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Filing Taxes In The Military

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Filing Taxes In The Military

Filing taxes in the military Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Filing taxes in the military More information. Filing taxes in the military Exception—Community Income. Filing taxes in the military Exception—Qualified joint venture. Filing taxes in the military More information. Filing taxes in the military More information. Filing taxes in the military 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 taxes in the military 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 taxes in the military Table 1 can help you learn what those responsibilities are. Filing taxes in the military Ask yourself each question listed in the table, then see the related discussion to find the answer. Filing taxes in the military In addition to knowing about federal taxes, you need to make some basic business decisions. Filing taxes in the military 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 taxes in the military For information on how to contact the SBA, see How to Get More Information, later. Filing taxes in the military Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Filing taxes in the military When beginning a business, you must decide which form of business to use. Filing taxes in the military Legal and tax considerations enter into this decision. Filing taxes in the military Only tax considerations are discussed in this publication. Filing taxes in the military Your form of business determines which income tax return form you have to file. Filing taxes in the military See Table 2 to find out which form you have to file. Filing taxes in the military Sole proprietorships. Filing taxes in the military   A sole proprietorship is an unincorporated business that is owned by one individual. Filing taxes in the military It is the simplest form of business organization to start and maintain. Filing taxes in the military The business has no existence apart from you, the owner. Filing taxes in the military Its liabilities are your personal liabilities. Filing taxes in the military You undertake the risks of the business for all assets owned, whether or not used in the business. Filing taxes in the military You include the income and expenses of the business on your personal tax return. Filing taxes in the military More information. Filing taxes in the military   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Filing taxes in the military If you are a farmer, see Publication 225, Farmer's Tax Guide. Filing taxes in the military Partnerships. Filing taxes in the military   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Filing taxes in the military Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Filing taxes in the military   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Filing taxes in the military , from its operations, but it does not pay income tax. Filing taxes in the military Instead, it “passes through” any profits or losses to its partners. Filing taxes in the military Each partner includes his or her share of the partnership's items on his or her tax return. Filing taxes in the military More information. Filing taxes in the military   For more information on partnerships, see Publication 541, Partnerships. Filing taxes in the military Husband and wife business. Filing taxes in the military   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 taxes in the military Do not use Schedule C or C-EZ. Filing taxes in the military Instead, file Form 1065, U. Filing taxes in the military S. Filing taxes in the military Return of Partnership Income. Filing taxes in the military For more information, see Publication 541, Partnerships. Filing taxes in the military Exception—Community Income. Filing taxes in the military   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 taxes in the military S. Filing taxes in the military possession, you can treat the business either as a sole proprietorship or a partnership. Filing taxes in the military The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Filing taxes in the military A change in your reporting position will be treated as a conversion of the entity. Filing taxes in the military Exception—Qualified joint venture. Filing taxes in the military   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 taxes in the military 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 taxes in the military For an explanation of "material participation," see the Instructions for Schedule C, line G. Filing taxes in the military   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 taxes in the military Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Filing taxes in the military For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Filing taxes in the military Corporations. Filing taxes in the military   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Filing taxes in the military A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Filing taxes in the military A corporation can also take special deductions. Filing taxes in the military   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Filing taxes in the military However, shareholders cannot deduct any loss of the corporation. Filing taxes in the military More information. Filing taxes in the military   For more information on corporations, see Publication 542, Corporations. Filing taxes in the military S corporations. Filing taxes in the military   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 taxes in the military Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Filing taxes in the military 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 taxes in the military More information. Filing taxes in the military   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Filing taxes in the military S. Filing taxes in the military Income Tax Return for an S Corporation. Filing taxes in the military Limited liability company. Filing taxes in the military   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Filing taxes in the military The members of an LLC are not personally liable for its debts. Filing taxes in the military 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 taxes in the military 7701-3. Filing taxes in the military For more information, see the instructions for Form 8832, Entity Classification Election. Filing taxes in the military Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Filing taxes in the military The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Filing taxes in the military An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Filing taxes in the military 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 taxes in the military You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Filing taxes in the military 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 taxes in the military This includes returns or documents filed to report the following information. Filing taxes in the military Interest, dividends, royalties, etc. Filing taxes in the military , paid to you. Filing taxes in the military Any amount paid to you as a dependent care provider. Filing taxes in the military Certain other amounts paid to you that total $600 or more for the year. Filing taxes in the military If you do not furnish your identification number as required, you may be subject to penalties. Filing taxes in the military See Penalties, later. Filing taxes in the military 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 taxes in the military 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 taxes in the military Applying for an EIN. Filing taxes in the military   You may apply for an EIN: Online—Click on the EIN link at www. Filing taxes in the military irs. Filing taxes in the military gov/businesses/small. Filing taxes in the military The EIN is issued immediately once the application information is validated. Filing taxes in the military By telephone at 1-800-829-4933. Filing taxes in the military By mailing or faxing Form SS-4, Application for Employer Identification Number. Filing taxes in the military When to apply. Filing taxes in the military   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 taxes in the military If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Filing taxes in the military If you apply by telephone or through the IRS website, you can get an EIN immediately. Filing taxes in the military If you apply by fax, you can get an EIN within 4 business days. Filing taxes in the military   If you do not receive your EIN by the time a return is due, file your return anyway. Filing taxes in the military Write “Applied for” and the date you applied for the number in the space for the EIN. Filing taxes in the military Do not use your social security number as a substitute for an EIN on your tax returns. Filing taxes in the military More than one EIN. Filing taxes in the military   You should have only one EIN. Filing taxes in the military 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 taxes in the military Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Filing taxes in the military The IRS will tell you which number to use. Filing taxes in the military More information. Filing taxes in the military   For more information about EINs, see Publication 1635, Understanding Your EIN. Filing taxes in the military 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 taxes in the military The forms used to report these payments must include the payee's identification number. Filing taxes in the military Employee. Filing taxes in the military   If you have employees, you must get an SSN from each of them. Filing taxes in the military Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Filing taxes in the military If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Filing taxes in the military This may occur, for example, if the employee's name has changed due to marriage or divorce. Filing taxes in the military   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 taxes in the military This form is available at SSA offices or by calling 1-800-772-1213. Filing taxes in the military It is also available from the SSA website at www. Filing taxes in the military ssa. Filing taxes in the military gov. Filing taxes in the military Other payee. Filing taxes in the military   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 taxes in the military If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Filing taxes in the military   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Filing taxes in the military This form is available from IRS offices or by calling 1-800-829-3676. Filing taxes in the military It is also available from the IRS website at IRS. Filing taxes in the military gov. Filing taxes in the military    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Filing taxes in the military For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Filing taxes in the military 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 taxes in the military A tax year is usually 12 consecutive months. Filing taxes in the military There are two kinds of tax years. Filing taxes in the military Calendar tax year. Filing taxes in the military A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Filing taxes in the military Fiscal tax year. Filing taxes in the military A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Filing taxes in the military 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 taxes in the military 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 taxes in the military You must use a calendar tax year if: You keep no books. Filing taxes in the military You have no annual accounting period. Filing taxes in the military Your present tax year does not qualify as a fiscal year. Filing taxes in the military You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Filing taxes in the military For more information, see Publication 538, Accounting Periods and Methods. Filing taxes in the military First-time filer. Filing taxes in the military   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Filing taxes in the military You adopt a tax year by filing your first income tax return using that tax year. Filing taxes in the military You have not adopted a tax year if you merely did any of the following. Filing taxes in the military Filed an application for an extension of time to file an income tax return. Filing taxes in the military Filed an application for an employer identification number. Filing taxes in the military Paid estimated taxes for that tax year. Filing taxes in the military Changing your tax year. Filing taxes in the military   Once you have adopted your tax year, you may have to get IRS approval to change it. Filing taxes in the military To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Filing taxes in the military You may have to pay a fee. Filing taxes in the military For more information, see Publication 538. Filing taxes in the military Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Filing taxes in the military You choose an accounting method for your business when you file your first income tax return. Filing taxes in the military There are two basic accounting methods. Filing taxes in the military Cash method. Filing taxes in the military Under the cash method, you report income in the tax year you receive it. Filing taxes in the military You usually deduct or capitalize expenses in the tax year you pay them. Filing taxes in the military Accrual method. Filing taxes in the military 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 taxes in the military You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Filing taxes in the military For other methods, see Publication 538. Filing taxes in the military If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Filing taxes in the military Inventories include goods held for sale in the normal course of business. Filing taxes in the military They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Filing taxes in the military Inventories are explained in Publication 538. Filing taxes in the military 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 taxes in the military For more information, see Publication 538. Filing taxes in the military You must use the same accounting method to figure your taxable income and to keep your books. Filing taxes in the military Also, you must use an accounting method that clearly shows your income. Filing taxes in the military In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Filing taxes in the military An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Filing taxes in the military More than one business. Filing taxes in the military   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 taxes in the military You must keep a complete and separate set of books and records for each business. Filing taxes in the military Changing your method of accounting. Filing taxes in the military   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Filing taxes in the military 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 taxes in the military For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Filing taxes in the military Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Filing taxes in the military The following are the four general kinds of business taxes. Filing taxes in the military Income tax. Filing taxes in the military Self-employment tax. Filing taxes in the military Employment taxes. Filing taxes in the military Excise taxes. Filing taxes in the military See Table 2 for the forms you file to report these taxes. Filing taxes in the military You may want to get Publication 509. Filing taxes in the military It has tax calendars that tell you when to file returns and make tax payments. Filing taxes in the military Income Tax All businesses except partnerships must file an annual income tax return. Filing taxes in the military Partnerships file an information return. Filing taxes in the military Which form you use depends on how your business is organized. Filing taxes in the military See Table 2 to find out which return you have to file. Filing taxes in the military The federal income tax is a pay-as-you-go tax. Filing taxes in the military You must pay the tax as you earn or receive income during the year. Filing taxes in the military An employee usually has income tax withheld from his or her pay. Filing taxes in the military 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 taxes in the military If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Filing taxes in the military Table 2. Filing taxes in the military Which Forms Must I File? IF you are a. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military   THEN you may be liable for. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military   Use Form. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military 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 taxes in the military 2 Various other schedules may be needed. Filing taxes in the military Estimated tax. Filing taxes in the military   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Filing taxes in the military Sole proprietors, partners, and S corporation shareholders. Filing taxes in the military   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 taxes in the military Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Filing taxes in the military For more information, see Publication 505, Tax Withholding and Estimated Tax. Filing taxes in the military Corporations. Filing taxes in the military   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 taxes in the military Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Filing taxes in the military You must deposit the payments as explained later under Depositing Taxes. Filing taxes in the military For more information, see Publication 542. Filing taxes in the military Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Filing taxes in the military Your payments of SE tax contribute to your coverage under the social security system. Filing taxes in the military Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Filing taxes in the military You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Filing taxes in the military Your net earnings from self-employment were $400 or more. Filing taxes in the military You had church employee income of $108. Filing taxes in the military 28 or more. Filing taxes in the military Use Schedule SE (Form 1040) to figure your SE tax. Filing taxes in the military For more information, see Publication 334, Tax Guide for Small Business. Filing taxes in the military You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Filing taxes in the military The Social Security Administration (SSA) time limit for posting self-employment income. Filing taxes in the military   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 taxes in the military 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 taxes in the military The SSA will not change its records to increase your self-employment income. Filing taxes in the military 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 taxes in the military Employment taxes include the following. Filing taxes in the military Social security and Medicare taxes. Filing taxes in the military Federal income tax withholding. Filing taxes in the military Federal unemployment (FUTA) tax. Filing taxes in the military If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Filing taxes in the military If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Filing taxes in the military These publications explain your tax responsibilities as an employer. Filing taxes in the military If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Filing taxes in the military That publication has information to help you determine whether an individual is an employee or an independent contractor. Filing taxes in the military If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Filing taxes in the military An independent contractor is someone who is self-employed. Filing taxes in the military Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Filing taxes in the military Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Filing taxes in the military 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 taxes in the military Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Filing taxes in the military Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Filing taxes in the military Medicare tax pays for benefits under the hospital insurance part of FICA. Filing taxes in the military You withhold part of these taxes from your employee's wages and you pay a part yourself. Filing taxes in the military To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Filing taxes in the military 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 taxes in the military (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Filing taxes in the military ) 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 taxes in the military You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Filing taxes in the military You pay FUTA tax only from your own funds. Filing taxes in the military Employees do not pay this tax or have it withheld from their pay. Filing taxes in the military Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Filing taxes in the military See Publication 15 to find out if you can use this form. Filing taxes in the military Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Filing taxes in the military Form I-9. Filing taxes in the military   You must verify that each new employee is legally eligible to work in the United States. Filing taxes in the military Both you and the employee must complete the U. Filing taxes in the military S. Filing taxes in the military Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Filing taxes in the military You can get the form from USCIS offices or from the USCIS website at www. Filing taxes in the military uscis. Filing taxes in the military gov. Filing taxes in the military Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Filing taxes in the military Form W-4. Filing taxes in the military   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Filing taxes in the military 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 taxes in the military For more information, see Publication 15. Filing taxes in the military Employees claiming more than 10 withholding allowances. Filing taxes in the military   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Filing taxes in the military See section 16 of Publication 15. Filing taxes in the military 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 taxes in the military You must also send copies to the Social Security Administration. Filing taxes in the military See Information Returns, later, for more information on Form W-2. Filing taxes in the military 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 taxes in the military Manufacture or sell certain products. Filing taxes in the military Operate certain kinds of businesses. Filing taxes in the military Use various kinds of equipment, facilities, or products. Filing taxes in the military Receive payment for certain services. Filing taxes in the military For more information on excise taxes, see Publication 510, Excise Taxes. Filing taxes in the military Form 720. Filing taxes in the military   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Filing taxes in the military Environmental taxes. Filing taxes in the military Communications and air transportation taxes. Filing taxes in the military Fuel taxes. Filing taxes in the military Tax on the first retail sale of heavy trucks, trailers, and tractors. Filing taxes in the military Manufacturers taxes on the sale or use of a variety of different articles. Filing taxes in the military Form 2290. Filing taxes in the military   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Filing taxes in the military The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Filing taxes in the military Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Filing taxes in the military For more information, see the instructions for Form 2290. Filing taxes in the military Form 730. Filing taxes in the military   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 taxes in the military Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Filing taxes in the military Form 11-C. Filing taxes in the military   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 taxes in the military 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 taxes in the military Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Filing taxes in the military Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Filing taxes in the military Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Filing taxes in the military Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Filing taxes in the military 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 taxes in the military You must give a copy of each information return you are required to file to the recipient or payer. Filing taxes in the military In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Filing taxes in the military For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Filing taxes in the military Form 1099-MISC. Filing taxes in the military   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Filing taxes in the military These payments include the following items. Filing taxes in the military 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 taxes in the military Rent payments of $600 or more, other than rents paid to real estate agents. Filing taxes in the military Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Filing taxes in the military Royalty payments of $10 or more. Filing taxes in the military Payments to certain crew members by operators of fishing boats. Filing taxes in the military 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 taxes in the military Form W-2. Filing taxes in the military   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 taxes in the military For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Filing taxes in the military Form 8300. Filing taxes in the military   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 taxes in the military Cash includes U. Filing taxes in the military S. Filing taxes in the military and foreign coin and currency. Filing taxes in the military It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Filing taxes in the military For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Filing taxes in the military Penalties The law provides penalties for not filing returns or paying taxes as required. Filing taxes in the military Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Filing taxes in the military Failure to file tax returns. Filing taxes in the military   If you do not file your tax return by the due date, you may have to pay a penalty. Filing taxes in the military The penalty is based on the tax not paid by the due date. Filing taxes in the military See your tax return instructions for more information about this penalty. Filing taxes in the military Failure to pay tax. Filing taxes in the military   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 taxes in the military For more information, see your tax return instructions. Filing taxes in the military Failure to withhold, deposit, or pay taxes. Filing taxes in the military   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 taxes in the military You may also be subject to penalties if you deposit the taxes late. Filing taxes in the military For more information, see Publication 15. Filing taxes in the military Failure to follow information reporting requirements. Filing taxes in the military   The following penalties apply if you are required to file information returns. Filing taxes in the military For more information, see the General Instructions for Certain Information Returns. Filing taxes in the military Failure to file information returns. Filing taxes in the military 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 taxes in the military Failure to furnish correct payee statements. Filing taxes in the military 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 taxes in the military Waiver of penalty. Filing taxes in the military   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Filing taxes in the military   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 taxes in the military (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 taxes in the military ) Failure to supply taxpayer identification number. Filing taxes in the military   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 taxes in the military 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 taxes in the military Business Expenses You can deduct business expenses on your income tax return. Filing taxes in the military These are the current operating costs of running your business. Filing taxes in the military To be deductible, a business expense must be both ordinary and necessary. Filing taxes in the military An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Filing taxes in the military A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Filing taxes in the military An expense does not have to be indispensable to be considered necessary. Filing taxes in the military The following are brief explanations of some expenses that are of interest to people starting a business. Filing taxes in the military There are many other expenses that you may be able to deduct. Filing taxes in the military See your form instructions and Publication 535, Business Expenses. Filing taxes in the military Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Filing taxes in the military Your business start-up costs will depend on the type of business you are starting. Filing taxes in the military They may include costs for advertising, travel, surveys, and training. Filing taxes in the military These costs are generally capital expenses. Filing taxes in the military You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Filing taxes in the military 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 taxes in the military The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Filing taxes in the military Any remaining cost must be amortized. Filing taxes in the military For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Filing taxes in the military 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 taxes in the military You must spread the cost over more than one tax year and deduct part of it each year. Filing taxes in the military This method of deducting the cost of business property is called depreciation. Filing taxes in the military Business property you must depreciate includes the following items. Filing taxes in the military Office furniture. Filing taxes in the military Buildings. Filing taxes in the military Machinery and equipment. Filing taxes in the military 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 taxes in the military This deduction is known as the “section 179 deduction. Filing taxes in the military ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Filing taxes in the military Depreciation must be taken in the year it is allowable. Filing taxes in the military Allowable depreciation not taken in a prior year cannot be taken in the current year. Filing taxes in the military If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Filing taxes in the military S. Filing taxes in the military Individual Income Tax Return, or by changing your accounting method. Filing taxes in the military For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Filing taxes in the military Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Filing taxes in the military Even then, your deduction may be limited. Filing taxes in the military To qualify to claim expenses for business use of your home, you must meet both the following tests. Filing taxes in the military 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 taxes in the military Exclusive use. Filing taxes in the military   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Filing taxes in the military The area used for business can be a room or other separately identifiable space. Filing taxes in the military The space does not need to be marked off by a permanent partition. Filing taxes in the military   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 taxes in the military Exceptions to exclusive use. Filing taxes in the military   You do not have to meet the exclusive use test if either of the following applies. Filing taxes in the military You use part of your home for the storage of inventory or product samples. Filing taxes in the military You use part of your home as a daycare facility. Filing taxes in the military For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Filing taxes in the military Principal place of business. Filing taxes in the military   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Filing taxes in the military You use it exclusively and regularly for administrative or management activities of your trade or business. Filing taxes in the military You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Filing taxes in the military   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 taxes in the military The relative importance of the activities performed at each location. Filing taxes in the military If the relative importance factor does not determine your principal place of business, the time spent at each location. Filing taxes in the military    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Filing taxes in the military However, for other ways to qualify to deduct home office expenses, see Publication 587. Filing taxes in the military 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 taxes in the military If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Filing taxes in the military More information. Filing taxes in the military   For more information about business use of your home, see Publication 587. Filing taxes in the military 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 taxes in the military You generally can deduct either your actual expenses or the standard mileage rate. Filing taxes in the military Actual expenses. Filing taxes in the military   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 taxes in the military You can divide your expenses based on the miles driven for each purpose. Filing taxes in the military Example. Filing taxes in the military You are the sole proprietor of a flower shop. Filing taxes in the military You drove your van 20,000 miles during the year. Filing taxes in the military 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Filing taxes in the military You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Filing taxes in the military Standard mileage rate. Filing taxes in the military   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 taxes in the military You can use the standard mileage rate for a vehicle you own or lease. Filing taxes in the military The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Filing taxes in the military It is announced annually by the IRS. Filing taxes in the military To figure your deduction, multiply your business miles by the standard mileage rate for the year. Filing taxes in the military    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Filing taxes in the military However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Filing taxes in the military Choosing the standard mileage rate. Filing taxes in the military   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 taxes in the military In later years, you can choose to use either the standard mileage rate or actual expenses. Filing taxes in the military   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 taxes in the military Additional information. Filing taxes in the military   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Filing taxes in the military Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Filing taxes in the military It also explains how long you must keep your records for federal tax purposes. Filing taxes in the military A sample recordkeeping system is illustrated at the end of this part. Filing taxes in the military Why Keep Records? Everyone in business must keep records. Filing taxes in the military Good records will help you do the following. Filing taxes in the military Monitor the progress of your business. Filing taxes in the military   You need good records to monitor the progress of your business. Filing taxes in the military Records can show whether your business is improving, which items are selling, or what changes you need to make. Filing taxes in the military Good records can increase the likelihood of business success. Filing taxes in the military Prepare your financial statements. Filing taxes in the military   You need good records to prepare accurate financial statements. Filing taxes in the military These include income (profit and loss) statements and balance sheets. Filing taxes in the military These statements can help you in dealing with your bank or creditors and help you manage your business. Filing taxes in the military An income statement shows the income and expenses of the business for a given period of time. Filing taxes in the military A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Filing taxes in the military Identify source of receipts. Filing taxes in the military   You will receive money or property from many sources. Filing taxes in the military Your records can identify the source of your receipts. Filing taxes in the military You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Filing taxes in the military Keep track of deductible expenses. Filing taxes in the military   You may forget expenses when you prepare your tax return unless you record them when they occur. Filing taxes in the military Prepare your tax returns. Filing taxes in the military   You need good records to prepare your tax returns. Filing taxes in the military These records must support the income, expenses, and credits you report. Filing taxes in the military Generally, these are the same records you use to monitor your business and prepare your financial statements. Filing taxes in the military Support items reported on tax returns. Filing taxes in the military   You must keep your business records available at all times for inspection by the IRS. Filing taxes in the military If the IRS examines any of your tax returns, you may be asked to explain the items reported. Filing taxes in the military A complete set of records will speed up the examination. Filing taxes in the military Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Filing taxes in the military You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Filing taxes in the military The business you are in affects the type of records you need to keep for federal tax purposes. Filing taxes in the military You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Filing taxes in the military See Accounting Method, earlier. Filing taxes in the military If you are in more than one business, you should keep a complete and separate set of records for each business. Filing taxes in the military A corporation should keep minutes of board of directors' meetings. Filing taxes in the military Your recordkeeping system should include a summary of your business transactions. Filing taxes in the military This summary is ordinarily made in your books (for example, accounting journals and ledgers). Filing taxes in the military Your books must show your gross income, as well as your deductions and credits. Filing taxes in the military For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Filing taxes in the military In addition, you must keep supporting documents, explained later. Filing taxes in the military Electronic records. Filing taxes in the military   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Filing taxes in the military 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 taxes in the military 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 taxes in the military The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Filing taxes in the military All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Filing taxes in the military 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 taxes in the military   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 taxes in the military You still have the responsibility of retaining any other books and records that are required to be retained. Filing taxes in the military   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Filing taxes in the military This test is not considered an examination and the results must be shared with you. Filing taxes in the military If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Filing taxes in the military 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 taxes in the military For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Filing taxes in the military Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Filing taxes in the military Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Filing taxes in the military These documents contain information you need to record in your books. Filing taxes in the military It is important to keep these documents because they support the entries in your books and on your tax return. Filing taxes in the military Keep them in an orderly fashion and in a safe place. Filing taxes in the military For instance, organize them by year and type of income or expense. Filing taxes in the military Gross receipts. Filing taxes in the military   Gross receipts are the income you receive from your business. Filing taxes in the military You should keep supporting documents that show the amounts and sources of your gross receipts. Filing taxes in the military Documents that show gross receipts include the following. Filing taxes in the military Cash register tapes. Filing taxes in the military Bank deposit slips. Filing taxes in the military Receipt books. Filing taxes in the military Invoices. Filing taxes in the military Credit card charge slips. Filing taxes in the military Forms 1099-MISC. Filing taxes in the military Purchases. Filing taxes in the military   Purchases are the items you buy and resell to customers. Filing taxes in the military If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Filing taxes in the military Your supporting documents should show the amount paid and that the amount was for purchases. Filing taxes in the military Documents for purchases include the following. Filing taxes in the military Canceled checks. Filing taxes in the military Cash register tape receipts. Filing taxes in the military Credit card sales slips. Filing taxes in the military Invoices. Filing taxes in the military These records will help you determine the value of your inventory at the end of the year. Filing taxes in the military See Publication 538 for information on methods for valuing inventory. Filing taxes in the military Expenses. Filing taxes in the military   Expenses are the costs you incur (other than purchases) to carry on your business. Filing taxes in the military Your supporting documents should show the amount paid and that the amount was for a business expense. Filing taxes in the military Documents for expenses include the following. Filing taxes in the military Canceled checks. Filing taxes in the military Cash register tapes. Filing taxes in the military Account statements. Filing taxes in the military Credit card sales slips. Filing taxes in the military Invoices. Filing taxes in the military Petty cash slips for small cash payments. Filing taxes in the military    A petty cash fund allows you to make small payments without having to write checks for small amounts. Filing taxes in the military 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 taxes in the military Travel, transportation, entertainment, and gift expenses. Filing taxes in the military   Specific recordkeeping rules apply to these expenses. Filing taxes in the military For more information, see Publication 463. Filing taxes in the military Employment taxes. Filing taxes in the military   There are specific employment tax records you must keep. Filing taxes in the military For a list, see Publication 15. Filing taxes in the military Assets. Filing taxes in the military   Assets are the property, such as machinery and furniture you own and use in your business. Filing taxes in the military You must keep records to verify certain information about your business assets. Filing taxes in the military You need records to figure the annual depreciation and the gain or loss when you sell the assets. Filing taxes in the military Your records should show the following information. Filing taxes in the military When and how you acquired the asset. Filing taxes in the military Purchase price. Filing taxes in the military Cost of any improvements. Filing taxes in the military Section 179 deduction taken. Filing taxes in the military Deductions taken for depreciation. Filing taxes in the military Deductions taken for casualty losses, such as losses resulting from fires or storms. Filing taxes in the military How you used the asset. Filing taxes in the military When and how you disposed of the asset. Filing taxes in the military Selling price. Filing taxes in the military Expenses of sale. Filing taxes in the military   The following documents may show this information. Filing taxes in the military Purchase and sales invoices. Filing taxes in the military Real estate closing statements. Filing taxes in the military Canceled checks. Filing taxes in the military 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 taxes in the military These include account statements prepared for the financial institution by a third party. Filing taxes in the military These account statements must be highly legible. Filing taxes in the military The following table lists acceptable account statements. Filing taxes in the military  IF payment is by. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military THEN the statement must show the. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military Check Check number. Filing taxes in the military Amount. Filing taxes in the military Payee's name. Filing taxes in the military Date the check amount was posted to the account by the financial institution. Filing taxes in the military Electronic funds transfer Amount transferred. Filing taxes in the military Payee's name. Filing taxes in the military Date the transfer was posted to the account by the financial institution. Filing taxes in the military Credit card Amount charged. Filing taxes in the military Payee's name. Filing taxes in the military Transaction date. Filing taxes in the military    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Filing taxes in the military You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Filing taxes in the military Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Filing taxes in the military (Your business transactions are shown on the supporting documents just discussed. Filing taxes in the military ) Business transactions are ordinarily summarized in books called journals and ledgers. Filing taxes in the military You can buy them at your local stationery or office supply store. Filing taxes in the military A journal is a book where you record each business transaction shown on your supporting documents. Filing taxes in the military You may have to keep separate journals for transactions that occur frequently. Filing taxes in the military A ledger is a book that contains the totals from all of your journals. Filing taxes in the military It is organized into different accounts. Filing taxes in the military Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Filing taxes in the military For example, a recordkeeping system for a small business might include the following items. Filing taxes in the military Business checkbook. Filing taxes in the military Daily summary of cash receipts. Filing taxes in the military Monthly summary of cash receipts. Filing taxes in the military Check disbursements journal. Filing taxes in the military Depreciation worksheet. Filing taxes in the military Employee compensation record. Filing taxes in the military The business checkbook is explained next. Filing taxes in the military The other items are illustrated later under Sample Record System. Filing taxes in the military The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Filing taxes in the military For example, record expenses when they occur, and identify the source of recorded receipts. Filing taxes in the military Generally, it is best to record transactions on a daily basis. Filing taxes in the military Business checkbook. Filing taxes in the military   One of the first things you should do when you start a business is open a business checking account. Filing taxes in the military You should keep your business account separate from your personal checking account. Filing taxes in the military   The business checkbook is your basic source of information for recording your business expenses. Filing taxes in the military You should deposit all daily receipts in your business checking account. Filing taxes in the military You should check your account for errors by reconciling it. Filing taxes in the military See Reconciling the checking account, later. Filing taxes in the military   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Filing taxes in the military You should also note on the deposit slip the source of the deposit and keep copies of all slips. Filing taxes in the military   You should make all payments by check to document business expenses. Filing taxes in the military Write checks payable to yourself only when making withdrawals from your business for personal use. Filing taxes in the military Avoid writing checks payable to cash. Filing taxes in the military If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Filing taxes in the military 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 taxes in the military    Use the business account for business purposes only. Filing taxes in the military Indicate the source of deposits and the type of expense in the checkbook. Filing taxes in the military Reconciling the checking account. Filing taxes in the military   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Filing taxes in the military 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 taxes in the military   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 taxes in the military    You should reconcile your checking account each month. Filing taxes in the military     Before you reconcile your monthly bank statement, check your own figures. Filing taxes in the military Begin with the balance shown in your checkbook at the end of the previous month. Filing taxes in the military To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Filing taxes in the military   After checking your figures, the result should agree with your checkbook balance at the end of the month. Filing taxes in the military If the result does not agree, you may have made an error in recording a check or deposit. Filing taxes in the military You can find the error by doing the following. Filing taxes in the military 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 taxes in the military 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 taxes in the military Adding the deposit amounts in your checkbook. Filing taxes in the military Compare that total with the monthly total in your cash receipt book, if you have one. Filing taxes in the military If the totals do not agree, check the individual amounts to find any errors. Filing taxes in the military   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 taxes in the military   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Filing taxes in the military Many banks print a reconciliation worksheet on the back of the statement. Filing taxes in the military   To reconcile your account, follow these steps. Filing taxes in the military Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Filing taxes in the military Note all differences in the dollar amounts. Filing taxes in the military Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Filing taxes in the military Note all differences in the dollar amounts. Filing taxes in the military Mark the check number in the checkbook as having cleared the bank. Filing taxes in the military After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Filing taxes in the military Prepare a bank reconciliation. Filing taxes in the military One is illustrated later under Sample Record System. Filing taxes in the military Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Filing taxes in the military At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Filing taxes in the military If you still have differences, check the previous steps to find the errors. Filing taxes in the military   Table 3. Filing taxes in the military Period of Limitations IF you. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military   THEN the period is. Filing taxes in the military . Filing taxes in the military . Filing taxes in the military 1. Filing taxes in the military Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Filing taxes in the military 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 taxes in the military File a fraudulent return   Not limited 4. Filing taxes in the military Do not file a return   Not limited 5. Filing taxes in the military 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 taxes in the military 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 taxes in the military The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Filing taxes in the military You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Filing taxes in the military Single-entry. Filing taxes in the military   A single-entry system is based on the income statement (profit or loss statement). Filing taxes in the military It can be a simple and practical system if you are starting a small business. Filing taxes in the military 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 taxes in the military Double-entry. Filing taxes in the military   A double-entry bookkeeping system uses journals and ledgers. Filing taxes in the military Transactions are first entered in a journal and then posted to ledger accounts. Filing taxes in the military These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Filing taxes in the military You close income and expense accounts at the end of each tax year. Filing taxes in the military You keep asset, liability, and net worth accounts open on a permanent basis. Filing taxes in the military   In the double-entry system, each account has a left side for debits and a right side for credits. Filing taxes in the military It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Filing taxes in the military   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Filing taxes in the military If the amounts do not balance, you have made an error and you must find and correct it. Filing taxes in the military   An example of a journal entry exhibiting a payment of rent in October is shown next. Filing taxes in the military General Journal Date Description of Entry Debit  Credit Oct. Filing taxes in the military 5 Rent expense 780. Filing taxes in the military 00     Cash   780. Filing taxes in the military 00                 Computerized System There are computer software packages you can use for recordkeeping. Filing taxes in the military They can be purchased in many retail stores. Filing taxes in the military These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Filing taxes in the military 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 taxes in the military To meet this qualification, the machine-sensible records must reconcile with your books and return. Filing taxes in the military These records must provide enough detail to identify the underlying source documents. Filing taxes in the military You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Filing taxes in the military This documentation must be sufficiently detailed to show all of the following items. Filing taxes in the military Functions being performed as the data flows through the system. Filing taxes in the military Controls used to ensure accurate and reliable processing. Filing taxes in the military Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Filing taxes in the military Charts of accounts and detailed account descriptions. Filing taxes in the military See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Filing taxes in the military 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 taxes in the military 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 taxes in the military 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 taxes in the military Table 3 contains the periods of limitations that apply to income tax returns. Filing taxes in the military Unless otherwise stated, the years refer to the period after the return was filed. Filing taxes in the military Returns filed before the due date are treated as filed on the due date. Filing taxes in the military Keep copies of your filed tax returns. Filing taxes in the military They help in preparing future tax returns and making computations if you file an amended return. Filing taxes in the military Employment taxes. Filing taxes in the military   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 taxes in the military For more information about recordkeeping for employment taxes, see Publication 15. Filing taxes in the military Assets. Filing taxes in the military   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 taxes in the military 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 taxes in the military   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 taxes in the military 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 taxes in the military Records for nontax purposes. Filing taxes in the military   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 taxes in the military For example, your insurance company or creditors may require you to keep them longer than the IRS does. Filing taxes in the military 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 taxes in the military Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Filing taxes in the military These sample records should not be viewed as a recommendation of how to keep your records. Filing taxes in the military They are intended only to show how one business keeps its records. Filing taxes in the military 1. Filing taxes in the military Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Filing taxes in the military 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 taxes in the military Henry takes the cash sales entry from his cash register tape. Filing taxes in the military If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Filing taxes in the military He carries the total receipts shown in this summary for January 3 ($267. Filing taxes in the military 80), including cash sales ($263. Filing taxes in the military 60) and sales tax ($4. Filing taxes in the military 20), to the Monthly Summary of Cash Receipts. Filing taxes in the military Petty cash fund. Filing taxes in the military   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Filing taxes in the military 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 taxes in the military He sets up a fixed amount ($50) in his petty cash fund. Filing taxes in the military The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Filing taxes in the military 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 taxes in the military (See the Check Disbursements Journal entry for check number 92. Filing taxes in the military ) This restores the fund to its fixed amount of $50. Filing taxes in the military He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Filing taxes in the military 2. Filing taxes in the military Monthly Summary of Cash Receipts This shows the income activity for the month. Filing taxes in the military Henry carries the total monthly net sales shown in this summary for January ($4,865. Filing taxes in the military 05) to his Annual Summary. Filing taxes in the military 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 taxes in the military He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Filing taxes in the military He does not include the tax in his income. Filing taxes in the military 3. Filing taxes in the military Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Filing taxes in the military All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Filing taxes in the military Frequent expenses have their own headings across the sheet. Filing taxes in the military He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Filing taxes in the military Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Filing taxes in the military Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Filing taxes in the military If he did, he would record them in the journal, even though he could not deduct them as business expenses. Filing taxes in the military Henry carries the January total of expenses for materials ($1,083. Filing taxes in the military 50) to the Annual Summary. Filing taxes in the military Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Filing taxes in the military , in the appropriate columns of that summary. Filing taxes in the military 4. Filing taxes in the military Employee Compensation Record This record shows the following information. Filing taxes in the military The number of hours Henry's employee worked in a pay period. Filing taxes in the military The employee's total pay for the period. Filing taxes in the military The deductions Henry withheld in figuring the employee's net pay. Filing taxes in the military The monthly gross payroll. Filing taxes in the military Henry carries the January gross payroll ($520) to the Annual Summary. Filing taxes in the military 5. Filing taxes in the military Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Filing taxes in the military He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Filing taxes in the military He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Filing taxes in the military As in the journal, he keeps each major expense in a separate column. Filing taxes in the military Henry carries the cash receipts total shown in the annual summary ($47,440. Filing taxes in the military 9
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Understanding Your CP254 Notice

Your organization submitted a paper return for the tax period in question. Because our records show that you must file electronically, the paper return doesn’t satisfy your filing obligation.


What you need to do

Determine if your organization has total assets of $10 million or more and files 250 returns in a calendar year.

  • If yes, file the electronic return as soon as possible. If you fail to do so, you may be subject to a failure to file penalty.
  • If no, respond to the CP254 notice explaining why you aren’t required to file electronically.

Answers to Common Questions

Which returns are included in the 250-return requirement?
You must count all information and tax returns, including, but not limited to:

  • Form W-2
  • Form 1099
  • Form 720
  • Form 941
  • Form 944
  • Form 990
  • Form 990-EZ
  • Form 990-N
  • Form 990-PF
  • Form 990-T

We can’t file electronically because our organization’s name changed, we filed for the first time, or we filed a short period return. What do we do now?
Respond to the notice with an explanation of the situation that kept you from filing electronically.

Our software won’t allow us to file electronically for the year indicated on the notice. What do we do now?
Call the phone number on the notice (1-877-767-2501) to determine what action you must take.

We tried to file electronically, but received a rejection notice. What do we do now?
Review the rejection notice to determine the reason the system couldn’t accept the return. Correct the return and resubmit it electronically.


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP254, Page 1

Notice CP254, Page 2

Notice CP254, Page 3

Notice CP254, Page 4

Page Last Reviewed or Updated: 09-Dec-2013

Printable samples of this notice (PDF)

 

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Filing Taxes In The Military

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