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File 1040nr Online

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File 1040nr Online

File 1040nr online Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. File 1040nr online More information. File 1040nr online Exception—Community Income. File 1040nr online Exception—Qualified joint venture. File 1040nr online More information. File 1040nr online More information. File 1040nr online Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. File 1040nr online Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. File 1040nr online Table 1 can help you learn what those responsibilities are. File 1040nr online Ask yourself each question listed in the table, then see the related discussion to find the answer. File 1040nr online In addition to knowing about federal taxes, you need to make some basic business decisions. File 1040nr online Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. File 1040nr online For information on how to contact the SBA, see How to Get More Information, later. File 1040nr online Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. File 1040nr online When beginning a business, you must decide which form of business to use. File 1040nr online Legal and tax considerations enter into this decision. File 1040nr online Only tax considerations are discussed in this publication. File 1040nr online Your form of business determines which income tax return form you have to file. File 1040nr online See Table 2 to find out which form you have to file. File 1040nr online Sole proprietorships. File 1040nr online   A sole proprietorship is an unincorporated business that is owned by one individual. File 1040nr online It is the simplest form of business organization to start and maintain. File 1040nr online The business has no existence apart from you, the owner. File 1040nr online Its liabilities are your personal liabilities. File 1040nr online You undertake the risks of the business for all assets owned, whether or not used in the business. File 1040nr online You include the income and expenses of the business on your personal tax return. File 1040nr online More information. File 1040nr online   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. File 1040nr online If you are a farmer, see Publication 225, Farmer's Tax Guide. File 1040nr online Partnerships. File 1040nr online   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. File 1040nr online Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. File 1040nr online   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. File 1040nr online , from its operations, but it does not pay income tax. File 1040nr online Instead, it “passes through” any profits or losses to its partners. File 1040nr online Each partner includes his or her share of the partnership's items on his or her tax return. File 1040nr online More information. File 1040nr online   For more information on partnerships, see Publication 541, Partnerships. File 1040nr online Husband and wife business. File 1040nr online   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. File 1040nr online Do not use Schedule C or C-EZ. File 1040nr online Instead, file Form 1065, U. File 1040nr online S. File 1040nr online Return of Partnership Income. File 1040nr online For more information, see Publication 541, Partnerships. File 1040nr online Exception—Community Income. File 1040nr online   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. File 1040nr online S. File 1040nr online possession, you can treat the business either as a sole proprietorship or a partnership. File 1040nr online The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File 1040nr online A change in your reporting position will be treated as a conversion of the entity. File 1040nr online Exception—Qualified joint venture. File 1040nr online   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. File 1040nr online Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. File 1040nr online For an explanation of "material participation," see the Instructions for Schedule C, line G. File 1040nr online   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. File 1040nr online Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. File 1040nr online For more information, see Qualified Joint Venture in the Instructions for Schedule SE. File 1040nr online Corporations. File 1040nr online   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. File 1040nr online A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. File 1040nr online A corporation can also take special deductions. File 1040nr online   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. File 1040nr online However, shareholders cannot deduct any loss of the corporation. File 1040nr online More information. File 1040nr online   For more information on corporations, see Publication 542, Corporations. File 1040nr online S corporations. File 1040nr online   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. File 1040nr online Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. File 1040nr online On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. File 1040nr online More information. File 1040nr online   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. File 1040nr online S. File 1040nr online Income Tax Return for an S Corporation. File 1040nr online Limited liability company. File 1040nr online   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. File 1040nr online The members of an LLC are not personally liable for its debts. File 1040nr online An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. File 1040nr online 7701-3. File 1040nr online For more information, see the instructions for Form 8832, Entity Classification Election. File 1040nr online Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. File 1040nr online The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). File 1040nr online An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. File 1040nr online An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. File 1040nr online You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. File 1040nr online You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. File 1040nr online This includes returns or documents filed to report the following information. File 1040nr online Interest, dividends, royalties, etc. File 1040nr online , paid to you. File 1040nr online Any amount paid to you as a dependent care provider. File 1040nr online Certain other amounts paid to you that total $600 or more for the year. File 1040nr online If you do not furnish your identification number as required, you may be subject to penalties. File 1040nr online See Penalties, later. File 1040nr online Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. File 1040nr online If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. File 1040nr online Applying for an EIN. File 1040nr online   You may apply for an EIN: Online—Click on the EIN link at www. File 1040nr online irs. File 1040nr online gov/businesses/small. File 1040nr online The EIN is issued immediately once the application information is validated. File 1040nr online By telephone at 1-800-829-4933. File 1040nr online By mailing or faxing Form SS-4, Application for Employer Identification Number. File 1040nr online When to apply. File 1040nr online   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. File 1040nr online If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. File 1040nr online If you apply by telephone or through the IRS website, you can get an EIN immediately. File 1040nr online If you apply by fax, you can get an EIN within 4 business days. File 1040nr online   If you do not receive your EIN by the time a return is due, file your return anyway. File 1040nr online Write “Applied for” and the date you applied for the number in the space for the EIN. File 1040nr online Do not use your social security number as a substitute for an EIN on your tax returns. File 1040nr online More than one EIN. File 1040nr online   You should have only one EIN. File 1040nr online If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. File 1040nr online Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. File 1040nr online The IRS will tell you which number to use. File 1040nr online More information. File 1040nr online   For more information about EINs, see Publication 1635, Understanding Your EIN. File 1040nr online Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). File 1040nr online The forms used to report these payments must include the payee's identification number. File 1040nr online Employee. File 1040nr online   If you have employees, you must get an SSN from each of them. File 1040nr online Record the name and SSN of each employee exactly as they are shown on the employee's social security card. File 1040nr online If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. File 1040nr online This may occur, for example, if the employee's name has changed due to marriage or divorce. File 1040nr online   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. File 1040nr online This form is available at SSA offices or by calling 1-800-772-1213. File 1040nr online It is also available from the SSA website at www. File 1040nr online ssa. File 1040nr online gov. File 1040nr online Other payee. File 1040nr online   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. File 1040nr online If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. File 1040nr online   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. File 1040nr online This form is available from IRS offices or by calling 1-800-829-3676. File 1040nr online It is also available from the IRS website at IRS. File 1040nr online gov. File 1040nr online    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. File 1040nr online For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. File 1040nr online Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. File 1040nr online A tax year is usually 12 consecutive months. File 1040nr online There are two kinds of tax years. File 1040nr online Calendar tax year. File 1040nr online A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. File 1040nr online Fiscal tax year. File 1040nr online A fiscal tax year is 12 consecutive months ending on the last day of any month except December. File 1040nr online A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. File 1040nr online If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. File 1040nr online You must use a calendar tax year if: You keep no books. File 1040nr online You have no annual accounting period. File 1040nr online Your present tax year does not qualify as a fiscal year. File 1040nr online You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. File 1040nr online For more information, see Publication 538, Accounting Periods and Methods. File 1040nr online First-time filer. File 1040nr online   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. File 1040nr online You adopt a tax year by filing your first income tax return using that tax year. File 1040nr online You have not adopted a tax year if you merely did any of the following. File 1040nr online Filed an application for an extension of time to file an income tax return. File 1040nr online Filed an application for an employer identification number. File 1040nr online Paid estimated taxes for that tax year. File 1040nr online Changing your tax year. File 1040nr online   Once you have adopted your tax year, you may have to get IRS approval to change it. File 1040nr online To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. File 1040nr online You may have to pay a fee. File 1040nr online For more information, see Publication 538. File 1040nr online Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. File 1040nr online You choose an accounting method for your business when you file your first income tax return. File 1040nr online There are two basic accounting methods. File 1040nr online Cash method. File 1040nr online Under the cash method, you report income in the tax year you receive it. File 1040nr online You usually deduct or capitalize expenses in the tax year you pay them. File 1040nr online Accrual method. File 1040nr online Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. File 1040nr online You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. File 1040nr online For other methods, see Publication 538. File 1040nr online If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. File 1040nr online Inventories include goods held for sale in the normal course of business. File 1040nr online They also include raw materials and supplies that will physically become a part of merchandise intended for sale. File 1040nr online Inventories are explained in Publication 538. File 1040nr online Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. File 1040nr online For more information, see Publication 538. File 1040nr online You must use the same accounting method to figure your taxable income and to keep your books. File 1040nr online Also, you must use an accounting method that clearly shows your income. File 1040nr online In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. File 1040nr online An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. File 1040nr online More than one business. File 1040nr online   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. File 1040nr online You must keep a complete and separate set of books and records for each business. File 1040nr online Changing your method of accounting. File 1040nr online   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. File 1040nr online A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. File 1040nr online For examples of changes that require approval and information on how to get approval for the change, see Publication 538. File 1040nr online Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. File 1040nr online The following are the four general kinds of business taxes. File 1040nr online Income tax. File 1040nr online Self-employment tax. File 1040nr online Employment taxes. File 1040nr online Excise taxes. File 1040nr online See Table 2 for the forms you file to report these taxes. File 1040nr online You may want to get Publication 509. File 1040nr online It has tax calendars that tell you when to file returns and make tax payments. File 1040nr online Income Tax All businesses except partnerships must file an annual income tax return. File 1040nr online Partnerships file an information return. File 1040nr online Which form you use depends on how your business is organized. File 1040nr online See Table 2 to find out which return you have to file. File 1040nr online The federal income tax is a pay-as-you-go tax. File 1040nr online You must pay the tax as you earn or receive income during the year. File 1040nr online An employee usually has income tax withheld from his or her pay. File 1040nr online If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. File 1040nr online If you are not required to make estimated tax payments, you may pay any tax due when you file your return. File 1040nr online Table 2. File 1040nr online Which Forms Must I File? IF you are a. File 1040nr online . File 1040nr online . File 1040nr online   THEN you may be liable for. File 1040nr online . File 1040nr online . File 1040nr online   Use Form. File 1040nr online . File 1040nr online . File 1040nr online Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. File 1040nr online 2 Various other schedules may be needed. File 1040nr online Estimated tax. File 1040nr online   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. File 1040nr online Sole proprietors, partners, and S corporation shareholders. File 1040nr online   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. File 1040nr online Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. File 1040nr online For more information, see Publication 505, Tax Withholding and Estimated Tax. File 1040nr online Corporations. File 1040nr online   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. File 1040nr online Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. File 1040nr online You must deposit the payments as explained later under Depositing Taxes. File 1040nr online For more information, see Publication 542. File 1040nr online Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. File 1040nr online Your payments of SE tax contribute to your coverage under the social security system. File 1040nr online Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. File 1040nr online You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. File 1040nr online Your net earnings from self-employment were $400 or more. File 1040nr online You had church employee income of $108. File 1040nr online 28 or more. File 1040nr online Use Schedule SE (Form 1040) to figure your SE tax. File 1040nr online For more information, see Publication 334, Tax Guide for Small Business. File 1040nr online You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. File 1040nr online The Social Security Administration (SSA) time limit for posting self-employment income. File 1040nr online   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. File 1040nr online If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. File 1040nr online The SSA will not change its records to increase your self-employment income. File 1040nr online Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. File 1040nr online Employment taxes include the following. File 1040nr online Social security and Medicare taxes. File 1040nr online Federal income tax withholding. File 1040nr online Federal unemployment (FUTA) tax. File 1040nr online If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. File 1040nr online If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. File 1040nr online These publications explain your tax responsibilities as an employer. File 1040nr online If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. File 1040nr online That publication has information to help you determine whether an individual is an employee or an independent contractor. File 1040nr online If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. File 1040nr online An independent contractor is someone who is self-employed. File 1040nr online Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. File 1040nr online Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. File 1040nr online To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. File 1040nr online Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). File 1040nr online Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. File 1040nr online Medicare tax pays for benefits under the hospital insurance part of FICA. File 1040nr online You withhold part of these taxes from your employee's wages and you pay a part yourself. File 1040nr online To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. File 1040nr online Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. File 1040nr online (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. File 1040nr online ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. File 1040nr online You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. File 1040nr online You pay FUTA tax only from your own funds. File 1040nr online Employees do not pay this tax or have it withheld from their pay. File 1040nr online Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. File 1040nr online See Publication 15 to find out if you can use this form. File 1040nr online Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. File 1040nr online Form I-9. File 1040nr online   You must verify that each new employee is legally eligible to work in the United States. File 1040nr online Both you and the employee must complete the U. File 1040nr online S. File 1040nr online Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. File 1040nr online You can get the form from USCIS offices or from the USCIS website at www. File 1040nr online uscis. File 1040nr online gov. File 1040nr online Call the USCIS at 1-800-375-5283 for more information about your responsibilities. File 1040nr online Form W-4. File 1040nr online   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. File 1040nr online You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. File 1040nr online For more information, see Publication 15. File 1040nr online Employees claiming more than 10 withholding allowances. File 1040nr online   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. File 1040nr online See section 16 of Publication 15. File 1040nr online Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. File 1040nr online You must also send copies to the Social Security Administration. File 1040nr online See Information Returns, later, for more information on Form W-2. File 1040nr online Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. File 1040nr online Manufacture or sell certain products. File 1040nr online Operate certain kinds of businesses. File 1040nr online Use various kinds of equipment, facilities, or products. File 1040nr online Receive payment for certain services. File 1040nr online For more information on excise taxes, see Publication 510, Excise Taxes. File 1040nr online Form 720. File 1040nr online   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. File 1040nr online Environmental taxes. File 1040nr online Communications and air transportation taxes. File 1040nr online Fuel taxes. File 1040nr online Tax on the first retail sale of heavy trucks, trailers, and tractors. File 1040nr online Manufacturers taxes on the sale or use of a variety of different articles. File 1040nr online Form 2290. File 1040nr online   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. File 1040nr online The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. File 1040nr online Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. File 1040nr online For more information, see the instructions for Form 2290. File 1040nr online Form 730. File 1040nr online   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. File 1040nr online Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. File 1040nr online Form 11-C. File 1040nr online   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. File 1040nr online Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. File 1040nr online Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). File 1040nr online Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. File 1040nr online Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. File 1040nr online Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. File 1040nr online The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. File 1040nr online You must give a copy of each information return you are required to file to the recipient or payer. File 1040nr online In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. File 1040nr online For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. File 1040nr online Form 1099-MISC. File 1040nr online   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. File 1040nr online These payments include the following items. File 1040nr online Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. File 1040nr online Rent payments of $600 or more, other than rents paid to real estate agents. File 1040nr online Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. File 1040nr online Royalty payments of $10 or more. File 1040nr online Payments to certain crew members by operators of fishing boats. File 1040nr online You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. File 1040nr online Form W-2. File 1040nr online   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. File 1040nr online For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. File 1040nr online Form 8300. File 1040nr online   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. File 1040nr online Cash includes U. File 1040nr online S. File 1040nr online and foreign coin and currency. File 1040nr online It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. File 1040nr online For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). File 1040nr online Penalties The law provides penalties for not filing returns or paying taxes as required. File 1040nr online Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. File 1040nr online Failure to file tax returns. File 1040nr online   If you do not file your tax return by the due date, you may have to pay a penalty. File 1040nr online The penalty is based on the tax not paid by the due date. File 1040nr online See your tax return instructions for more information about this penalty. File 1040nr online Failure to pay tax. File 1040nr online   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. File 1040nr online For more information, see your tax return instructions. File 1040nr online Failure to withhold, deposit, or pay taxes. File 1040nr online   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. File 1040nr online You may also be subject to penalties if you deposit the taxes late. File 1040nr online For more information, see Publication 15. File 1040nr online Failure to follow information reporting requirements. File 1040nr online   The following penalties apply if you are required to file information returns. File 1040nr online For more information, see the General Instructions for Certain Information Returns. File 1040nr online Failure to file information returns. File 1040nr online A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. File 1040nr online Failure to furnish correct payee statements. File 1040nr online A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. File 1040nr online Waiver of penalty. File 1040nr online   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. File 1040nr online   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. File 1040nr online (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. File 1040nr online ) Failure to supply taxpayer identification number. File 1040nr online   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. File 1040nr online You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. File 1040nr online Business Expenses You can deduct business expenses on your income tax return. File 1040nr online These are the current operating costs of running your business. File 1040nr online To be deductible, a business expense must be both ordinary and necessary. File 1040nr online An ordinary expense is one that is common and accepted in your field of business, trade, or profession. File 1040nr online A necessary expense is one that is helpful and appropriate for your business, trade, or profession. File 1040nr online An expense does not have to be indispensable to be considered necessary. File 1040nr online The following are brief explanations of some expenses that are of interest to people starting a business. File 1040nr online There are many other expenses that you may be able to deduct. File 1040nr online See your form instructions and Publication 535, Business Expenses. File 1040nr online Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. File 1040nr online Your business start-up costs will depend on the type of business you are starting. File 1040nr online They may include costs for advertising, travel, surveys, and training. File 1040nr online These costs are generally capital expenses. File 1040nr online You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). File 1040nr online You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. File 1040nr online The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. File 1040nr online Any remaining cost must be amortized. File 1040nr online For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. File 1040nr online Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. File 1040nr online You must spread the cost over more than one tax year and deduct part of it each year. File 1040nr online This method of deducting the cost of business property is called depreciation. File 1040nr online Business property you must depreciate includes the following items. File 1040nr online Office furniture. File 1040nr online Buildings. File 1040nr online Machinery and equipment. File 1040nr online You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. File 1040nr online This deduction is known as the “section 179 deduction. File 1040nr online ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. File 1040nr online Depreciation must be taken in the year it is allowable. File 1040nr online Allowable depreciation not taken in a prior year cannot be taken in the current year. File 1040nr online If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. File 1040nr online S. File 1040nr online Individual Income Tax Return, or by changing your accounting method. File 1040nr online For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. File 1040nr online Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. File 1040nr online Even then, your deduction may be limited. File 1040nr online To qualify to claim expenses for business use of your home, you must meet both the following tests. File 1040nr online Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. File 1040nr online Exclusive use. File 1040nr online   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. File 1040nr online The area used for business can be a room or other separately identifiable space. File 1040nr online The space does not need to be marked off by a permanent partition. File 1040nr online   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. File 1040nr online Exceptions to exclusive use. File 1040nr online   You do not have to meet the exclusive use test if either of the following applies. File 1040nr online You use part of your home for the storage of inventory or product samples. File 1040nr online You use part of your home as a daycare facility. File 1040nr online For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). File 1040nr online Principal place of business. File 1040nr online   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. File 1040nr online You use it exclusively and regularly for administrative or management activities of your trade or business. File 1040nr online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. File 1040nr online   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. File 1040nr online The relative importance of the activities performed at each location. File 1040nr online If the relative importance factor does not determine your principal place of business, the time spent at each location. File 1040nr online    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. File 1040nr online However, for other ways to qualify to deduct home office expenses, see Publication 587. File 1040nr online Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. File 1040nr online If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. File 1040nr online More information. File 1040nr online   For more information about business use of your home, see Publication 587. File 1040nr online Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. File 1040nr online You generally can deduct either your actual expenses or the standard mileage rate. File 1040nr online Actual expenses. File 1040nr online   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. File 1040nr online You can divide your expenses based on the miles driven for each purpose. File 1040nr online Example. File 1040nr online You are the sole proprietor of a flower shop. File 1040nr online You drove your van 20,000 miles during the year. File 1040nr online 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. File 1040nr online You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. File 1040nr online Standard mileage rate. File 1040nr online   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. File 1040nr online You can use the standard mileage rate for a vehicle you own or lease. File 1040nr online The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. File 1040nr online It is announced annually by the IRS. File 1040nr online To figure your deduction, multiply your business miles by the standard mileage rate for the year. File 1040nr online    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. File 1040nr online However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. File 1040nr online Choosing the standard mileage rate. File 1040nr online   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. File 1040nr online In later years, you can choose to use either the standard mileage rate or actual expenses. File 1040nr online   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). File 1040nr online Additional information. File 1040nr online   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. File 1040nr online Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. File 1040nr online It also explains how long you must keep your records for federal tax purposes. File 1040nr online A sample recordkeeping system is illustrated at the end of this part. File 1040nr online Why Keep Records? Everyone in business must keep records. File 1040nr online Good records will help you do the following. File 1040nr online Monitor the progress of your business. File 1040nr online   You need good records to monitor the progress of your business. File 1040nr online Records can show whether your business is improving, which items are selling, or what changes you need to make. File 1040nr online Good records can increase the likelihood of business success. File 1040nr online Prepare your financial statements. File 1040nr online   You need good records to prepare accurate financial statements. File 1040nr online These include income (profit and loss) statements and balance sheets. File 1040nr online These statements can help you in dealing with your bank or creditors and help you manage your business. File 1040nr online An income statement shows the income and expenses of the business for a given period of time. File 1040nr online A balance sheet shows the assets, liabilities, and your equity in the business on a given date. File 1040nr online Identify source of receipts. File 1040nr online   You will receive money or property from many sources. File 1040nr online Your records can identify the source of your receipts. File 1040nr online You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. File 1040nr online Keep track of deductible expenses. File 1040nr online   You may forget expenses when you prepare your tax return unless you record them when they occur. File 1040nr online Prepare your tax returns. File 1040nr online   You need good records to prepare your tax returns. File 1040nr online These records must support the income, expenses, and credits you report. File 1040nr online Generally, these are the same records you use to monitor your business and prepare your financial statements. File 1040nr online Support items reported on tax returns. File 1040nr online   You must keep your business records available at all times for inspection by the IRS. File 1040nr online If the IRS examines any of your tax returns, you may be asked to explain the items reported. File 1040nr online A complete set of records will speed up the examination. File 1040nr online Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. File 1040nr online You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. File 1040nr online The business you are in affects the type of records you need to keep for federal tax purposes. File 1040nr online You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. File 1040nr online See Accounting Method, earlier. File 1040nr online If you are in more than one business, you should keep a complete and separate set of records for each business. File 1040nr online A corporation should keep minutes of board of directors' meetings. File 1040nr online Your recordkeeping system should include a summary of your business transactions. File 1040nr online This summary is ordinarily made in your books (for example, accounting journals and ledgers). File 1040nr online Your books must show your gross income, as well as your deductions and credits. File 1040nr online For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. File 1040nr online In addition, you must keep supporting documents, explained later. File 1040nr online Electronic records. File 1040nr online   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. File 1040nr online When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. File 1040nr online An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. File 1040nr online The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. File 1040nr online All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. File 1040nr online Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. File 1040nr online   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. File 1040nr online You still have the responsibility of retaining any other books and records that are required to be retained. File 1040nr online   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. File 1040nr online This test is not considered an examination and the results must be shared with you. File 1040nr online If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. File 1040nr online If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. File 1040nr online For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. File 1040nr online Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. File 1040nr online Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. File 1040nr online These documents contain information you need to record in your books. File 1040nr online It is important to keep these documents because they support the entries in your books and on your tax return. File 1040nr online Keep them in an orderly fashion and in a safe place. File 1040nr online For instance, organize them by year and type of income or expense. File 1040nr online Gross receipts. File 1040nr online   Gross receipts are the income you receive from your business. File 1040nr online You should keep supporting documents that show the amounts and sources of your gross receipts. File 1040nr online Documents that show gross receipts include the following. File 1040nr online Cash register tapes. File 1040nr online Bank deposit slips. File 1040nr online Receipt books. File 1040nr online Invoices. File 1040nr online Credit card charge slips. File 1040nr online Forms 1099-MISC. File 1040nr online Purchases. File 1040nr online   Purchases are the items you buy and resell to customers. File 1040nr online If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. File 1040nr online Your supporting documents should show the amount paid and that the amount was for purchases. File 1040nr online Documents for purchases include the following. File 1040nr online Canceled checks. File 1040nr online Cash register tape receipts. File 1040nr online Credit card sales slips. File 1040nr online Invoices. File 1040nr online These records will help you determine the value of your inventory at the end of the year. File 1040nr online See Publication 538 for information on methods for valuing inventory. File 1040nr online Expenses. File 1040nr online   Expenses are the costs you incur (other than purchases) to carry on your business. File 1040nr online Your supporting documents should show the amount paid and that the amount was for a business expense. File 1040nr online Documents for expenses include the following. File 1040nr online Canceled checks. File 1040nr online Cash register tapes. File 1040nr online Account statements. File 1040nr online Credit card sales slips. File 1040nr online Invoices. File 1040nr online Petty cash slips for small cash payments. File 1040nr online    A petty cash fund allows you to make small payments without having to write checks for small amounts. File 1040nr online Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. File 1040nr online Travel, transportation, entertainment, and gift expenses. File 1040nr online   Specific recordkeeping rules apply to these expenses. File 1040nr online For more information, see Publication 463. File 1040nr online Employment taxes. File 1040nr online   There are specific employment tax records you must keep. File 1040nr online For a list, see Publication 15. File 1040nr online Assets. File 1040nr online   Assets are the property, such as machinery and furniture you own and use in your business. File 1040nr online You must keep records to verify certain information about your business assets. File 1040nr online You need records to figure the annual depreciation and the gain or loss when you sell the assets. File 1040nr online Your records should show the following information. File 1040nr online When and how you acquired the asset. File 1040nr online Purchase price. File 1040nr online Cost of any improvements. File 1040nr online Section 179 deduction taken. File 1040nr online Deductions taken for depreciation. File 1040nr online Deductions taken for casualty losses, such as losses resulting from fires or storms. File 1040nr online How you used the asset. File 1040nr online When and how you disposed of the asset. File 1040nr online Selling price. File 1040nr online Expenses of sale. File 1040nr online   The following documents may show this information. File 1040nr online Purchase and sales invoices. File 1040nr online Real estate closing statements. File 1040nr online Canceled checks. File 1040nr online What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. File 1040nr online These include account statements prepared for the financial institution by a third party. File 1040nr online These account statements must be highly legible. File 1040nr online The following table lists acceptable account statements. File 1040nr online  IF payment is by. File 1040nr online . File 1040nr online . File 1040nr online THEN the statement must show the. File 1040nr online . File 1040nr online . File 1040nr online Check Check number. File 1040nr online Amount. File 1040nr online Payee's name. File 1040nr online Date the check amount was posted to the account by the financial institution. File 1040nr online Electronic funds transfer Amount transferred. File 1040nr online Payee's name. File 1040nr online Date the transfer was posted to the account by the financial institution. File 1040nr online Credit card Amount charged. File 1040nr online Payee's name. File 1040nr online Transaction date. File 1040nr online    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. File 1040nr online You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. File 1040nr online Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. File 1040nr online (Your business transactions are shown on the supporting documents just discussed. File 1040nr online ) Business transactions are ordinarily summarized in books called journals and ledgers. File 1040nr online You can buy them at your local stationery or office supply store. File 1040nr online A journal is a book where you record each business transaction shown on your supporting documents. File 1040nr online You may have to keep separate journals for transactions that occur frequently. File 1040nr online A ledger is a book that contains the totals from all of your journals. File 1040nr online It is organized into different accounts. File 1040nr online Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. File 1040nr online For example, a recordkeeping system for a small business might include the following items. File 1040nr online Business checkbook. File 1040nr online Daily summary of cash receipts. File 1040nr online Monthly summary of cash receipts. File 1040nr online Check disbursements journal. File 1040nr online Depreciation worksheet. File 1040nr online Employee compensation record. File 1040nr online The business checkbook is explained next. File 1040nr online The other items are illustrated later under Sample Record System. File 1040nr online The system you use to record business transactions will be more effective if you follow good recordkeeping practices. File 1040nr online For example, record expenses when they occur, and identify the source of recorded receipts. File 1040nr online Generally, it is best to record transactions on a daily basis. File 1040nr online Business checkbook. File 1040nr online   One of the first things you should do when you start a business is open a business checking account. File 1040nr online You should keep your business account separate from your personal checking account. File 1040nr online   The business checkbook is your basic source of information for recording your business expenses. File 1040nr online You should deposit all daily receipts in your business checking account. File 1040nr online You should check your account for errors by reconciling it. File 1040nr online See Reconciling the checking account, later. File 1040nr online   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. File 1040nr online You should also note on the deposit slip the source of the deposit and keep copies of all slips. File 1040nr online   You should make all payments by check to document business expenses. File 1040nr online Write checks payable to yourself only when making withdrawals from your business for personal use. File 1040nr online Avoid writing checks payable to cash. File 1040nr online If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. File 1040nr online If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. File 1040nr online    Use the business account for business purposes only. File 1040nr online Indicate the source of deposits and the type of expense in the checkbook. File 1040nr online Reconciling the checking account. File 1040nr online   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. File 1040nr online The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. File 1040nr online   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. File 1040nr online    You should reconcile your checking account each month. File 1040nr online     Before you reconcile your monthly bank statement, check your own figures. File 1040nr online Begin with the balance shown in your checkbook at the end of the previous month. File 1040nr online To this balance, add the total cash deposited during the month and subtract the total cash disbursements. File 1040nr online   After checking your figures, the result should agree with your checkbook balance at the end of the month. File 1040nr online If the result does not agree, you may have made an error in recording a check or deposit. File 1040nr online You can find the error by doing the following. File 1040nr online Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. File 1040nr online If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. File 1040nr online Adding the deposit amounts in your checkbook. File 1040nr online Compare that total with the monthly total in your cash receipt book, if you have one. File 1040nr online If the totals do not agree, check the individual amounts to find any errors. File 1040nr online   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. File 1040nr online   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. File 1040nr online Many banks print a reconciliation worksheet on the back of the statement. File 1040nr online   To reconcile your account, follow these steps. File 1040nr online Compare the deposits listed on the bank statement with the deposits shown in your checkbook. File 1040nr online Note all differences in the dollar amounts. File 1040nr online Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. File 1040nr online Note all differences in the dollar amounts. File 1040nr online Mark the check number in the checkbook as having cleared the bank. File 1040nr online After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. File 1040nr online Prepare a bank reconciliation. File 1040nr online One is illustrated later under Sample Record System. File 1040nr online Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. File 1040nr online At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. File 1040nr online If you still have differences, check the previous steps to find the errors. File 1040nr online   Table 3. File 1040nr online Period of Limitations IF you. File 1040nr online . File 1040nr online . File 1040nr online   THEN the period is. File 1040nr online . File 1040nr online . File 1040nr online 1. File 1040nr online Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. File 1040nr online Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. File 1040nr online File a fraudulent return   Not limited 4. File 1040nr online Do not file a return   Not limited 5. File 1040nr online File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. File 1040nr online File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. File 1040nr online The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. File 1040nr online You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. File 1040nr online Single-entry. File 1040nr online   A single-entry system is based on the income statement (profit or loss statement). File 1040nr online It can be a simple and practical system if you are starting a small business. File 1040nr online The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. File 1040nr online Double-entry. File 1040nr online   A double-entry bookkeeping system uses journals and ledgers. File 1040nr online Transactions are first entered in a journal and then posted to ledger accounts. File 1040nr online These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). File 1040nr online You close income and expense accounts at the end of each tax year. File 1040nr online You keep asset, liability, and net worth accounts open on a permanent basis. File 1040nr online   In the double-entry system, each account has a left side for debits and a right side for credits. File 1040nr online It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. File 1040nr online   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. File 1040nr online If the amounts do not balance, you have made an error and you must find and correct it. File 1040nr online   An example of a journal entry exhibiting a payment of rent in October is shown next. File 1040nr online General Journal Date Description of Entry Debit  Credit Oct. File 1040nr online 5 Rent expense 780. File 1040nr online 00     Cash   780. File 1040nr online 00                 Computerized System There are computer software packages you can use for recordkeeping. File 1040nr online They can be purchased in many retail stores. File 1040nr online These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. File 1040nr online If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. File 1040nr online To meet this qualification, the machine-sensible records must reconcile with your books and return. File 1040nr online These records must provide enough detail to identify the underlying source documents. File 1040nr online You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. File 1040nr online This documentation must be sufficiently detailed to show all of the following items. File 1040nr online Functions being performed as the data flows through the system. File 1040nr online Controls used to ensure accurate and reliable processing. File 1040nr online Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. File 1040nr online Charts of accounts and detailed account descriptions. File 1040nr online See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. File 1040nr online How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. File 1040nr online Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. File 1040nr online The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. File 1040nr online Table 3 contains the periods of limitations that apply to income tax returns. File 1040nr online Unless otherwise stated, the years refer to the period after the return was filed. File 1040nr online Returns filed before the due date are treated as filed on the due date. File 1040nr online Keep copies of your filed tax returns. File 1040nr online They help in preparing future tax returns and making computations if you file an amended return. File 1040nr online Employment taxes. File 1040nr online   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. File 1040nr online For more information about recordkeeping for employment taxes, see Publication 15. File 1040nr online Assets. File 1040nr online   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. File 1040nr online You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. File 1040nr online   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. File 1040nr online You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. File 1040nr online Records for nontax purposes. File 1040nr online   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. File 1040nr online For example, your insurance company or creditors may require you to keep them longer than the IRS does. File 1040nr online Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. File 1040nr online Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. File 1040nr online These sample records should not be viewed as a recommendation of how to keep your records. File 1040nr online They are intended only to show how one business keeps its records. File 1040nr online 1. File 1040nr online Daily Summary of Cash Receipts This summary is a record of cash sales for the day. File 1040nr online It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. File 1040nr online Henry takes the cash sales entry from his cash register tape. File 1040nr online If he had no cash register, he would simply total his cash sale slips and any other cash received that day. File 1040nr online He carries the total receipts shown in this summary for January 3 ($267. File 1040nr online 80), including cash sales ($263. File 1040nr online 60) and sales tax ($4. File 1040nr online 20), to the Monthly Summary of Cash Receipts. File 1040nr online Petty cash fund. File 1040nr online   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. File 1040nr online Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. File 1040nr online He sets up a fixed amount ($50) in his petty cash fund. File 1040nr online The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. File 1040nr online When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. File 1040nr online (See the Check Disbursements Journal entry for check number 92. File 1040nr online ) This restores the fund to its fixed amount of $50. File 1040nr online He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. File 1040nr online 2. File 1040nr online Monthly Summary of Cash Receipts This shows the income activity for the month. File 1040nr online Henry carries the total monthly net sales shown in this summary for January ($4,865. File 1040nr online 05) to his Annual Summary. File 1040nr online To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. File 1040nr online He cannot take a deduction for sales tax turned over to the state because he only collected the tax. File 1040nr online He does not include the tax in his income. File 1040nr online 3. File 1040nr online Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. File 1040nr online All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. File 1040nr online Frequent expenses have their own headings across the sheet. File 1040nr online He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. File 1040nr online Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. File 1040nr online Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. File 1040nr online If he did, he would record them in the journal, even though he could not deduct them as business expenses. File 1040nr online Henry carries the January total of expenses for materials ($1,083. File 1040nr online 50) to the Annual Summary. File 1040nr online Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. File 1040nr online , in the appropriate columns of that summary. File 1040nr online 4. File 1040nr online Employee Compensation Record This record shows the following information. File 1040nr online The number of hours Henry's employee worked in a pay period. File 1040nr online The employee's total pay for the period. File 1040nr online The deductions Henry withheld in figuring the employee's net pay. File 1040nr online The monthly gross payroll. File 1040nr online Henry carries the January gross payroll ($520) to the Annual Summary. File 1040nr online 5. File 1040nr online Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. File 1040nr online He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. File 1040nr online He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. File 1040nr online As in the journal, he keeps each major expense in a separate column. File 1040nr online Henry carries the cash receipts total shown in the annual summary ($47,440. File 1040nr online 9
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Page Last Reviewed or Updated: 28-Feb-2014

The File 1040nr Online

File 1040nr online Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. File 1040nr online Proc. File 1040nr online 2013-16 Table of Contents SECTION 1. File 1040nr online PURPOSE SECTION 2. File 1040nr online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. File 1040nr online BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. File 1040nr online FEDERAL INCOME TAX TREATMENT SECTION 5. File 1040nr online INFORMATION-REPORTING OBLIGATIONS SECTION 6. File 1040nr online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. File 1040nr online PENALTY RELIEF FOR 2012 SECTION 8. File 1040nr online SCOPE AND EFFECTIVE DATE SECTION 9. File 1040nr online DRAFTING INFORMATION SECTION 1. File 1040nr online PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). File 1040nr online Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). File 1040nr online In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. File 1040nr online Current plans call for HAMP to continue accepting new borrowers through the end of 2013. File 1040nr online The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. File 1040nr online SECTION 2. File 1040nr online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . File 1040nr online 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). File 1040nr online A description of the program can be found at www. File 1040nr online makinghomeaffordable. File 1040nr online gov. File 1040nr online . File 1040nr online 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. File 1040nr online These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. File 1040nr online . File 1040nr online 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. File 1040nr online The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. File 1040nr online However, as noted in section 2. File 1040nr online 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. File 1040nr online (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. File 1040nr online ”) . File 1040nr online 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. File 1040nr online . File 1040nr online 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. File 1040nr online The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. File 1040nr online (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. File 1040nr online ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). File 1040nr online Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. File 1040nr online Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. File 1040nr online . File 1040nr online 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. File 1040nr online (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. File 1040nr online ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. File 1040nr online . File 1040nr online 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). File 1040nr online If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. File 1040nr online These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. File 1040nr online The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. File 1040nr online The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. File 1040nr online For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. File 1040nr online ” . File 1040nr online 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). File 1040nr online . File 1040nr online 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. File 1040nr online 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. File 1040nr online . File 1040nr online 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. File 1040nr online SECTION 3. File 1040nr online BACKGROUND—APPLICABLE PROVISIONS OF LAW . File 1040nr online 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. File 1040nr online See § 61(a)(12). File 1040nr online . File 1040nr online 02 Under § 1. File 1040nr online 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. File 1040nr online In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. File 1040nr online However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. File 1040nr online See § 1. File 1040nr online 1001-3(c)(6). File 1040nr online . File 1040nr online 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. File 1040nr online 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. File 1040nr online If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. File 1040nr online See also § 1. File 1040nr online 61-12(c). File 1040nr online . File 1040nr online 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. File 1040nr online If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. File 1040nr online See, e. File 1040nr online g. File 1040nr online , §§ 1. File 1040nr online 1272-1(c)(5) and 1. File 1040nr online 1274-2(d). File 1040nr online . File 1040nr online 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. File 1040nr online Section 108(a)(1)(E) and 108(a)(1)(B). File 1040nr online (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. File 1040nr online ) . File 1040nr online 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. File 1040nr online . File 1040nr online 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. File 1040nr online See §§ 108(h) and 163(h)(3)(B)(i). File 1040nr online . File 1040nr online 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). File 1040nr online Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. File 1040nr online . File 1040nr online 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. File 1040nr online . File 1040nr online 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. File 1040nr online Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. File 1040nr online . File 1040nr online 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. File 1040nr online See § 108(h)(1). File 1040nr online If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). File 1040nr online See § 108(b). File 1040nr online For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). File 1040nr online . File 1040nr online 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). File 1040nr online See Form 982 instructions and Publication 4681. File 1040nr online This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. File 1040nr online . File 1040nr online 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. File 1040nr online See Notice 2003-18, 2003-1 C. File 1040nr online B. File 1040nr online 699, and Rev. File 1040nr online Rul. File 1040nr online 79-356, 1979-2 C. File 1040nr online B. File 1040nr online 28. File 1040nr online However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). File 1040nr online See Rev. File 1040nr online Rul. File 1040nr online 2005-46, 2005-2 C. File 1040nr online B. File 1040nr online 120, and Rev. File 1040nr online Rul. File 1040nr online 75-246, 1975-1 C. File 1040nr online B. File 1040nr online 24. File 1040nr online . File 1040nr online 14 Under § 451 and § 1. File 1040nr online 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. File 1040nr online . File 1040nr online 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. File 1040nr online See § 6041(a) and (d) and § 1. File 1040nr online 6041-1(a)(1) and (b). File 1040nr online . File 1040nr online 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. File 1040nr online See § 6050P(a)-(c) and §§ 1. File 1040nr online 6050P-1(a) and 1. File 1040nr online 6050P-2(a) and (d). File 1040nr online . File 1040nr online 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. File 1040nr online These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. File 1040nr online Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. File 1040nr online ” . File 1040nr online 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. File 1040nr online These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. File 1040nr online Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. File 1040nr online SECTION 4. File 1040nr online FEDERAL INCOME TAX TREATMENT . File 1040nr online 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. File 1040nr online See § 1. File 1040nr online 1001-3. File 1040nr online At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. File 1040nr online See also § 61(a)(12) and § 1. File 1040nr online 61-12(c). File 1040nr online . File 1040nr online 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. File 1040nr online Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. File 1040nr online Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. File 1040nr online . File 1040nr online 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. File 1040nr online Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. File 1040nr online . File 1040nr online 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. File 1040nr online Therefore, for purposes of § 1. File 1040nr online 1001-3, the date of the modification is the date of the permanent modification. File 1040nr online . File 1040nr online 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. File 1040nr online 01 of this revenue procedure for the taxable year in which the permanent modification occurs. File 1040nr online Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. File 1040nr online The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. File 1040nr online . File 1040nr online 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. File 1040nr online . File 1040nr online 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. File 1040nr online This is consistent with Rev. File 1040nr online Rul. File 1040nr online 2009-19, 2009-28 I. File 1040nr online R. File 1040nr online B. File 1040nr online 111, which addressed the treatment of Pay-for-Performance Success Payments. File 1040nr online . File 1040nr online 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. File 1040nr online If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. File 1040nr online . File 1040nr online 09 As described in section 2. File 1040nr online 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. File 1040nr online To the extent that the HAMP-PRA borrower is described in section 4. File 1040nr online 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. File 1040nr online To the extent that the HAMP-PRA borrower is described in section 4. File 1040nr online 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. File 1040nr online SECTION 5. File 1040nr online INFORMATION-REPORTING OBLIGATIONS . File 1040nr online 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. File 1040nr online A copy of this form is required to be furnished to the borrower. File 1040nr online . File 1040nr online 02 As stated in sections 4. File 1040nr online 01 and 4. File 1040nr online 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. File 1040nr online . File 1040nr online 03 An investor is an applicable entity that is required under § 1. File 1040nr online 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. File 1040nr online Under § 1. File 1040nr online 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. File 1040nr online Identifiable events determine when Forms 1099-C have to be issued. File 1040nr online Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. File 1040nr online This rule under § 1. File 1040nr online 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. File 1040nr online . File 1040nr online 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. File 1040nr online That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). File 1040nr online . File 1040nr online 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. File 1040nr online 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. File 1040nr online Under § 6041, these payments are not subject to information reporting. File 1040nr online See Notice 2011-14, 2011-11 I. File 1040nr online R. File 1040nr online B. File 1040nr online 544, 546. File 1040nr online . File 1040nr online 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. File 1040nr online 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. File 1040nr online The payment is subject to the information reporting requirements of § 6041, as described in section 3. File 1040nr online 15 of this revenue procedure. File 1040nr online Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. File 1040nr online SECTION 6. File 1040nr online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . File 1040nr online 01 In general. File 1040nr online The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). File 1040nr online As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. File 1040nr online Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. File 1040nr online A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. File 1040nr online 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. File 1040nr online Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. File 1040nr online 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. File 1040nr online . File 1040nr online 02 HAMP-PRA borrower options. File 1040nr online A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. File 1040nr online 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. File 1040nr online If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. File 1040nr online 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. File 1040nr online . File 1040nr online 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. File 1040nr online (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. File 1040nr online (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. File 1040nr online 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. File 1040nr online 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. File 1040nr online This section 6. File 1040nr online 03(2) applies only if the change to reporting the discharge using the method described in section 6. File 1040nr online 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. File 1040nr online To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. File 1040nr online (3) Example. File 1040nr online The following example illustrates the application of section 6. File 1040nr online 03(2) of this revenue procedure. File 1040nr online In 2010, B’s basis in B’s principal residence was $330,000. File 1040nr online In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. File 1040nr online B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). File 1040nr online The trial period plan effective date also fell in 2010. File 1040nr online B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. File 1040nr online 02(2) of this revenue procedure. File 1040nr online That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. File 1040nr online The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. File 1040nr online For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. File 1040nr online 02(1) of this revenue procedure. File 1040nr online Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. File 1040nr online 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). File 1040nr online (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. File 1040nr online 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. File 1040nr online 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. File 1040nr online Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. File 1040nr online 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. File 1040nr online Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. File 1040nr online (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. File 1040nr online 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. File 1040nr online The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. File 1040nr online (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. File 1040nr online The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). File 1040nr online The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. File 1040nr online . File 1040nr online 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. File 1040nr online (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. File 1040nr online Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. File 1040nr online Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. File 1040nr online If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. File 1040nr online (2) A HAMP-PRA borrower who has been using the method described in section 6. File 1040nr online 02(1) of this revenue procedure may change to the method described in section 6. File 1040nr online 02(2) but must comply with the consistency and open-year requirements described in section 6. File 1040nr online 01 of this revenue procedure. File 1040nr online SECTION 7. File 1040nr online PENALTY RELIEF FOR 2012 . File 1040nr online 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. File 1040nr online 03 through 5. File 1040nr online 04 and section 8. File 1040nr online 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. File 1040nr online 01 through 4. File 1040nr online 04 of this revenue procedure) that is required to be reported for 2012. File 1040nr online (2) Not later than March 28, 2013, a statement is sent to the Service. File 1040nr online It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. File 1040nr online 01(1) of this revenue procedure. File 1040nr online The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . File 1040nr online 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. File 1040nr online 06 and 8. File 1040nr online 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. File 1040nr online . File 1040nr online 03 Section 8. File 1040nr online 03 and 8. File 1040nr online 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. File 1040nr online SECTION 8. File 1040nr online SCOPE AND EFFECTIVE DATE . File 1040nr online 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. File 1040nr online . File 1040nr online 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. File 1040nr online . File 1040nr online 03 Because of the effective date in section 8. File 1040nr online 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. File 1040nr online 03 through 5. File 1040nr online 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. File 1040nr online 03 through 5. File 1040nr online 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. File 1040nr online . File 1040nr online 04 Because of the effective date in section 8. File 1040nr online 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. File 1040nr online 06 of this revenue procedure. File 1040nr online SECTION 9. File 1040nr online DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. File 1040nr online Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. File 1040nr online Pflanz and Sheldon A. File 1040nr online Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. File 1040nr online Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). File 1040nr online For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). File 1040nr online Prev  Up  Next   Home   More Internal Revenue Bulletins