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Filing 2012 Tax Returns

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Filing 2012 Tax Returns

Filing 2012 tax returns 11. Filing 2012 tax returns   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. Filing 2012 tax returns S. Filing 2012 tax returns Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. Filing 2012 tax returns This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. Filing 2012 tax returns You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. Filing 2012 tax returns These forms are discussed in this chapter. Filing 2012 tax returns To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . Filing 2012 tax returns If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. Filing 2012 tax returns Read Aliens Required To Obtain Sailing or Departure Permits . Filing 2012 tax returns Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. Filing 2012 tax returns Useful Items - You may want to see: Form (and Instructions) 1040-C U. Filing 2012 tax returns S. Filing 2012 tax returns Departing Alien Income Tax Return 2063 U. Filing 2012 tax returns S. Filing 2012 tax returns Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. Filing 2012 tax returns Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. Filing 2012 tax returns If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. Filing 2012 tax returns Category 1. Filing 2012 tax returns   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. Filing 2012 tax returns Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. Filing 2012 tax returns However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. Filing 2012 tax returns   The statement must be presented to an IRS office. Filing 2012 tax returns Category 2. Filing 2012 tax returns    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. Filing 2012 tax returns S. Filing 2012 tax returns tax under U. Filing 2012 tax returns S. Filing 2012 tax returns tax laws (described in chapter 10), and Who receive no other income from U. Filing 2012 tax returns S. Filing 2012 tax returns sources. Filing 2012 tax returns If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. Filing 2012 tax returns This is true even if your income is exempt from U. Filing 2012 tax returns S. Filing 2012 tax returns tax because of an income tax treaty, consular agreement, or international agreement. Filing 2012 tax returns Category 3. Filing 2012 tax returns   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. Filing 2012 tax returns S. Filing 2012 tax returns sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. Filing 2012 tax returns S. Filing 2012 tax returns Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. Filing 2012 tax returns S. Filing 2012 tax returns trade or business. Filing 2012 tax returns (See Interest Income in chapter 3. Filing 2012 tax returns ) Category 4. Filing 2012 tax returns   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. Filing 2012 tax returns S. Filing 2012 tax returns sources while in the United States under those visas, other than: Income from employment authorized by the U. Filing 2012 tax returns S. Filing 2012 tax returns Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. Filing 2012 tax returns S. Filing 2012 tax returns trade or business. Filing 2012 tax returns (See Interest Income in chapter 3. Filing 2012 tax returns ) Category 5. Filing 2012 tax returns   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. Filing 2012 tax returns If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. Filing 2012 tax returns Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. Filing 2012 tax returns S. Filing 2012 tax returns possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. Filing 2012 tax returns S. Filing 2012 tax returns possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. Filing 2012 tax returns Category 6. Filing 2012 tax returns   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. Filing 2012 tax returns S. Filing 2012 tax returns tax. Filing 2012 tax returns Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. Filing 2012 tax returns To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. Filing 2012 tax returns See Forms To File , later. Filing 2012 tax returns You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. Filing 2012 tax returns See Paying Taxes and Obtaining Refunds , later. Filing 2012 tax returns Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. Filing 2012 tax returns Where to get a sailing or departure permit. Filing 2012 tax returns   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. Filing 2012 tax returns When to get a sailing or departure permit. Filing 2012 tax returns   You should get your sailing or departure permit at least 2 weeks before you plan to leave. Filing 2012 tax returns You cannot apply earlier than 30 days before your planned departure date. Filing 2012 tax returns Do not wait until the last minute in case there are unexpected problems. Filing 2012 tax returns Papers to submit. Filing 2012 tax returns   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. Filing 2012 tax returns Bring the following records with you if they apply. Filing 2012 tax returns Your passport and alien registration card or visa. Filing 2012 tax returns Copies of your U. Filing 2012 tax returns S. Filing 2012 tax returns income tax returns filed for the past 2 years. Filing 2012 tax returns If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. Filing 2012 tax returns Receipts for income taxes paid on these returns. Filing 2012 tax returns Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. Filing 2012 tax returns A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. Filing 2012 tax returns If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. Filing 2012 tax returns Proof of estimated tax payments for the past year and this year. Filing 2012 tax returns Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. Filing 2012 tax returns Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. Filing 2012 tax returns Copies of the application for, and approval of, the grant. Filing 2012 tax returns A statement of the amount paid, and your duties and obligations under the grant. Filing 2012 tax returns A list of any previous grants. Filing 2012 tax returns Documents indicating you qualify for any special tax treaty benefits claimed. Filing 2012 tax returns Document verifying your date of departure from the United States, such as an airline ticket. Filing 2012 tax returns Document verifying your U. Filing 2012 tax returns S. Filing 2012 tax returns taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). Filing 2012 tax returns Note. Filing 2012 tax returns   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. Filing 2012 tax returns This applies whether or not your spouse requires a permit. Filing 2012 tax returns Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. Filing 2012 tax returns Employees in the IRS office can assist in filing these forms. Filing 2012 tax returns Both forms have a “certificate of compliance” section. Filing 2012 tax returns When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. Filing 2012 tax returns S. Filing 2012 tax returns tax obligations have been satisfied according to available information. Filing 2012 tax returns Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. Filing 2012 tax returns Form 2063 This is a short form that asks for certain information but does not include a tax computation. Filing 2012 tax returns The following departing aliens can get their sailing or departure permits by filing Form 2063. Filing 2012 tax returns Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. Filing 2012 tax returns Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. Filing 2012 tax returns However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. Filing 2012 tax returns Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. Filing 2012 tax returns The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. Filing 2012 tax returns However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. Filing 2012 tax returns Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. Filing 2012 tax returns Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. Filing 2012 tax returns When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. Filing 2012 tax returns However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. Filing 2012 tax returns See Bond To Ensure Payment , discussed later. Filing 2012 tax returns The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. Filing 2012 tax returns Returning to the United States. Filing 2012 tax returns   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. Filing 2012 tax returns You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. Filing 2012 tax returns   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. Filing 2012 tax returns The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. Filing 2012 tax returns However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. Filing 2012 tax returns Joint return on Form 1040-C. Filing 2012 tax returns   Departing husbands and wives who are nonresident aliens cannot file joint returns. Filing 2012 tax returns However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. Filing 2012 tax returns Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. Filing 2012 tax returns You must also pay any taxes due for past years. Filing 2012 tax returns If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. Filing 2012 tax returns However, the IRS cannot provide a refund at the time of departure. Filing 2012 tax returns If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. Filing 2012 tax returns Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. Filing 2012 tax returns However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. Filing 2012 tax returns The bond must equal the tax due plus interest to the date of payment as figured by the IRS. Filing 2012 tax returns Information about the form of bond and security on it can be obtained from your IRS office. Filing 2012 tax returns Filing Annual U. Filing 2012 tax returns S. Filing 2012 tax returns Income Tax Returns Form 1040-C is not an annual U. Filing 2012 tax returns S. Filing 2012 tax returns income tax return. Filing 2012 tax returns If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. Filing 2012 tax returns Chapters 5 and 7 discuss filing an annual U. Filing 2012 tax returns S. Filing 2012 tax returns income tax return. Filing 2012 tax returns The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. Filing 2012 tax returns S. Filing 2012 tax returns income tax return. Filing 2012 tax returns Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Exempt Organizations' Unrelated Business Income (UBI) Tax Statistics

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Snapshot of Unrelated Business Income Tax Statistics

Because tax-exempt organizations generally operate for charitable or other beneficial purposes, most income that they receive is exempt from tax under the Internal Revenue Code. Tax-exempt organizations are permitted to engage in income-producing activities that are considered to be unrelated to their exempt purposes. However, income from these activities may be taxable. This study measures income, deductions, and tax imposed on tax-exempt corporate and trust entities' unrelated business income. Data are compiled from Form 990-T, Exempt Organization Business Income Tax Return.

Statistical Tables    Publications and Papers    Other IRS Data
 

For information about selected terms and concepts, a description of the data sources and limitations, and links to recent revisions of Form 990-T, please visit the Exempt Organizations' Unrelated Business Income (UBI) Tax Metadata page.


Statistical Tables

The following are available as Microsoft Excel® files. A free Excel viewer is available for download, if needed.

All Organizations:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
 
Classified by: Internal Revenue Code Section
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Unrelated Business Taxable Income or Deficit
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Sources of Gross UBI
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Types of Deductions
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Organizations with Positive Unrelated Business Taxable Income:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
Classified by: Type of Entity and Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Section 501(c)(3) Organizations Only:
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2009  2008  2007  2006

 
Historical Table:
Table 16: Nonprofit Charitable Organization and Domestic Private Foundation Information Returns, and Exempt Organization Business Income Tax Returns: Selected Financial Data, Expanded
Published as: SOI Bulletin Historical Table 16


Projections
For selected tax returns, including the Form 990-T, IRS's Office of Research produces annual forecasts of the number of returns that will be filed in future years.
      Projections of Returns to be Filed in Future Calendar Years

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Publications and Papers

The following are available as PDF files. A free Adobe® reader is available for download, if needed.

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Other IRS Data and Related Links

For tax administration data on this topic, as well as other types of taxes, choose from the links below.

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Page Last Reviewed or Updated: 27-Feb-2014

The Filing 2012 Tax Returns

Filing 2012 tax returns Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Filing 2012 tax returns More information. Filing 2012 tax returns Exception—Community Income. Filing 2012 tax returns Exception—Qualified joint venture. Filing 2012 tax returns More information. Filing 2012 tax returns More information. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns Table 1 can help you learn what those responsibilities are. Filing 2012 tax returns Ask yourself each question listed in the table, then see the related discussion to find the answer. Filing 2012 tax returns In addition to knowing about federal taxes, you need to make some basic business decisions. Filing 2012 tax returns 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. Filing 2012 tax returns For information on how to contact the SBA, see How to Get More Information, later. Filing 2012 tax returns Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Filing 2012 tax returns When beginning a business, you must decide which form of business to use. Filing 2012 tax returns Legal and tax considerations enter into this decision. Filing 2012 tax returns Only tax considerations are discussed in this publication. Filing 2012 tax returns Your form of business determines which income tax return form you have to file. Filing 2012 tax returns See Table 2 to find out which form you have to file. Filing 2012 tax returns Sole proprietorships. Filing 2012 tax returns   A sole proprietorship is an unincorporated business that is owned by one individual. Filing 2012 tax returns It is the simplest form of business organization to start and maintain. Filing 2012 tax returns The business has no existence apart from you, the owner. Filing 2012 tax returns Its liabilities are your personal liabilities. Filing 2012 tax returns You undertake the risks of the business for all assets owned, whether or not used in the business. Filing 2012 tax returns You include the income and expenses of the business on your personal tax return. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Filing 2012 tax returns If you are a farmer, see Publication 225, Farmer's Tax Guide. Filing 2012 tax returns Partnerships. Filing 2012 tax returns   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Filing 2012 tax returns Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Filing 2012 tax returns   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Filing 2012 tax returns , from its operations, but it does not pay income tax. Filing 2012 tax returns Instead, it “passes through” any profits or losses to its partners. Filing 2012 tax returns Each partner includes his or her share of the partnership's items on his or her tax return. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information on partnerships, see Publication 541, Partnerships. Filing 2012 tax returns Husband and wife business. Filing 2012 tax returns   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. Filing 2012 tax returns Do not use Schedule C or C-EZ. Filing 2012 tax returns Instead, file Form 1065, U. Filing 2012 tax returns S. Filing 2012 tax returns Return of Partnership Income. Filing 2012 tax returns For more information, see Publication 541, Partnerships. Filing 2012 tax returns Exception—Community Income. Filing 2012 tax returns   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. Filing 2012 tax returns S. Filing 2012 tax returns possession, you can treat the business either as a sole proprietorship or a partnership. Filing 2012 tax returns The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Filing 2012 tax returns A change in your reporting position will be treated as a conversion of the entity. Filing 2012 tax returns Exception—Qualified joint venture. Filing 2012 tax returns   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. Filing 2012 tax returns 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. Filing 2012 tax returns For an explanation of "material participation," see the Instructions for Schedule C, line G. Filing 2012 tax returns   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. Filing 2012 tax returns Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Filing 2012 tax returns For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Filing 2012 tax returns Corporations. Filing 2012 tax returns   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Filing 2012 tax returns A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Filing 2012 tax returns A corporation can also take special deductions. Filing 2012 tax returns   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Filing 2012 tax returns However, shareholders cannot deduct any loss of the corporation. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information on corporations, see Publication 542, Corporations. Filing 2012 tax returns S corporations. Filing 2012 tax returns   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. Filing 2012 tax returns Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Filing 2012 tax returns 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. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Filing 2012 tax returns S. Filing 2012 tax returns Income Tax Return for an S Corporation. Filing 2012 tax returns Limited liability company. Filing 2012 tax returns   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Filing 2012 tax returns The members of an LLC are not personally liable for its debts. Filing 2012 tax returns 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. Filing 2012 tax returns 7701-3. Filing 2012 tax returns For more information, see the instructions for Form 8832, Entity Classification Election. Filing 2012 tax returns Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Filing 2012 tax returns The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Filing 2012 tax returns An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Filing 2012 tax returns An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Filing 2012 tax returns You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Filing 2012 tax returns You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Filing 2012 tax returns This includes returns or documents filed to report the following information. Filing 2012 tax returns Interest, dividends, royalties, etc. Filing 2012 tax returns , paid to you. Filing 2012 tax returns Any amount paid to you as a dependent care provider. Filing 2012 tax returns Certain other amounts paid to you that total $600 or more for the year. Filing 2012 tax returns If you do not furnish your identification number as required, you may be subject to penalties. Filing 2012 tax returns See Penalties, later. Filing 2012 tax returns Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Filing 2012 tax returns 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. Filing 2012 tax returns Applying for an EIN. Filing 2012 tax returns   You may apply for an EIN: Online—Click on the EIN link at www. Filing 2012 tax returns irs. Filing 2012 tax returns gov/businesses/small. Filing 2012 tax returns The EIN is issued immediately once the application information is validated. Filing 2012 tax returns By telephone at 1-800-829-4933. Filing 2012 tax returns By mailing or faxing Form SS-4, Application for Employer Identification Number. Filing 2012 tax returns When to apply. Filing 2012 tax returns   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. Filing 2012 tax returns If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Filing 2012 tax returns If you apply by telephone or through the IRS website, you can get an EIN immediately. Filing 2012 tax returns If you apply by fax, you can get an EIN within 4 business days. Filing 2012 tax returns   If you do not receive your EIN by the time a return is due, file your return anyway. Filing 2012 tax returns Write “Applied for” and the date you applied for the number in the space for the EIN. Filing 2012 tax returns Do not use your social security number as a substitute for an EIN on your tax returns. Filing 2012 tax returns More than one EIN. Filing 2012 tax returns   You should have only one EIN. Filing 2012 tax returns 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. Filing 2012 tax returns Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Filing 2012 tax returns The IRS will tell you which number to use. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information about EINs, see Publication 1635, Understanding Your EIN. Filing 2012 tax returns 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). Filing 2012 tax returns The forms used to report these payments must include the payee's identification number. Filing 2012 tax returns Employee. Filing 2012 tax returns   If you have employees, you must get an SSN from each of them. Filing 2012 tax returns Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Filing 2012 tax returns If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Filing 2012 tax returns This may occur, for example, if the employee's name has changed due to marriage or divorce. Filing 2012 tax returns   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. Filing 2012 tax returns This form is available at SSA offices or by calling 1-800-772-1213. Filing 2012 tax returns It is also available from the SSA website at www. Filing 2012 tax returns ssa. Filing 2012 tax returns gov. Filing 2012 tax returns Other payee. Filing 2012 tax returns   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. Filing 2012 tax returns If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Filing 2012 tax returns   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Filing 2012 tax returns This form is available from IRS offices or by calling 1-800-829-3676. Filing 2012 tax returns It is also available from the IRS website at IRS. Filing 2012 tax returns gov. Filing 2012 tax returns    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Filing 2012 tax returns For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Filing 2012 tax returns Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Filing 2012 tax returns A tax year is usually 12 consecutive months. Filing 2012 tax returns There are two kinds of tax years. Filing 2012 tax returns Calendar tax year. Filing 2012 tax returns A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Filing 2012 tax returns Fiscal tax year. Filing 2012 tax returns A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns You must use a calendar tax year if: You keep no books. Filing 2012 tax returns You have no annual accounting period. Filing 2012 tax returns Your present tax year does not qualify as a fiscal year. Filing 2012 tax returns You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Filing 2012 tax returns For more information, see Publication 538, Accounting Periods and Methods. Filing 2012 tax returns First-time filer. Filing 2012 tax returns   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Filing 2012 tax returns You adopt a tax year by filing your first income tax return using that tax year. Filing 2012 tax returns You have not adopted a tax year if you merely did any of the following. Filing 2012 tax returns Filed an application for an extension of time to file an income tax return. Filing 2012 tax returns Filed an application for an employer identification number. Filing 2012 tax returns Paid estimated taxes for that tax year. Filing 2012 tax returns Changing your tax year. Filing 2012 tax returns   Once you have adopted your tax year, you may have to get IRS approval to change it. Filing 2012 tax returns To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Filing 2012 tax returns You may have to pay a fee. Filing 2012 tax returns For more information, see Publication 538. Filing 2012 tax returns Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Filing 2012 tax returns You choose an accounting method for your business when you file your first income tax return. Filing 2012 tax returns There are two basic accounting methods. Filing 2012 tax returns Cash method. Filing 2012 tax returns Under the cash method, you report income in the tax year you receive it. Filing 2012 tax returns You usually deduct or capitalize expenses in the tax year you pay them. Filing 2012 tax returns Accrual method. Filing 2012 tax returns 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. Filing 2012 tax returns You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Filing 2012 tax returns For other methods, see Publication 538. Filing 2012 tax returns If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Filing 2012 tax returns Inventories include goods held for sale in the normal course of business. Filing 2012 tax returns They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Filing 2012 tax returns Inventories are explained in Publication 538. Filing 2012 tax returns 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. Filing 2012 tax returns For more information, see Publication 538. Filing 2012 tax returns You must use the same accounting method to figure your taxable income and to keep your books. Filing 2012 tax returns Also, you must use an accounting method that clearly shows your income. Filing 2012 tax returns In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Filing 2012 tax returns An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Filing 2012 tax returns More than one business. Filing 2012 tax returns   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. Filing 2012 tax returns You must keep a complete and separate set of books and records for each business. Filing 2012 tax returns Changing your method of accounting. Filing 2012 tax returns   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Filing 2012 tax returns 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. Filing 2012 tax returns For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Filing 2012 tax returns Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Filing 2012 tax returns The following are the four general kinds of business taxes. Filing 2012 tax returns Income tax. Filing 2012 tax returns Self-employment tax. Filing 2012 tax returns Employment taxes. Filing 2012 tax returns Excise taxes. Filing 2012 tax returns See Table 2 for the forms you file to report these taxes. Filing 2012 tax returns You may want to get Publication 509. Filing 2012 tax returns It has tax calendars that tell you when to file returns and make tax payments. Filing 2012 tax returns Income Tax All businesses except partnerships must file an annual income tax return. Filing 2012 tax returns Partnerships file an information return. Filing 2012 tax returns Which form you use depends on how your business is organized. Filing 2012 tax returns See Table 2 to find out which return you have to file. Filing 2012 tax returns The federal income tax is a pay-as-you-go tax. Filing 2012 tax returns You must pay the tax as you earn or receive income during the year. Filing 2012 tax returns An employee usually has income tax withheld from his or her pay. Filing 2012 tax returns If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Filing 2012 tax returns If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Filing 2012 tax returns Table 2. Filing 2012 tax returns Which Forms Must I File? IF you are a. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns   THEN you may be liable for. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns   Use Form. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns 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. Filing 2012 tax returns 2 Various other schedules may be needed. Filing 2012 tax returns Estimated tax. Filing 2012 tax returns   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Filing 2012 tax returns Sole proprietors, partners, and S corporation shareholders. Filing 2012 tax returns   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Filing 2012 tax returns Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Filing 2012 tax returns For more information, see Publication 505, Tax Withholding and Estimated Tax. Filing 2012 tax returns Corporations. Filing 2012 tax returns   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. Filing 2012 tax returns Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Filing 2012 tax returns You must deposit the payments as explained later under Depositing Taxes. Filing 2012 tax returns For more information, see Publication 542. Filing 2012 tax returns Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Filing 2012 tax returns Your payments of SE tax contribute to your coverage under the social security system. Filing 2012 tax returns Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Filing 2012 tax returns You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Filing 2012 tax returns Your net earnings from self-employment were $400 or more. Filing 2012 tax returns You had church employee income of $108. Filing 2012 tax returns 28 or more. Filing 2012 tax returns Use Schedule SE (Form 1040) to figure your SE tax. Filing 2012 tax returns For more information, see Publication 334, Tax Guide for Small Business. Filing 2012 tax returns You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Filing 2012 tax returns The Social Security Administration (SSA) time limit for posting self-employment income. Filing 2012 tax returns   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. Filing 2012 tax returns 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. Filing 2012 tax returns The SSA will not change its records to increase your self-employment income. Filing 2012 tax returns 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. Filing 2012 tax returns Employment taxes include the following. Filing 2012 tax returns Social security and Medicare taxes. Filing 2012 tax returns Federal income tax withholding. Filing 2012 tax returns Federal unemployment (FUTA) tax. Filing 2012 tax returns If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Filing 2012 tax returns If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Filing 2012 tax returns These publications explain your tax responsibilities as an employer. Filing 2012 tax returns If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Filing 2012 tax returns That publication has information to help you determine whether an individual is an employee or an independent contractor. Filing 2012 tax returns If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Filing 2012 tax returns An independent contractor is someone who is self-employed. Filing 2012 tax returns Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Filing 2012 tax returns Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Filing 2012 tax returns 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. Filing 2012 tax returns Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Filing 2012 tax returns Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Filing 2012 tax returns Medicare tax pays for benefits under the hospital insurance part of FICA. Filing 2012 tax returns You withhold part of these taxes from your employee's wages and you pay a part yourself. Filing 2012 tax returns To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Filing 2012 tax returns 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. Filing 2012 tax returns (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Filing 2012 tax returns ) 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. Filing 2012 tax returns You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Filing 2012 tax returns You pay FUTA tax only from your own funds. Filing 2012 tax returns Employees do not pay this tax or have it withheld from their pay. Filing 2012 tax returns Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Filing 2012 tax returns See Publication 15 to find out if you can use this form. Filing 2012 tax returns Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Filing 2012 tax returns Form I-9. Filing 2012 tax returns   You must verify that each new employee is legally eligible to work in the United States. Filing 2012 tax returns Both you and the employee must complete the U. Filing 2012 tax returns S. Filing 2012 tax returns Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Filing 2012 tax returns You can get the form from USCIS offices or from the USCIS website at www. Filing 2012 tax returns uscis. Filing 2012 tax returns gov. Filing 2012 tax returns Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Filing 2012 tax returns Form W-4. Filing 2012 tax returns   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Filing 2012 tax returns 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. Filing 2012 tax returns For more information, see Publication 15. Filing 2012 tax returns Employees claiming more than 10 withholding allowances. Filing 2012 tax returns   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Filing 2012 tax returns See section 16 of Publication 15. Filing 2012 tax returns 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. Filing 2012 tax returns You must also send copies to the Social Security Administration. Filing 2012 tax returns See Information Returns, later, for more information on Form W-2. Filing 2012 tax returns 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. Filing 2012 tax returns Manufacture or sell certain products. Filing 2012 tax returns Operate certain kinds of businesses. Filing 2012 tax returns Use various kinds of equipment, facilities, or products. Filing 2012 tax returns Receive payment for certain services. Filing 2012 tax returns For more information on excise taxes, see Publication 510, Excise Taxes. Filing 2012 tax returns Form 720. Filing 2012 tax returns   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Filing 2012 tax returns Environmental taxes. Filing 2012 tax returns Communications and air transportation taxes. Filing 2012 tax returns Fuel taxes. Filing 2012 tax returns Tax on the first retail sale of heavy trucks, trailers, and tractors. Filing 2012 tax returns Manufacturers taxes on the sale or use of a variety of different articles. Filing 2012 tax returns Form 2290. Filing 2012 tax returns   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Filing 2012 tax returns The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Filing 2012 tax returns Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Filing 2012 tax returns For more information, see the instructions for Form 2290. Filing 2012 tax returns Form 730. Filing 2012 tax returns   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. Filing 2012 tax returns Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Filing 2012 tax returns Form 11-C. Filing 2012 tax returns   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. Filing 2012 tax returns Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Filing 2012 tax returns Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Filing 2012 tax returns Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Filing 2012 tax returns Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Filing 2012 tax returns Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Filing 2012 tax returns 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. Filing 2012 tax returns You must give a copy of each information return you are required to file to the recipient or payer. Filing 2012 tax returns In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Filing 2012 tax returns For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Filing 2012 tax returns Form 1099-MISC. Filing 2012 tax returns   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Filing 2012 tax returns These payments include the following items. Filing 2012 tax returns 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. Filing 2012 tax returns Rent payments of $600 or more, other than rents paid to real estate agents. Filing 2012 tax returns Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Filing 2012 tax returns Royalty payments of $10 or more. Filing 2012 tax returns Payments to certain crew members by operators of fishing boats. Filing 2012 tax returns 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. Filing 2012 tax returns Form W-2. Filing 2012 tax returns   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. Filing 2012 tax returns For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Filing 2012 tax returns Form 8300. Filing 2012 tax returns   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. Filing 2012 tax returns Cash includes U. Filing 2012 tax returns S. Filing 2012 tax returns and foreign coin and currency. Filing 2012 tax returns It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Filing 2012 tax returns For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Filing 2012 tax returns Penalties The law provides penalties for not filing returns or paying taxes as required. Filing 2012 tax returns Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Filing 2012 tax returns Failure to file tax returns. Filing 2012 tax returns   If you do not file your tax return by the due date, you may have to pay a penalty. Filing 2012 tax returns The penalty is based on the tax not paid by the due date. Filing 2012 tax returns See your tax return instructions for more information about this penalty. Filing 2012 tax returns Failure to pay tax. Filing 2012 tax returns   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. Filing 2012 tax returns For more information, see your tax return instructions. Filing 2012 tax returns Failure to withhold, deposit, or pay taxes. Filing 2012 tax returns   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. Filing 2012 tax returns You may also be subject to penalties if you deposit the taxes late. Filing 2012 tax returns For more information, see Publication 15. Filing 2012 tax returns Failure to follow information reporting requirements. Filing 2012 tax returns   The following penalties apply if you are required to file information returns. Filing 2012 tax returns For more information, see the General Instructions for Certain Information Returns. Filing 2012 tax returns Failure to file information returns. Filing 2012 tax returns 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. Filing 2012 tax returns Failure to furnish correct payee statements. Filing 2012 tax returns 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. Filing 2012 tax returns Waiver of penalty. Filing 2012 tax returns   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Filing 2012 tax returns   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. Filing 2012 tax returns (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. Filing 2012 tax returns ) Failure to supply taxpayer identification number. Filing 2012 tax returns   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. Filing 2012 tax returns 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. Filing 2012 tax returns Business Expenses You can deduct business expenses on your income tax return. Filing 2012 tax returns These are the current operating costs of running your business. Filing 2012 tax returns To be deductible, a business expense must be both ordinary and necessary. Filing 2012 tax returns An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Filing 2012 tax returns A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Filing 2012 tax returns An expense does not have to be indispensable to be considered necessary. Filing 2012 tax returns The following are brief explanations of some expenses that are of interest to people starting a business. Filing 2012 tax returns There are many other expenses that you may be able to deduct. Filing 2012 tax returns See your form instructions and Publication 535, Business Expenses. Filing 2012 tax returns Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Filing 2012 tax returns Your business start-up costs will depend on the type of business you are starting. Filing 2012 tax returns They may include costs for advertising, travel, surveys, and training. Filing 2012 tax returns These costs are generally capital expenses. Filing 2012 tax returns You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Filing 2012 tax returns 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. Filing 2012 tax returns The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Filing 2012 tax returns Any remaining cost must be amortized. Filing 2012 tax returns For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Filing 2012 tax returns 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. Filing 2012 tax returns You must spread the cost over more than one tax year and deduct part of it each year. Filing 2012 tax returns This method of deducting the cost of business property is called depreciation. Filing 2012 tax returns Business property you must depreciate includes the following items. Filing 2012 tax returns Office furniture. Filing 2012 tax returns Buildings. Filing 2012 tax returns Machinery and equipment. Filing 2012 tax returns You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Filing 2012 tax returns This deduction is known as the “section 179 deduction. Filing 2012 tax returns ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Filing 2012 tax returns Depreciation must be taken in the year it is allowable. Filing 2012 tax returns Allowable depreciation not taken in a prior year cannot be taken in the current year. Filing 2012 tax returns If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Filing 2012 tax returns S. Filing 2012 tax returns Individual Income Tax Return, or by changing your accounting method. Filing 2012 tax returns For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Filing 2012 tax returns Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Filing 2012 tax returns Even then, your deduction may be limited. Filing 2012 tax returns To qualify to claim expenses for business use of your home, you must meet both the following tests. Filing 2012 tax returns 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. Filing 2012 tax returns Exclusive use. Filing 2012 tax returns   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Filing 2012 tax returns The area used for business can be a room or other separately identifiable space. Filing 2012 tax returns The space does not need to be marked off by a permanent partition. Filing 2012 tax returns   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. Filing 2012 tax returns Exceptions to exclusive use. Filing 2012 tax returns   You do not have to meet the exclusive use test if either of the following applies. Filing 2012 tax returns You use part of your home for the storage of inventory or product samples. Filing 2012 tax returns You use part of your home as a daycare facility. Filing 2012 tax returns For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Filing 2012 tax returns Principal place of business. Filing 2012 tax returns   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Filing 2012 tax returns You use it exclusively and regularly for administrative or management activities of your trade or business. Filing 2012 tax returns You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Filing 2012 tax returns   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. Filing 2012 tax returns The relative importance of the activities performed at each location. Filing 2012 tax returns If the relative importance factor does not determine your principal place of business, the time spent at each location. Filing 2012 tax returns    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Filing 2012 tax returns However, for other ways to qualify to deduct home office expenses, see Publication 587. Filing 2012 tax returns 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. Filing 2012 tax returns If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Filing 2012 tax returns More information. Filing 2012 tax returns   For more information about business use of your home, see Publication 587. Filing 2012 tax returns Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Filing 2012 tax returns You generally can deduct either your actual expenses or the standard mileage rate. Filing 2012 tax returns Actual expenses. Filing 2012 tax returns   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. Filing 2012 tax returns You can divide your expenses based on the miles driven for each purpose. Filing 2012 tax returns Example. Filing 2012 tax returns You are the sole proprietor of a flower shop. Filing 2012 tax returns You drove your van 20,000 miles during the year. Filing 2012 tax returns 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Filing 2012 tax returns You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Filing 2012 tax returns Standard mileage rate. Filing 2012 tax returns   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. Filing 2012 tax returns You can use the standard mileage rate for a vehicle you own or lease. Filing 2012 tax returns The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Filing 2012 tax returns It is announced annually by the IRS. Filing 2012 tax returns To figure your deduction, multiply your business miles by the standard mileage rate for the year. Filing 2012 tax returns    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Filing 2012 tax returns However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Filing 2012 tax returns Choosing the standard mileage rate. Filing 2012 tax returns   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. Filing 2012 tax returns In later years, you can choose to use either the standard mileage rate or actual expenses. Filing 2012 tax returns   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). Filing 2012 tax returns Additional information. Filing 2012 tax returns   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Filing 2012 tax returns Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Filing 2012 tax returns It also explains how long you must keep your records for federal tax purposes. Filing 2012 tax returns A sample recordkeeping system is illustrated at the end of this part. Filing 2012 tax returns Why Keep Records? Everyone in business must keep records. Filing 2012 tax returns Good records will help you do the following. Filing 2012 tax returns Monitor the progress of your business. Filing 2012 tax returns   You need good records to monitor the progress of your business. Filing 2012 tax returns Records can show whether your business is improving, which items are selling, or what changes you need to make. Filing 2012 tax returns Good records can increase the likelihood of business success. Filing 2012 tax returns Prepare your financial statements. Filing 2012 tax returns   You need good records to prepare accurate financial statements. Filing 2012 tax returns These include income (profit and loss) statements and balance sheets. Filing 2012 tax returns These statements can help you in dealing with your bank or creditors and help you manage your business. Filing 2012 tax returns An income statement shows the income and expenses of the business for a given period of time. Filing 2012 tax returns A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Filing 2012 tax returns Identify source of receipts. Filing 2012 tax returns   You will receive money or property from many sources. Filing 2012 tax returns Your records can identify the source of your receipts. Filing 2012 tax returns You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Filing 2012 tax returns Keep track of deductible expenses. Filing 2012 tax returns   You may forget expenses when you prepare your tax return unless you record them when they occur. Filing 2012 tax returns Prepare your tax returns. Filing 2012 tax returns   You need good records to prepare your tax returns. Filing 2012 tax returns These records must support the income, expenses, and credits you report. Filing 2012 tax returns Generally, these are the same records you use to monitor your business and prepare your financial statements. Filing 2012 tax returns Support items reported on tax returns. Filing 2012 tax returns   You must keep your business records available at all times for inspection by the IRS. Filing 2012 tax returns If the IRS examines any of your tax returns, you may be asked to explain the items reported. Filing 2012 tax returns A complete set of records will speed up the examination. Filing 2012 tax returns Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Filing 2012 tax returns You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Filing 2012 tax returns The business you are in affects the type of records you need to keep for federal tax purposes. Filing 2012 tax returns You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Filing 2012 tax returns See Accounting Method, earlier. Filing 2012 tax returns If you are in more than one business, you should keep a complete and separate set of records for each business. Filing 2012 tax returns A corporation should keep minutes of board of directors' meetings. Filing 2012 tax returns Your recordkeeping system should include a summary of your business transactions. Filing 2012 tax returns This summary is ordinarily made in your books (for example, accounting journals and ledgers). Filing 2012 tax returns Your books must show your gross income, as well as your deductions and credits. Filing 2012 tax returns For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Filing 2012 tax returns In addition, you must keep supporting documents, explained later. Filing 2012 tax returns Electronic records. Filing 2012 tax returns   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Filing 2012 tax returns All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Filing 2012 tax returns Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Filing 2012 tax returns   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. Filing 2012 tax returns You still have the responsibility of retaining any other books and records that are required to be retained. Filing 2012 tax returns   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Filing 2012 tax returns This test is not considered an examination and the results must be shared with you. Filing 2012 tax returns If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Filing 2012 tax returns 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. Filing 2012 tax returns For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Filing 2012 tax returns Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Filing 2012 tax returns Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Filing 2012 tax returns These documents contain information you need to record in your books. Filing 2012 tax returns It is important to keep these documents because they support the entries in your books and on your tax return. Filing 2012 tax returns Keep them in an orderly fashion and in a safe place. Filing 2012 tax returns For instance, organize them by year and type of income or expense. Filing 2012 tax returns Gross receipts. Filing 2012 tax returns   Gross receipts are the income you receive from your business. Filing 2012 tax returns You should keep supporting documents that show the amounts and sources of your gross receipts. Filing 2012 tax returns Documents that show gross receipts include the following. Filing 2012 tax returns Cash register tapes. Filing 2012 tax returns Bank deposit slips. Filing 2012 tax returns Receipt books. Filing 2012 tax returns Invoices. Filing 2012 tax returns Credit card charge slips. Filing 2012 tax returns Forms 1099-MISC. Filing 2012 tax returns Purchases. Filing 2012 tax returns   Purchases are the items you buy and resell to customers. Filing 2012 tax returns If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Filing 2012 tax returns Your supporting documents should show the amount paid and that the amount was for purchases. Filing 2012 tax returns Documents for purchases include the following. Filing 2012 tax returns Canceled checks. Filing 2012 tax returns Cash register tape receipts. Filing 2012 tax returns Credit card sales slips. Filing 2012 tax returns Invoices. Filing 2012 tax returns These records will help you determine the value of your inventory at the end of the year. Filing 2012 tax returns See Publication 538 for information on methods for valuing inventory. Filing 2012 tax returns Expenses. Filing 2012 tax returns   Expenses are the costs you incur (other than purchases) to carry on your business. Filing 2012 tax returns Your supporting documents should show the amount paid and that the amount was for a business expense. Filing 2012 tax returns Documents for expenses include the following. Filing 2012 tax returns Canceled checks. Filing 2012 tax returns Cash register tapes. Filing 2012 tax returns Account statements. Filing 2012 tax returns Credit card sales slips. Filing 2012 tax returns Invoices. Filing 2012 tax returns Petty cash slips for small cash payments. Filing 2012 tax returns    A petty cash fund allows you to make small payments without having to write checks for small amounts. Filing 2012 tax returns 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. Filing 2012 tax returns Travel, transportation, entertainment, and gift expenses. Filing 2012 tax returns   Specific recordkeeping rules apply to these expenses. Filing 2012 tax returns For more information, see Publication 463. Filing 2012 tax returns Employment taxes. Filing 2012 tax returns   There are specific employment tax records you must keep. Filing 2012 tax returns For a list, see Publication 15. Filing 2012 tax returns Assets. Filing 2012 tax returns   Assets are the property, such as machinery and furniture you own and use in your business. Filing 2012 tax returns You must keep records to verify certain information about your business assets. Filing 2012 tax returns You need records to figure the annual depreciation and the gain or loss when you sell the assets. Filing 2012 tax returns Your records should show the following information. Filing 2012 tax returns When and how you acquired the asset. Filing 2012 tax returns Purchase price. Filing 2012 tax returns Cost of any improvements. Filing 2012 tax returns Section 179 deduction taken. Filing 2012 tax returns Deductions taken for depreciation. Filing 2012 tax returns Deductions taken for casualty losses, such as losses resulting from fires or storms. Filing 2012 tax returns How you used the asset. Filing 2012 tax returns When and how you disposed of the asset. Filing 2012 tax returns Selling price. Filing 2012 tax returns Expenses of sale. Filing 2012 tax returns   The following documents may show this information. Filing 2012 tax returns Purchase and sales invoices. Filing 2012 tax returns Real estate closing statements. Filing 2012 tax returns Canceled checks. Filing 2012 tax returns 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. Filing 2012 tax returns These include account statements prepared for the financial institution by a third party. Filing 2012 tax returns These account statements must be highly legible. Filing 2012 tax returns The following table lists acceptable account statements. Filing 2012 tax returns  IF payment is by. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns THEN the statement must show the. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns Check Check number. Filing 2012 tax returns Amount. Filing 2012 tax returns Payee's name. Filing 2012 tax returns Date the check amount was posted to the account by the financial institution. Filing 2012 tax returns Electronic funds transfer Amount transferred. Filing 2012 tax returns Payee's name. Filing 2012 tax returns Date the transfer was posted to the account by the financial institution. Filing 2012 tax returns Credit card Amount charged. Filing 2012 tax returns Payee's name. Filing 2012 tax returns Transaction date. Filing 2012 tax returns    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Filing 2012 tax returns You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Filing 2012 tax returns Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Filing 2012 tax returns (Your business transactions are shown on the supporting documents just discussed. Filing 2012 tax returns ) Business transactions are ordinarily summarized in books called journals and ledgers. Filing 2012 tax returns You can buy them at your local stationery or office supply store. Filing 2012 tax returns A journal is a book where you record each business transaction shown on your supporting documents. Filing 2012 tax returns You may have to keep separate journals for transactions that occur frequently. Filing 2012 tax returns A ledger is a book that contains the totals from all of your journals. Filing 2012 tax returns It is organized into different accounts. Filing 2012 tax returns Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Filing 2012 tax returns For example, a recordkeeping system for a small business might include the following items. Filing 2012 tax returns Business checkbook. Filing 2012 tax returns Daily summary of cash receipts. Filing 2012 tax returns Monthly summary of cash receipts. Filing 2012 tax returns Check disbursements journal. Filing 2012 tax returns Depreciation worksheet. Filing 2012 tax returns Employee compensation record. Filing 2012 tax returns The business checkbook is explained next. Filing 2012 tax returns The other items are illustrated later under Sample Record System. Filing 2012 tax returns The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Filing 2012 tax returns For example, record expenses when they occur, and identify the source of recorded receipts. Filing 2012 tax returns Generally, it is best to record transactions on a daily basis. Filing 2012 tax returns Business checkbook. Filing 2012 tax returns   One of the first things you should do when you start a business is open a business checking account. Filing 2012 tax returns You should keep your business account separate from your personal checking account. Filing 2012 tax returns   The business checkbook is your basic source of information for recording your business expenses. Filing 2012 tax returns You should deposit all daily receipts in your business checking account. Filing 2012 tax returns You should check your account for errors by reconciling it. Filing 2012 tax returns See Reconciling the checking account, later. Filing 2012 tax returns   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Filing 2012 tax returns You should also note on the deposit slip the source of the deposit and keep copies of all slips. Filing 2012 tax returns   You should make all payments by check to document business expenses. Filing 2012 tax returns Write checks payable to yourself only when making withdrawals from your business for personal use. Filing 2012 tax returns Avoid writing checks payable to cash. Filing 2012 tax returns If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Filing 2012 tax returns If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Filing 2012 tax returns    Use the business account for business purposes only. Filing 2012 tax returns Indicate the source of deposits and the type of expense in the checkbook. Filing 2012 tax returns Reconciling the checking account. Filing 2012 tax returns   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Filing 2012 tax returns 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. Filing 2012 tax returns   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. Filing 2012 tax returns    You should reconcile your checking account each month. Filing 2012 tax returns     Before you reconcile your monthly bank statement, check your own figures. Filing 2012 tax returns Begin with the balance shown in your checkbook at the end of the previous month. Filing 2012 tax returns To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Filing 2012 tax returns   After checking your figures, the result should agree with your checkbook balance at the end of the month. Filing 2012 tax returns If the result does not agree, you may have made an error in recording a check or deposit. Filing 2012 tax returns You can find the error by doing the following. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns Adding the deposit amounts in your checkbook. Filing 2012 tax returns Compare that total with the monthly total in your cash receipt book, if you have one. Filing 2012 tax returns If the totals do not agree, check the individual amounts to find any errors. Filing 2012 tax returns   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Filing 2012 tax returns   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Filing 2012 tax returns Many banks print a reconciliation worksheet on the back of the statement. Filing 2012 tax returns   To reconcile your account, follow these steps. Filing 2012 tax returns Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Filing 2012 tax returns Note all differences in the dollar amounts. Filing 2012 tax returns Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Filing 2012 tax returns Note all differences in the dollar amounts. Filing 2012 tax returns Mark the check number in the checkbook as having cleared the bank. Filing 2012 tax returns After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Filing 2012 tax returns Prepare a bank reconciliation. Filing 2012 tax returns One is illustrated later under Sample Record System. Filing 2012 tax returns Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Filing 2012 tax returns At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Filing 2012 tax returns If you still have differences, check the previous steps to find the errors. Filing 2012 tax returns   Table 3. Filing 2012 tax returns Period of Limitations IF you. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns   THEN the period is. Filing 2012 tax returns . Filing 2012 tax returns . Filing 2012 tax returns 1. Filing 2012 tax returns Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Filing 2012 tax returns 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. Filing 2012 tax returns File a fraudulent return   Not limited 4. Filing 2012 tax returns Do not file a return   Not limited 5. Filing 2012 tax returns File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Filing 2012 tax returns 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. Filing 2012 tax returns The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Filing 2012 tax returns You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Filing 2012 tax returns Single-entry. Filing 2012 tax returns   A single-entry system is based on the income statement (profit or loss statement). Filing 2012 tax returns It can be a simple and practical system if you are starting a small business. Filing 2012 tax returns 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. Filing 2012 tax returns Double-entry. Filing 2012 tax returns   A double-entry bookkeeping system uses journals and ledgers. Filing 2012 tax returns Transactions are first entered in a journal and then posted to ledger accounts. Filing 2012 tax returns These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Filing 2012 tax returns You close income and expense accounts at the end of each tax year. Filing 2012 tax returns You keep asset, liability, and net worth accounts open on a permanent basis. Filing 2012 tax returns   In the double-entry system, each account has a left side for debits and a right side for credits. Filing 2012 tax returns It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Filing 2012 tax returns   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Filing 2012 tax returns If the amounts do not balance, you have made an error and you must find and correct it. Filing 2012 tax returns   An example of a journal entry exhibiting a payment of rent in October is shown next. Filing 2012 tax returns General Journal Date Description of Entry Debit  Credit Oct. Filing 2012 tax returns 5 Rent expense 780. Filing 2012 tax returns 00     Cash   780. Filing 2012 tax returns 00                 Computerized System There are computer software packages you can use for recordkeeping. Filing 2012 tax returns They can be purchased in many retail stores. Filing 2012 tax returns These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Filing 2012 tax returns 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. Filing 2012 tax returns To meet this qualification, the machine-sensible records must reconcile with your books and return. Filing 2012 tax returns These records must provide enough detail to identify the underlying source documents. Filing 2012 tax returns You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Filing 2012 tax returns This documentation must be sufficiently detailed to show all of the following items. Filing 2012 tax returns Functions being performed as the data flows through the system. Filing 2012 tax returns Controls used to ensure accurate and reliable processing. Filing 2012 tax returns Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Filing 2012 tax returns Charts of accounts and detailed account descriptions. Filing 2012 tax returns See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns 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. Filing 2012 tax returns Table 3 contains the periods of limitations that apply to income tax returns. Filing 2012 tax returns Unless otherwise stated, the years refer to the period after the return was filed. Filing 2012 tax returns Returns filed before the due date are treated as filed on the due date. Filing 2012 tax returns Keep copies of your filed tax returns. Filing 2012 tax returns They help in preparing future tax returns and making computations if you file an amended return. Filing 2012 tax returns Employment taxes. Filing 2012 tax returns   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. Filing 2012 tax returns For more information about recordkeeping for employment taxes, see Publication 15. Filing 2012 tax returns Assets. Filing 2012 tax returns   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. Filing 2012 tax returns 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. Filing 2012 tax returns   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. Filing 2012 tax returns 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. Filing 2012 tax returns Records for nontax purposes. Filing 2012 tax returns   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. Filing 2012 tax returns For example, your insurance company or creditors may require you to keep them longer than the IRS does. Filing 2012 tax returns 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. Filing 2012 tax returns Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Filing 2012 tax returns These sample records should not be viewed as a recommendation of how to keep your records. Filing 2012 tax returns They are intended only to show how one business keeps its records. Filing 2012 tax returns 1. Filing 2012 tax returns Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Filing 2012 tax returns 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. Filing 2012 tax returns Henry takes the cash sales entry from his cash register tape. Filing 2012 tax returns If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Filing 2012 tax returns He carries the total receipts shown in this summary for January 3 ($267. Filing 2012 tax returns 80), including cash sales ($263. Filing 2012 tax returns 60) and sales tax ($4. Filing 2012 tax returns 20), to the Monthly Summary of Cash Receipts. Filing 2012 tax returns Petty cash fund. Filing 2012 tax returns   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Filing 2012 tax returns 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. Filing 2012 tax returns He sets up a fixed amount ($50) in his petty cash fund. Filing 2012 tax returns The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Filing 2012 tax returns 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. Filing 2012 tax returns (See the Check Disbursements Journal entry for check number 92. Filing 2012 tax returns ) This restores the fund to its fixed amount of $50. Filing 2012 tax returns He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Filing 2012 tax returns 2. Filing 2012 tax returns Monthly Summary of Cash Receipts This shows the income activity for the month. Filing 2012 tax returns Henry carries the total monthly net sales shown in this summary for January ($4,865. Filing 2012 tax returns 05) to his Annual Summary. Filing 2012 tax returns 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. Filing 2012 tax returns He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Filing 2012 tax returns He does not include the tax in his income. Filing 2012 tax returns 3. Filing 2012 tax returns Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Filing 2012 tax returns All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Filing 2012 tax returns Frequent expenses have their own headings across the sheet. Filing 2012 tax returns He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Filing 2012 tax returns Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Filing 2012 tax returns Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Filing 2012 tax returns If he did, he would record them in the journal, even though he could not deduct them as business expenses. Filing 2012 tax returns Henry carries the January total of expenses for materials ($1,083. Filing 2012 tax returns 50) to the Annual Summary. Filing 2012 tax returns Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Filing 2012 tax returns , in the appropriate columns of that summary. Filing 2012 tax returns 4. Filing 2012 tax returns Employee Compensation Record This record shows the following information. Filing 2012 tax returns The number of hours Henry's employee worked in a pay period. Filing 2012 tax returns The employee's total pay for the period. Filing 2012 tax returns The deductions Henry withheld in figuring the employee's net pay. Filing 2012 tax returns The monthly gross payroll. Filing 2012 tax returns Henry carries the January gross payroll ($520) to the Annual Summary. Filing 2012 tax returns 5. Filing 2012 tax returns Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Filing 2012 tax returns He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Filing 2012 tax returns He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Filing 2012 tax returns As in the journal, he keeps each major expense in a separate column. Filing 2012 tax returns Henry carries the cash receipts total shown in the annual summary ($47,440. Filing 2012 tax returns 9