You must include the fair market value of the shares in income. Amended 2009 tax return Example 2. Amended 2009 tax return You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Amended 2009 tax return You must include the fair rental value of the apartment in your gross receipts. Amended 2009 tax return Your landlord must include the fair market value of the work of art in his or her rental income. Amended 2009 tax return Example 3. Amended 2009 tax return You are a self-employed accountant. Amended 2009 tax 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. Amended 2009 tax return Members get in touch with other members directly and bargain for the value of the services to be performed. Amended 2009 tax return In return for accounting services you provided for the house painter's business, the house painter painted your home. Amended 2009 tax return You must include in gross receipts the fair market value of the services you received from the house painter. Amended 2009 tax return The house painter must include the fair market value of your accounting services in his or her gross receipts. Amended 2009 tax return Example 4. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Amended 2009 tax return See Publication 15 (Circular E), Employer's Tax Guide. Amended 2009 tax return Example 5. Amended 2009 tax return You operate a plumbing business and use the cash method of accounting. Amended 2009 tax return You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Amended 2009 tax return Each member has access to a directory that lists the members of the club and the services available. Amended 2009 tax return Members contact each other directly and request services to be performed. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Information returns. Amended 2009 tax return   If you are involved in a bartering transaction, you may have to file either of the following forms. Amended 2009 tax return Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Amended 2009 tax return Form 1099-MISC, Miscellaneous Income. Amended 2009 tax return For information about these forms, see the General Instructions for Certain Information Returns. Amended 2009 tax 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. Amended 2009 tax return , who provides services (maid services, etc. Amended 2009 tax return ) for guests, report the rental income and expenses on Schedule C or C-EZ. Amended 2009 tax 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. Amended 2009 tax return For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Amended 2009 tax return Real estate dealer. Amended 2009 tax 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. Amended 2009 tax return Rent you receive from real estate held for sale to customers is subject to SE tax. Amended 2009 tax return However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Amended 2009 tax return Trailer park owner. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Hotels, boarding houses, and apartments. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return An example of a service that is not normally provided for the convenience of the occupants is maid service. Amended 2009 tax return However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Amended 2009 tax return Prepaid rent. Amended 2009 tax 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. Amended 2009 tax return This is true no matter what accounting method or period you use. Amended 2009 tax return Lease bonus. Amended 2009 tax return   A bonus you receive from a lessee for granting a lease is an addition to the rent. Amended 2009 tax return Include it in your gross receipts in the year received. Amended 2009 tax return Lease cancellation payments. Amended 2009 tax return   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Amended 2009 tax return Payments to third parties. Amended 2009 tax 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. Amended 2009 tax return A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Amended 2009 tax return Settlement payments. Amended 2009 tax 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. Amended 2009 tax return Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Amended 2009 tax return ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Amended 2009 tax return Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Amended 2009 tax return If you receive any of those payments, include them in your gross receipts as explained in that discussion. Amended 2009 tax return Interest and Dividend Income Interest and dividends may be considered business income. Amended 2009 tax return Interest. Amended 2009 tax return   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Amended 2009 tax return Interest received on loans is business income if you are in the business of lending money. Amended 2009 tax return Uncollectible loans. Amended 2009 tax 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. Amended 2009 tax return If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Amended 2009 tax return See Bad Debts in chapter 8. Amended 2009 tax return Unstated interest. Amended 2009 tax 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. Amended 2009 tax return See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Amended 2009 tax return Dividends. Amended 2009 tax return   Generally, dividends are business income to dealers in securities. Amended 2009 tax return For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Amended 2009 tax return If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Amended 2009 tax 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. Amended 2009 tax return To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Amended 2009 tax return Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Amended 2009 tax 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. Amended 2009 tax return Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Amended 2009 tax return If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Amended 2009 tax return Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Amended 2009 tax return Price reduced after purchase. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Deductible debt. Amended 2009 tax return   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Amended 2009 tax return Example. Amended 2009 tax return You get accounting services for your business on credit. Amended 2009 tax return Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Amended 2009 tax return Your accountant forgives part of the amount you owe for the accounting services. Amended 2009 tax return How you treat the canceled debt depends on your method of accounting. Amended 2009 tax 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. Amended 2009 tax return Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Amended 2009 tax return   For information on the cash and accrual methods of accounting, see chapter 2. Amended 2009 tax return Exclusions Do not include canceled debt in income in the following situations. Amended 2009 tax return However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Amended 2009 tax return For more information, see Form 982. Amended 2009 tax return The cancellation takes place in a bankruptcy case under title 11 of the U. Amended 2009 tax return S. Amended 2009 tax return Code (relating to bankruptcy). Amended 2009 tax return See Publication 908, Bankruptcy Tax Guide. Amended 2009 tax return The cancellation takes place when you are insolvent. Amended 2009 tax return You can exclude the canceled debt to the extent you are insolvent. Amended 2009 tax return See Publication 908. Amended 2009 tax return The canceled debt is a qualified farm debt owed to a qualified person. Amended 2009 tax return See chapter 3 in Publication 225, Farmer's Tax Guide. Amended 2009 tax return The canceled debt is a qualified real property business debt. Amended 2009 tax return This situation is explained later. Amended 2009 tax return The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Amended 2009 tax return See Form 982. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Debt. Amended 2009 tax return   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Amended 2009 tax return Qualified real property business debt. Amended 2009 tax return   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Amended 2009 tax return If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Amended 2009 tax return Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Amended 2009 tax return However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Amended 2009 tax return Cancellation of qualified real property business debt. Amended 2009 tax return   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Amended 2009 tax return It was incurred or assumed in connection with real property used in a trade or business. Amended 2009 tax return It was secured by such real property. Amended 2009 tax return It was incurred or assumed at either of the following times. Amended 2009 tax return Before January 1, 1993. Amended 2009 tax return After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Amended 2009 tax return It is debt to which you choose to apply these rules. Amended 2009 tax 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. Amended 2009 tax return   You cannot exclude more than either of the following amounts. Amended 2009 tax 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. Amended 2009 tax return The total adjusted bases of depreciable real property held by you immediately before the cancellation. Amended 2009 tax return These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Amended 2009 tax return Do not take into account depreciable real property acquired in contemplation of the cancellation. Amended 2009 tax return Election. Amended 2009 tax 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. Amended 2009 tax return You must file your return by the due date (including extensions). Amended 2009 tax 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). Amended 2009 tax return For more information, see When To File in the form instructions. Amended 2009 tax return Other Income The following discussion explains how to treat other types of business income you may receive. Amended 2009 tax return Restricted property. Amended 2009 tax return   Restricted property is property that has certain restrictions that affect its value. Amended 2009 tax 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. Amended 2009 tax return However, you can choose to be taxed in the year you receive the property. Amended 2009 tax return For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Amended 2009 tax return Gains and losses. Amended 2009 tax 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. Amended 2009 tax return Instead, you must report these gains and losses on other forms. Amended 2009 tax return For more information, see chapter 3. Amended 2009 tax return Promissory notes. Amended 2009 tax 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. Amended 2009 tax return In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Amended 2009 tax return Lost income payments. Amended 2009 tax 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. Amended 2009 tax return Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Amended 2009 tax return Damages. Amended 2009 tax 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. Amended 2009 tax return Patent infringement. Amended 2009 tax return Breach of contract or fiduciary duty. Amended 2009 tax return Antitrust injury. Amended 2009 tax return Economic injury. Amended 2009 tax return   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Amended 2009 tax return Your deduction is the smaller of the following amounts. Amended 2009 tax 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. Amended 2009 tax return Your loss from the injury that you have not yet deducted. Amended 2009 tax return Punitive damages. Amended 2009 tax return   You must also include punitive damages in income. Amended 2009 tax return Kickbacks. Amended 2009 tax return   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Amended 2009 tax 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. Amended 2009 tax return Recovery of items previously deducted. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Amended 2009 tax return Example. Amended 2009 tax 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. Amended 2009 tax return He also had 2 personal exemptions for a total of $7,800. Amended 2009 tax return He would not pay income tax even if he did not deduct the bad debt. Amended 2009 tax return Therefore, he will not report as income any part of the $300 he may recover in any future year. Amended 2009 tax return Exception for depreciation. Amended 2009 tax return   This rule does not apply to depreciation. Amended 2009 tax return You recover depreciation using the rules explained next. Amended 2009 tax return Recapture of depreciation. Amended 2009 tax return   In the following situations, you have to recapture the depreciation deduction. Amended 2009 tax return This means you include in income part or all of the depreciation you deducted in previous years. Amended 2009 tax return Listed property. Amended 2009 tax 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. Amended 2009 tax return You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Amended 2009 tax return Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Amended 2009 tax return For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Amended 2009 tax return That chapter explains how to determine whether property is used more than 50% in your business. Amended 2009 tax return Section 179 property. Amended 2009 tax 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. Amended 2009 tax return You do this by including in income on Schedule C part of the deduction you took. Amended 2009 tax return Use Part IV of Form 4797 to figure the amount to include on Schedule C. Amended 2009 tax return See chapter 2 in Publication 946 to find out when you recapture the deduction. Amended 2009 tax return Sale or exchange of depreciable property. Amended 2009 tax 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. Amended 2009 tax return You figure the income due to depreciation recapture in Part III of Form 4797. Amended 2009 tax return For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Amended 2009 tax return Items That Are Not Income In some cases the property or money you receive is not income. Amended 2009 tax return Appreciation. Amended 2009 tax return   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Amended 2009 tax return Consignments. Amended 2009 tax return   Consignments of merchandise to others to sell for you are not sales. Amended 2009 tax return The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Amended 2009 tax return Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Amended 2009 tax return Merchandise you have shipped out on consignment is included in your inventory until it is sold. Amended 2009 tax return   Do not include merchandise you receive on consignment in your inventory. Amended 2009 tax 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. Amended 2009 tax return Construction allowances. Amended 2009 tax 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. Amended 2009 tax return Under a short-term lease of retail space. Amended 2009 tax return For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Amended 2009 tax return Amount you can exclude. Amended 2009 tax return   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Amended 2009 tax return Short-term lease. Amended 2009 tax return   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Amended 2009 tax return The following rules apply in determining whether the lease is for 15 years or less. Amended 2009 tax return Take into account options to renew when figuring whether the lease is for 15 years or less. Amended 2009 tax return But do not take into account any option to renew at fair market value determined at the time of renewal. Amended 2009 tax 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. Amended 2009 tax return Retail space. Amended 2009 tax 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. Amended 2009 tax return Qualified long-term real property. Amended 2009 tax 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. Amended 2009 tax return Exchange of like-kind property. Amended 2009 tax 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. Amended 2009 tax return This means that the gain is not taxable and the loss is not deductible. Amended 2009 tax return A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Amended 2009 tax return For more information, see Form 8824. Amended 2009 tax return Leasehold improvements. Amended 2009 tax 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. Amended 2009 tax return However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Amended 2009 tax return Loans. Amended 2009 tax return   Money borrowed through a bona fide loan is not income. Amended 2009 tax return Sales tax. Amended 2009 tax 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. Amended 2009 tax 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). Amended 2009 tax return Direct seller. Amended 2009 tax return   You must report all income you receive as a direct seller on Schedule C or C-EZ. Amended 2009 tax return This includes any of the following. Amended 2009 tax return Income from sales—payments you receive from customers for products they buy from you. Amended 2009 tax return Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Amended 2009 tax return Prizes, awards, and gifts you receive from your selling business. Amended 2009 tax return You must report this income regardless of whether it is reported to you on an information return. Amended 2009 tax return   You are a direct seller if you meet all the following conditions. Amended 2009 tax return You are engaged in one of the following trades or businesses. Amended 2009 tax 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. Amended 2009 tax return Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Executor or administrator. Amended 2009 tax 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. Amended 2009 tax return A nonprofessional fiduciary (personal representative) and both of the following apply. Amended 2009 tax return The estate includes an active trade or business in which you actively participate. Amended 2009 tax return Your fees are related to the operation of that trade or business. Amended 2009 tax 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. Amended 2009 tax return    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Amended 2009 tax return Fishing crew member. Amended 2009 tax 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 . Amended 2009 tax return Insurance agent, former. Amended 2009 tax 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. Amended 2009 tax return You received payments after your agreement to perform services for the company ended. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax 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). Amended 2009 tax return Insurance agent, retired. Amended 2009 tax 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. Amended 2009 tax return Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Amended 2009 tax return   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Amended 2009 tax return Newspaper carrier or distributor. Amended 2009 tax return   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Amended 2009 tax 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). Amended 2009 tax 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. Amended 2009 tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Amended 2009 tax return   This rule applies whether or not you hire others to help you make deliveries. Amended 2009 tax return It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Amended 2009 tax return Newspaper or magazine vendor. Amended 2009 tax 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. Amended 2009 tax return You sell newspapers or magazines to ultimate consumers. Amended 2009 tax return You sell them at a fixed price. Amended 2009 tax return Your earnings are based on the difference between the sales price and your cost of goods sold. Amended 2009 tax return   This rule applies whether or not you are guaranteed a minimum amount of earnings. Amended 2009 tax return It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Amended 2009 tax return Notary public. Amended 2009 tax return   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Amended 2009 tax return These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Amended 2009 tax return Public official. Amended 2009 tax return   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Real estate agent or direct seller. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Amended 2009 tax return Securities dealer. Amended 2009 tax 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. Amended 2009 tax return For more information, see sections 1256 and 1402(i). Amended 2009 tax return Securities trader. Amended 2009 tax return   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Amended 2009 tax return As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Amended 2009 tax return However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Amended 2009 tax return For more information about securities traders, see Publication 550, Investment Income and Expenses. Amended 2009 tax return Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Amended 2009 tax return This section discusses some of the more common differences that may affect business transactions. Amended 2009 tax return Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Amended 2009 tax 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. Amended 2009 tax return Dealers in real estate are not allowed to use inventories. Amended 2009 tax return For more information on inventories, see chapter 2. Amended 2009 tax return Income paid to a third party. Amended 2009 tax return   All income you earn is taxable to you. Amended 2009 tax return You cannot avoid tax by having the income paid to a third party. Amended 2009 tax return Example. Amended 2009 tax return You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Amended 2009 tax return The amount paid to your son is gross income to you. Amended 2009 tax return Cash discounts. Amended 2009 tax return   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Amended 2009 tax return For income tax purposes, you can use either of the following two methods to account for cash discounts. Amended 2009 tax return Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Amended 2009 tax return Credit the cash discount to a discount income account. Amended 2009 tax return You must use the chosen method every year for all your purchase discounts. Amended 2009 tax return   If you use the second method, the credit balance in the account at the end of your tax year is business income. Amended 2009 tax return Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Amended 2009 tax 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. Amended 2009 tax return Trade discounts. Amended 2009 tax return   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Amended 2009 tax return Do not enter these discounts on your books of account. Amended 2009 tax return Instead, use only the net amount as the cost of the merchandise purchased. Amended 2009 tax return For more information, see Trade discounts in chapter 6. Amended 2009 tax return Payment placed in escrow. Amended 2009 tax 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. Amended 2009 tax 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. Amended 2009 tax return Sales returns and allowances. Amended 2009 tax 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. Amended 2009 tax return Advance payments. Amended 2009 tax return   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Amended 2009 tax return Insurance proceeds. Amended 2009 tax 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. Amended 2009 tax return You cannot deduct the reimbursed part of a casualty or theft loss. Amended 2009 tax return   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Amended 2009 tax return Prev  Up  Next   Home   More Online Publications
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Trusts

It is a common misconception that trusts, or trust funds as they are commonly called, are only useful for wealthy people. When set up properly, trusts can be appropriate for people with minor children or those who want to avoid having their estate go through probate upon death. These are basic facts about trusts – but, be sure to consult a licensed attorney experienced with estate planning and trust matters before making any final decisions about if one is right for you.

How Trusts Work

Creating a trust (or trust fund) establishes a legal entity that holds property or assets for the person who created it. The person who creates the trust can be called a grantor, donor, or settlor. When the grantor creates the trust he or she appoints a person or entity (like the trust department of a bank) to manage the trust. This person or entity is called a trustee. The grantor also chooses someone who will ultimately benefit from the trust, this person is the beneficiary. In some situations the grantor, trustee, and beneficiary are all the same person. In this case, the grantor should also appoint a successor trustee and beneficiary in case he or she dies or becomes incapacitated. A trust is a helpful estate planning tool because after death a trust doesn’t go through the probate process like a will does.

Reasons To Set Up A Trust

Some common reasons for setting up a trust include:

  • Providing for minor children or family members who are inexperienced or unable to handle financial matters
  • Providing for management of personal assets should one become unable to handle them oneself
  • Avoiding probate and immediately transferring assets to beneficiaries upon death
  • Reducing estate taxes and providing liquid assets to help pay for them
  • The terms of a will are public while the terms of a trust are not so privacy makes a trust an attractive option

Types of Trusts

Trusts can be living (inter vivos) or after-death (testamentary). A living trust is one that a grantor sets up while still alive and an after-death trust is usually established by a will after one’s death. Living trusts can be irrevocable (can’t be changed) or revocable (can be changed) although revocable trusts don’t receive the same tax shelter benefits as irrevocable ones do. The most popular type is the revocable living trust. If there’s a specific purpose in mind for the trust, dozens of different options exist. Some examples include charitable trusts, bypass trusts, spendthrift trusts, and life insurance trusts. New laws have even established a trust that will care for a pet after one’s death.

Setting Up A Trust

Once you’ve decided to set up a trust it is important to remember that a trust, by design, can be very flexible and a grantor has the right – and should take advantage of this right - within the law, to tailor it to meet the anticipated the needs of the beneficiary. Working with an experienced attorney that specializes in estate and trust issues and knows the specific state regulations can help get the maximum benefit from the trust.
Some things to consider when setting up the trust include:

  • The grantor has the right to specify exactly how the money in the trust is invested. The grantor and the trustee might have very different ideas about investment strategies, so make sure this gets clearly defined.
  • The grantor has the right to specify exactly how the assets should be divvied up down to details like including an annual cost of living adjustment for the beneficiary or paying for travel expenses for others to visit the beneficiary in the case of illness.
  • Always be sure to include a “trustee removal clause” – trusts that don’t have this clause take away the beneficiary’s right to fire the trustee if unsatisfied with the service being provided. Remember that the grantor can always add a provision that requires the beneficiary to select a new trustee from legitimate bank trust departments. Contact your state Department of Financial Institutions to get a list of licensed trust departments.
  • If the grantor wants to ensure that upon death any assets that remain outside of the trust are transferred to it, he or she should consider having a “pour-over” will to accomplish this.

Upon establishment of the trust the grantor must complete the process of setting up the trust by transferring his or her assets into the trust. Failure to do this properly makes the trust null and void. This means that upon the grantor’s death the state will decide who gets the assets and cares for minor children.

Protect Yourself From Trust Scams and Fraud

If someone approaches you to set up a trust be very cautious. Before signing any papers to create a living trust, will or other kind of trust make sure to explore all options and shop around for this service just as you would for any other. Also:

  • Avoid high-pressure sales tactics and high speed sales pitches.
  • Avoid salespeople who give the impression that AARP is backing or selling the product – AARP does not endorse living trust products.
  • Do your homework and get information about local probate laws from the Clerk or Register of Wills.
  • If someone tries to sell a living trust to you ask if they are an attorney. Some states restrict sales of living trusts by licensed attorneys.
  • If you buy a trust in your home or another location that is not the seller’s permanent place of business remember you are entitled to take advantage of the Cooling Off Rule and cancel the transaction within 3 business days.

The Amended 2009 Tax Return

Amended 2009 tax return Index A Additional Medicare Tax, Reminders, Reporting sick pay on Form W-2. Amended 2009 tax return Agents, reporting, Agents Agricultural workers, H-2A agricultural workers. Amended 2009 tax return Alternative methods of withholding, 9. Amended 2009 tax return Alternative Methods for Figuring Withholding Annuity payments, 8. Amended 2009 tax return Pensions and Annuities Assistance (see Tax help) Awards, employee achievement, Employee Achievement Awards B Back pay, Back Pay Below-market rate loans, Interest-Free and Below-Market-Interest-Rate Loans C Comments on publication, Comments and suggestions. Amended 2009 tax return Common paymaster, Common Paymaster Common-law employees, Common-Law Employees Common-law rules, Common-Law Rules Corporate officers, Common-Law Employees D Deferred compensation plans, nonqualified, Nonqualified Deferred Compensation Plans Direct sellers, Direct sellers. Amended 2009 tax return Director of corporation, Common-Law Employees E Electronic Form W-2, Reminders Employee achievement awards, Employee Achievement Awards Employee or contractor Attorney, Attorney Automobile industry, Automobile Industry Building industry, Building and Construction Industry Computer industry, Computer Industry Salesperson, Salesperson Taxicab driver, Taxicab Driver Trucking industry, Trucking Industry Employee's taxes paid by employer, Employee's Portion of Taxes Paid by Employer Employees Common-law rules, Common-Law Rules Industry examples, Industry Examples Statutory, Statutory Employees Employees defined, 1. Amended 2009 tax return Who Are Employees? Employees misclassification, Misclassification of Employees Excessive termination payments (golden parachute), Golden Parachute Payments Exempt organizations, 3. Amended 2009 tax return Employees of Exempt Organizations F Fellowship payments, Scholarship and Fellowship Payments Form W-2, electronic filing, Reminders G Golden parachute, Golden Parachute Payments I Idle time, Withholding for Idle Time Independent contractors, Independent Contractors Indian gaming profits, 10. Amended 2009 tax return Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members Interest-free loans, Interest-Free and Below-Market-Interest-Rate Loans International social security agreements, International Social Security Agreements L Leased employees, Leased employees. Amended 2009 tax return Leave sharing plans, Leave Sharing Plans Loans, interest-free or below-market rate, Interest-Free and Below-Market-Interest-Rate Loans M Ministers, Ministers. Amended 2009 tax return Misclassification of employees, Misclassification of Employees N Nonqualified plans, Nonqualified Deferred Compensation Plans O Officer of corporation, Common-Law Employees Outplacement services, Outplacement Services P Pension payments, 8. Amended 2009 tax return Pensions and Annuities Publications (see Tax help) R Real estate agents, Licensed real estate agents. Amended 2009 tax return Religious exemptions, 4. Amended 2009 tax return Religious Exemptions and Special Rules for Ministers Reporting agents, Agents S Scholarship payments, Scholarship and Fellowship Payments Sick pay, 6. Amended 2009 tax return Sick Pay Reporting SIMPLE retirement plans, SIMPLE Retirement Plans Simplified employee pension, Contributions to a Simplified Employee Pension (SEP) Statutory employees, Statutory Employees Statutory nonemployees, Statutory Nonemployees Suggestions for publication, Comments and suggestions. Amended 2009 tax return Supplemental unemployment benefits, Supplemental Unemployment Benefits T Tax help, How To Get Tax Help Tax-exempt organizations, 3. Amended 2009 tax return Employees of Exempt Organizations Tax-sheltered annuities, Tax-Sheltered Annuities Technical service specialists, Technical service specialists. Amended 2009 tax return Third-party sick pay, Sick Pay Paid by Third Party , Third-party sick pay recap Forms W-2 and W-3. Amended 2009 tax return TTY/TDD information, How To Get Tax Help W Withholding Alternative methods, 9. Amended 2009 tax return Alternative Methods for Figuring Withholding Idle time payments, Withholding for Idle Time Indian gaming profits, 10. Amended 2009 tax return Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members Pensions and annuities, Federal Income Tax Withholding Sick pay, Income Tax Withholding on Sick Pay Prev  Up     Home   More Online Publications