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Filing Taxes Previous Years

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Filing Taxes Previous Years

Filing taxes previous years 20. Filing taxes previous years   Standard Deduction Table of Contents What's New Introduction Standard Deduction Amount Standard Deduction for Dependents Who Should ItemizeWhen to itemize. Filing taxes previous years Married persons who filed separate returns. Filing taxes previous years What's New Standard deduction increased. Filing taxes previous years  The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2013 than it was for 2012. Filing taxes previous years The amount depends on your filing status. Filing taxes previous years You can use the 2013 Standard Deduction Tables in this chapter to figure your standard deduction. Filing taxes previous years Introduction This chapter discusses the following topics. Filing taxes previous years How to figure the amount of your standard deduction. Filing taxes previous years The standard deduction for dependents. Filing taxes previous years Who should itemize deductions. Filing taxes previous years Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. Filing taxes previous years If you have a choice, you can use the method that gives you the lower tax. Filing taxes previous years The standard deduction is a dollar amount that reduces your taxable income. Filing taxes previous years It is a benefit that eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses, charitable contributions, and taxes, on Schedule A (Form 1040). Filing taxes previous years The standard deduction is higher for taxpayers who: Are 65 or older, or Are blind. Filing taxes previous years You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. Filing taxes previous years Persons not eligible for the standard deduction. Filing taxes previous years   Your standard deduction is zero and you should itemize any deductions you have if: Your filing status is married filing separately, and your spouse itemizes deductions on his or her return, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. Filing taxes previous years You are considered a dual-status alien if you were both a nonresident and resident alien during the year. Filing taxes previous years Note. Filing taxes previous years If you are a nonresident alien who is married to a U. Filing taxes previous years S. Filing taxes previous years citizen or resident alien at the end of the year, you can choose to be treated as a U. Filing taxes previous years S. Filing taxes previous years resident. Filing taxes previous years (See Publication 519, U. Filing taxes previous years S. Filing taxes previous years Tax Guide for Aliens. Filing taxes previous years ) If you make this choice, you can take the standard deduction. Filing taxes previous years If an exemption for you can be claimed on another person's return (such as your parents' return), your standard deduction may be limited. Filing taxes previous years See Standard Deduction for Dependents, later. Filing taxes previous years Standard Deduction Amount The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Filing taxes previous years Generally, the standard deduction amounts are adjusted each year for inflation. Filing taxes previous years The standard deduction amounts for most people are shown in Table 20-1. Filing taxes previous years Decedent's final return. Filing taxes previous years   The standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. Filing taxes previous years However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. Filing taxes previous years Higher Standard Deduction for Age (65 or Older) If you are age 65 or older on the last day of the year and do not itemize deductions, you are entitled to a higher standard deduction. Filing taxes previous years You are considered 65 on the day before your 65th birthday. Filing taxes previous years Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. Filing taxes previous years Use Table 20-2 to figure the standard deduction amount. Filing taxes previous years Higher Standard Deduction for Blindness If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Filing taxes previous years Not totally blind. Filing taxes previous years   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is 20 degrees or less. Filing taxes previous years   If your eye condition is not likely to improve beyond these limits, the statement should include this fact. Filing taxes previous years You must keep the statement in your records. Filing taxes previous years   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. Filing taxes previous years Spouse 65 or Older or Blind You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and cannot be claimed as a dependent by another taxpayer. Filing taxes previous years You cannot claim the higher standard deduction for an individual other than yourself and your spouse. Filing taxes previous years Examples The following examples illustrate how to determine your standard deduction using Tables 20-1 and 20-2. Filing taxes previous years Example 1. Filing taxes previous years Larry, 46, and Donna, 33, are filing a joint return for 2013. Filing taxes previous years Neither is blind, and neither can be claimed as a dependent. Filing taxes previous years They decide not to itemize their deductions. Filing taxes previous years They use Table 20-1. Filing taxes previous years Their standard deduction is $12,200. Filing taxes previous years Example 2. Filing taxes previous years The facts are the same as in Example 1 except that Larry is blind at the end of 2013. Filing taxes previous years Larry and Donna use Table 20-2. Filing taxes previous years Their standard deduction is $13,400. Filing taxes previous years Example 3. Filing taxes previous years Bill and Lisa are filing a joint return for 2013. Filing taxes previous years Both are over age 65. Filing taxes previous years Neither is blind, and neither can be claimed as a dependent. Filing taxes previous years If they do not itemize deductions, they use Table 20-2. Filing taxes previous years Their standard deduction is $14,600. Filing taxes previous years Standard Deduction for Dependents The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). Filing taxes previous years However, if the individual is 65 or older or blind, the standard deduction may be higher. Filing taxes previous years If you (or your spouse, if filing jointly) can be claimed as a dependent on someone else's return, use Table 20-3 to determine your standard deduction. Filing taxes previous years Earned income defined. Filing taxes previous years   Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform. Filing taxes previous years    For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. Filing taxes previous years See Scholarships and fellowships in chapter 12 for more information on what qualifies as a scholarship or fellowship grant. Filing taxes previous years Example 1. Filing taxes previous years Michael is single. Filing taxes previous years His parents can claim an exemption for him on their 2013 tax return. Filing taxes previous years He has interest income of $780 and wages of $150. Filing taxes previous years He has no itemized deductions. Filing taxes previous years Michael uses Table 20-3 to find his standard deduction. Filing taxes previous years He enters $150 (his earned income) on line 1, $500 ($150 + $350) on line 3, $1,000 (the larger of $500 and $1,000) on line 5, and $6,100 on line 6. Filing taxes previous years His standard deduction, on line 7a, is $1,000 (the smaller of $1,000 and $6,100). Filing taxes previous years Example 2. Filing taxes previous years Joe, a 22-year-old full-time college student, can be claimed as a dependent on his parents' 2013 tax return. Filing taxes previous years Joe is married and files a separate return. Filing taxes previous years His wife does not itemize deductions on her separate return. Filing taxes previous years Joe has $1,500 in interest income and wages of $3,800. Filing taxes previous years He has no itemized deductions. Filing taxes previous years Joe finds his standard deduction by using Table 20-3. Filing taxes previous years He enters his earned income, $3,800 on line 1. Filing taxes previous years He adds lines 1 and 2 and enters $4,150 on line 3. Filing taxes previous years On line 5, he enters $4,150, the larger of lines 3 and 4. Filing taxes previous years Because Joe is married filing a separate return, he enters $6,100 on line 6. Filing taxes previous years On line 7a he enters $4,150 as his standard deduction because it is smaller than $6,100, the amount on line 6. Filing taxes previous years Example 3. Filing taxes previous years Amy, who is single, can be claimed as a dependent on her parents' 2013 tax return. Filing taxes previous years She is 18 years old and blind. Filing taxes previous years She has interest income of $1,300 and wages of $2,900. Filing taxes previous years She has no itemized deductions. Filing taxes previous years Amy uses Table 20-3 to find her standard deduction. Filing taxes previous years She enters her wages of $2,900 on line 1. Filing taxes previous years She adds lines 1 and 2 and enters $3,250 on line 3. Filing taxes previous years On line 5, she enters $3,250, the larger of lines 3 and 4. Filing taxes previous years Because she is single, Amy enters $6,100 on line 6. Filing taxes previous years She enters $3,250 on line 7a. Filing taxes previous years This is the smaller of the amounts on lines 5 and 6. Filing taxes previous years Because she checked one box in the top part of the worksheet, she enters $1,500 on line 7b. Filing taxes previous years She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,750 on line 7c. Filing taxes previous years Example 4. Filing taxes previous years Ed is single. Filing taxes previous years His parents can claim an exemption for him on their 2013 tax return. Filing taxes previous years He has wages of $7,000, interest income of $500, and a business loss of $3,000. Filing taxes previous years He has no itemized deductions. Filing taxes previous years Ed uses Table 20-3 to figure his standard deduction. Filing taxes previous years He enters $4,000 ($7,000 - $3,000) on line 1. Filing taxes previous years He adds lines 1 and 2 and enters $4,350 on line 3. Filing taxes previous years On line 5 he enters $4,350, the larger of lines 3 and 4. Filing taxes previous years Because he is single, Ed enters $6,100 on line 6. Filing taxes previous years On line 7a he enters $4,350 as his standard deduction because it is smaller than $6,100, the amount on line 6. Filing taxes previous years Who Should Itemize You should itemize deductions if your total deductions are more than the standard deduction amount. Filing taxes previous years Also, you should itemize if you do not qualify for the standard deduction, as discussed earlier under Persons not eligible for the standard deduction . Filing taxes previous years You should first figure your itemized deductions and compare that amount to your standard deduction to make sure you are using the method that gives you the greater benefit. Filing taxes previous years You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than: $250,000 if single ($275,000 if head of household, $300,000 if married filing jointly or qualifying widow(er); or $150,000 if married filing separately). Filing taxes previous years See chapter 29 or the instructions for Schedule A (Form 1040) for more information on figuring the correct amount of your itemized deductions. Filing taxes previous years When to itemize. Filing taxes previous years   You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Do not qualify for the standard deduction, or the amount you can claim is limited, Had large uninsured medical and dental expenses during the year, Paid interest and taxes on your home, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities, or Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled. Filing taxes previous years These deductions are explained in chapters 21–28. Filing taxes previous years    If you decide to itemize your deductions, complete Schedule A and attach it to your Form 1040. Filing taxes previous years Enter the amount from Schedule A, line 29, on Form 1040, line 40. Filing taxes previous years Electing to itemize for state tax or other purposes. Filing taxes previous years   Even if your itemized deductions are less than your standard deduction, you can elect to itemize deductions on your federal return rather than take the standard deduction. Filing taxes previous years You may want to do this if, for example, the tax benefit of itemizing your deductions on your state tax return is greater than the tax benefit you lose on your federal return by not taking the standard deduction. Filing taxes previous years To make this election, you must check the box on line 30 of Schedule A. Filing taxes previous years Changing your mind. Filing taxes previous years   If you do not itemize your deductions and later find that you should have itemized — or if you itemize your deductions and later find you should not have — you can change your return by filing Form 1040X, Amended U. Filing taxes previous years S. Filing taxes previous years Individual Income Tax Return. Filing taxes previous years See Amended Returns and Claims for Refund in chapter 1 for more information on amended returns. Filing taxes previous years Married persons who filed separate returns. Filing taxes previous years   You can change methods of taking deductions only if you and your spouse both make the same changes. Filing taxes previous years Both of you must file a consent to assessment for any additional tax either one may owe as a result of the change. Filing taxes previous years    You and your spouse can use the method that gives you the lower total tax, even though one of you may pay more tax than you would have paid by using the other method. Filing taxes previous years You both must use the same method of claiming deductions. Filing taxes previous years If one itemizes deductions, the other should itemize because he or she will not qualify for the standard deduction. Filing taxes previous years See Persons not eligible for the standard deduction , earlier. Filing taxes previous years 2013 Standard Deduction Tables If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1949, or are blind. Filing taxes previous years Table 20-1. Filing taxes previous years Standard Deduction Chart for Most People* If your filing status is. Filing taxes previous years . Filing taxes previous years . Filing taxes previous years Your standard deduction is: Single or Married filing separately $6,100 Married filing jointly or Qualifying widow(er) with dependent child 12,200 Head of household 8,950 *Do not use this chart if you were born before January 2, 1949, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Filing taxes previous years Use Table 20-2 or 20-3 instead. Filing taxes previous years Table 20-2. Filing taxes previous years Standard Deduction Chart for People Born Before January 2, 1949, or Who are Blind Check the correct number of boxes below. Filing taxes previous years Then go to the chart. Filing taxes previous years You: Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked   IF  your filing status is. Filing taxes previous years . Filing taxes previous years . Filing taxes previous years AND the number in the box above is. Filing taxes previous years . Filing taxes previous years . Filing taxes previous years THEN your standard deduction is. Filing taxes previous years . Filing taxes previous years . Filing taxes previous years Single 1 $7,600   2 9,100 Married filing jointly 1 $13,400 or Qualifying 2 14,600 widow(er) with 3 15,800 dependent child 4 17,000 Married filing 1 $7,300 separately 2 8,500   3 9,700   4 10,900 Head of household 1 $10,450   2 11,950 *If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead. Filing taxes previous years Table 20-3. Filing taxes previous years Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent. Filing taxes previous years Check the correct number of boxes below. Filing taxes previous years Then go to the worksheet. Filing taxes previous years You:   Born before January 2, 1949 □ Blind □ Your spouse, if claiming spouse's exemption: Born before January 2, 1949 □ Blind □ Total number of boxes checked 1. Filing taxes previous years Enter your earned income (defined below). Filing taxes previous years If none, enter -0-. Filing taxes previous years 1. Filing taxes previous years   2. Filing taxes previous years Additional amount. Filing taxes previous years 2. Filing taxes previous years $350 3. Filing taxes previous years Add lines 1 and 2. Filing taxes previous years 3. Filing taxes previous years   4. Filing taxes previous years Minimum standard deduction. Filing taxes previous years 4. Filing taxes previous years $1,000 5. Filing taxes previous years Enter the larger of line 3 or line 4. Filing taxes previous years 5. Filing taxes previous years   6. Filing taxes previous years Enter the amount shown below for your filing status. Filing taxes previous years Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 6. Filing taxes previous years   7. Filing taxes previous years Standard deduction. Filing taxes previous years         a. Filing taxes previous years Enter the smaller of line 5 or line 6. Filing taxes previous years If born after January 1, 1949, and not blind, stop here. Filing taxes previous years This is your standard deduction. Filing taxes previous years Otherwise, go on to line 7b. Filing taxes previous years 7a. Filing taxes previous years     b. Filing taxes previous years If born before January 2, 1949, or blind, multiply $1,500 ($1,200 if married) by the number in the box above. Filing taxes previous years 7b. Filing taxes previous years     c. Filing taxes previous years Add lines 7a and 7b. Filing taxes previous years This is your standard deduction for 2013. Filing taxes previous years 7c. Filing taxes previous years   Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Filing taxes previous years It also includes any amount received as a scholarship that you must include in your income. Filing taxes previous years Prev  Up  Next   Home   More Online Publications
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Understanding Your CP18 Notice

We believe you incorrectly claimed one or more deductions or credits. As a result, your refund is less than you expected.


What you need to do

  • There is nothing to do at this time. Examination will review your return and either release the refund held or contact you requesting information.

You may want to...

  • Review this notice with your tax preparer.
  • Read about the deduction or credit in Publication 17.
  • Call us for clarification at the number listed on your notice.

Answers to Common Questions

What is the notice telling me?
Based on the information shown on your tax return, it appears you haven't met the requirements for claiming one or more deductions or credits. As a result, your refund is less than you expected.

What do I have to do?
There is nothing to do at this time. Examination will contact you if additional information is needed to justify the credit or deduction claimed on your return.


Tips for next year

Prior to filing your return, double check to see if all of your deductions are allowed by law and reported on the correct line of your tax return.

Page Last Reviewed or Updated: 20-Feb-2014

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How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
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  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Filing Taxes Previous Years

Filing taxes previous years Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Filing taxes previous years Hybrid method. Filing taxes previous years Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Filing taxes previous years Accounting Periods You must use a tax year to figure your taxable income. Filing taxes previous years A tax year is an annual accounting period for keeping records and reporting income and expenses. Filing taxes previous years An annual accounting period does not include a short tax year (discussed later). Filing taxes previous years You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Filing taxes previous years Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Filing taxes previous years A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Filing taxes previous years You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Filing taxes previous years This section discusses: A calendar year. Filing taxes previous years A fiscal year (including a period of 52 or 53 weeks). Filing taxes previous years A short tax year. Filing taxes previous years An improper tax year. Filing taxes previous years A change in tax year. Filing taxes previous years Special situations that apply to individuals. Filing taxes previous years Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Filing taxes previous years Special situations that apply to corporations. Filing taxes previous years Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Filing taxes previous years If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Filing taxes previous years 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 obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Filing taxes previous years See Change in Tax Year, later. Filing taxes previous years Generally, anyone can adopt the calendar year. Filing taxes previous years However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Filing taxes previous years Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Filing taxes previous years If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Filing taxes previous years 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Filing taxes previous years If you make this election, your 52-53-week tax year must always end on the same day of the week. Filing taxes previous years Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Filing taxes previous years For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Filing taxes previous years Election. Filing taxes previous years   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Filing taxes previous years The month in which the new 52-53-week tax year ends. Filing taxes previous years The day of the week on which the tax year always ends. Filing taxes previous years The date the tax year ends. Filing taxes previous years It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Filing taxes previous years   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Filing taxes previous years   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Filing taxes previous years Example. Filing taxes previous years Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Filing taxes previous years For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Filing taxes previous years Short Tax Year A short tax year is a tax year of less than 12 months. Filing taxes previous years A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Filing taxes previous years Tax on a short period tax return is figured differently for each situation. Filing taxes previous years Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Filing taxes previous years Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Filing taxes previous years Example 1. Filing taxes previous years XYZ Corporation was organized on July 1, 2012. Filing taxes previous years It elected the calendar year as its tax year. Filing taxes previous years Therefore, its first tax return was due March 15, 2013. Filing taxes previous years This short period return will cover the period from July 1, 2012, through December 31, 2012. Filing taxes previous years Example 2. Filing taxes previous years A calendar year corporation dissolved on July 23, 2012. Filing taxes previous years Its final return is due by October 15, 2012. Filing taxes previous years It will cover the short period from January 1, 2012, through July 23, 2012. Filing taxes previous years Death of individual. Filing taxes previous years   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Filing taxes previous years The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Filing taxes previous years In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Filing taxes previous years Example. Filing taxes previous years   Agnes Green was a single, calendar year taxpayer. Filing taxes previous years She died on March 6, 2012. Filing taxes previous years Her final income tax return must be filed by April 15, 2013. Filing taxes previous years It will cover the short period from January 1, 2012, to March 6, 2012. Filing taxes previous years Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Filing taxes previous years The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Filing taxes previous years Figure tax for a short year under the general rule, explained below. Filing taxes previous years You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Filing taxes previous years General rule. Filing taxes previous years   Income tax for a short tax year must be annualized. Filing taxes previous years However, self-employment tax is figured on the actual self-employment income for the short period. Filing taxes previous years Individuals. Filing taxes previous years   An individual must figure income tax for the short tax year as follows. Filing taxes previous years Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Filing taxes previous years You must itemize deductions when you file a short period tax return. Filing taxes previous years Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Filing taxes previous years Subtract the amount in (2) from the amount in (1). Filing taxes previous years The result is your modified taxable income. Filing taxes previous years Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Filing taxes previous years The result is your annualized income. Filing taxes previous years Figure the total tax on your annualized income using the appropriate tax rate schedule. Filing taxes previous years Multiply the total tax by the number of months in the short tax year and divide the result by 12. Filing taxes previous years The result is your tax for the short tax year. Filing taxes previous years Relief procedure. Filing taxes previous years   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Filing taxes previous years It may result in less tax. Filing taxes previous years Under this procedure, the tax is figured by two separate methods. Filing taxes previous years If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Filing taxes previous years For more information, see section 443(b)(2) of the Internal Revenue Code. Filing taxes previous years Alternative minimum tax. Filing taxes previous years   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Filing taxes previous years Multiply the AMTI by 12. Filing taxes previous years Divide the result by the number of months in the short tax year. Filing taxes previous years Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Filing taxes previous years The result is the annualized AMT. Filing taxes previous years Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Filing taxes previous years   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Filing taxes previous years For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Filing taxes previous years Tax withheld from wages. Filing taxes previous years   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Filing taxes previous years Federal income tax is withheld on a calendar year basis. Filing taxes previous years The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Filing taxes previous years Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Filing taxes previous years For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Filing taxes previous years See Accounting Periods, earlier, for a description of permissible tax years. Filing taxes previous years To change to a proper tax year, you must do one of the following. Filing taxes previous years If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Filing taxes previous years Attach a completed Form 1128 to the amended tax return. Filing taxes previous years Write “FILED UNDER REV. Filing taxes previous years PROC. Filing taxes previous years 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Filing taxes previous years If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Filing taxes previous years Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Filing taxes previous years See the Instructions for Form 1128 for exceptions. Filing taxes previous years If you qualify for an automatic approval request, a user fee is not required. Filing taxes previous years Individuals Generally, individuals must adopt the calendar year as their tax year. Filing taxes previous years An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Filing taxes previous years Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Filing taxes previous years A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Filing taxes previous years The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Filing taxes previous years The following discussions provide the rules for partnerships, S corporations, and PSCs. Filing taxes previous years Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Filing taxes previous years The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Filing taxes previous years The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Filing taxes previous years The partnership can establish a business purpose for a different tax year. Filing taxes previous years The rules for the required tax year for partnerships are as follows. Filing taxes previous years If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Filing taxes previous years If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Filing taxes previous years A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Filing taxes previous years If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Filing taxes previous years If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Filing taxes previous years Least aggregate deferral of income. Filing taxes previous years   The tax year that results in the least aggregate deferral of income is determined as follows. Filing taxes previous years Figure the number of months of deferral for each partner using one partner's tax year. Filing taxes previous years Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Filing taxes previous years Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Filing taxes previous years Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Filing taxes previous years Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Filing taxes previous years   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Filing taxes previous years If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Filing taxes previous years However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Filing taxes previous years Example. Filing taxes previous years A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Filing taxes previous years A uses the calendar year and B uses a fiscal year ending November 30. Filing taxes previous years P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Filing taxes previous years Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Filing taxes previous years 5 -0- -0- B 11/30 0. Filing taxes previous years 5 11 5. Filing taxes previous years 5 Total Deferral 5. Filing taxes previous years 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Filing taxes previous years 5 1 0. Filing taxes previous years 5 B 11/30 0. Filing taxes previous years 5 -0- -0- Total Deferral 0. Filing taxes previous years 5 When determination is made. Filing taxes previous years   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Filing taxes previous years However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Filing taxes previous years This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Filing taxes previous years Short period return. Filing taxes previous years   When a partnership changes its tax year, a short period return must be filed. Filing taxes previous years The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Filing taxes previous years   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Filing taxes previous years The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Filing taxes previous years 706-1. Filing taxes previous years ” More information. Filing taxes previous years   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Filing taxes previous years S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Filing taxes previous years A permitted tax year is any of the following. Filing taxes previous years The calendar year. Filing taxes previous years A tax year elected under section 444 of the Internal Revenue Code. Filing taxes previous years See Section 444 Election, below for details. Filing taxes previous years A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Filing taxes previous years Any other tax year for which the corporation establishes a business purpose. Filing taxes previous years If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Filing taxes previous years For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Filing taxes previous years Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Filing taxes previous years The corporation makes an election under section 444 of the Internal Revenue Code. Filing taxes previous years See Section 444 Election, below for details. Filing taxes previous years The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Filing taxes previous years The corporation establishes a business purpose for a fiscal year. Filing taxes previous years See the Instructions for Form 1120 for general information about PSCs. Filing taxes previous years For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Filing taxes previous years Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Filing taxes previous years Certain restrictions apply to the election. Filing taxes previous years A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Filing taxes previous years The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Filing taxes previous years A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Filing taxes previous years It is not a member of a tiered structure (defined in section 1. Filing taxes previous years 444-2T of the regulations). Filing taxes previous years It has not previously had a section 444 election in effect. Filing taxes previous years It elects a year that meets the deferral period requirement. Filing taxes previous years Deferral period. Filing taxes previous years   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Filing taxes previous years Retaining tax year. Filing taxes previous years   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Filing taxes previous years This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Filing taxes previous years Adopting or changing tax year. Filing taxes previous years   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Filing taxes previous years The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Filing taxes previous years This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Filing taxes previous years If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Filing taxes previous years Example 1. Filing taxes previous years BD Partnership uses a calendar year, which is also its required tax year. Filing taxes previous years BD cannot make a section 444 election because the deferral period is zero. Filing taxes previous years Example 2. Filing taxes previous years E, a newly formed partnership, began operations on December 1. Filing taxes previous years E is owned by calendar year partners. Filing taxes previous years E wants to make a section 444 election to adopt a September 30 tax year. Filing taxes previous years E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Filing taxes previous years Making the election. Filing taxes previous years   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Filing taxes previous years Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Filing taxes previous years For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Filing taxes previous years Note. Filing taxes previous years If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Filing taxes previous years   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Filing taxes previous years Example 1. Filing taxes previous years AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Filing taxes previous years AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Filing taxes previous years Example 2. Filing taxes previous years The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Filing taxes previous years AB must file Form 8716 by March 17, 2013. Filing taxes previous years Example 3. Filing taxes previous years B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Filing taxes previous years B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Filing taxes previous years B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Filing taxes previous years Note. Filing taxes previous years The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Filing taxes previous years Extension of time for filing. Filing taxes previous years   There is an automatic extension of 12 months to make this election. Filing taxes previous years See the Form 8716 instructions for more information. Filing taxes previous years Terminating the election. Filing taxes previous years   The section 444 election remains in effect until it is terminated. Filing taxes previous years If the election is terminated, another section 444 election cannot be made for any tax year. Filing taxes previous years   The election ends when any of the following applies to the partnership, S corporation, or PSC. Filing taxes previous years The entity changes to its required tax year. Filing taxes previous years The entity liquidates. Filing taxes previous years The entity becomes a member of a tiered structure. Filing taxes previous years The IRS determines that the entity willfully failed to comply with the required payments or distributions. Filing taxes previous years   The election will also end if either of the following events occur. Filing taxes previous years An S corporation's S election is terminated. Filing taxes previous years However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Filing taxes previous years A PSC ceases to be a PSC. Filing taxes previous years If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Filing taxes previous years Required payment for partnership or S corporation. Filing taxes previous years   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Filing taxes previous years The required payment for that year (or any preceding tax year) is more than $500. Filing taxes previous years    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Filing taxes previous years   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Filing taxes previous years If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Filing taxes previous years If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Filing taxes previous years Applicable election year. Filing taxes previous years   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Filing taxes previous years Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Filing taxes previous years Required distribution for PSC. Filing taxes previous years   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Filing taxes previous years If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Filing taxes previous years The amount deferred is treated as paid or incurred in the following tax year. Filing taxes previous years   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Filing taxes previous years Back-up election. Filing taxes previous years   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Filing taxes previous years If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Filing taxes previous years Making back-up election. Filing taxes previous years   The general rules for making a section 444 election, as discussed earlier, apply. Filing taxes previous years When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Filing taxes previous years However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Filing taxes previous years Activating election. Filing taxes previous years   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Filing taxes previous years The due date for filing Form 8752 and making the payment is the later of the following dates. Filing taxes previous years May 15 of the calendar year following the calendar year in which the applicable election year begins. Filing taxes previous years 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Filing taxes previous years   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Filing taxes previous years ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Filing taxes previous years A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Filing taxes previous years However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Filing taxes previous years Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Filing taxes previous years See the Instructions for Form 1128 for details. Filing taxes previous years Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Filing taxes previous years A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Filing taxes previous years An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Filing taxes previous years Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Filing taxes previous years See the Instructions for Form 1128 for details. Filing taxes previous years Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Filing taxes previous years Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Filing taxes previous years You choose an accounting method when you file your first tax return. Filing taxes previous years If you later want to change your accounting method, you must get IRS approval. Filing taxes previous years See Change in Accounting Method, later. Filing taxes previous years No single accounting method is required of all taxpayers. Filing taxes previous years You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Filing taxes previous years In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Filing taxes previous years You must use the same accounting method from year to year. Filing taxes previous years An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Filing taxes previous years If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Filing taxes previous years Methods you can use. Filing taxes previous years   In general, you can compute your taxable income under any of the following accounting methods. Filing taxes previous years Cash method. Filing taxes previous years Accrual method. Filing taxes previous years Special methods of accounting for certain items of income and expenses. Filing taxes previous years A hybrid method which combines elements of two or more of the above accounting methods. Filing taxes previous years The cash and accrual methods of accounting are explained later. Filing taxes previous years Special methods. Filing taxes previous years   This publication does not discuss special methods of accounting for certain items of income or expenses. Filing taxes previous years For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Filing taxes previous years The following publications also discuss special methods of reporting income or expenses. Filing taxes previous years Publication 225, Farmer's Tax Guide. Filing taxes previous years Publication 535, Business Expenses. Filing taxes previous years Publication 537, Installment Sales. Filing taxes previous years Publication 946, How To Depreciate Property. Filing taxes previous years Hybrid method. Filing taxes previous years   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Filing taxes previous years However, the following restrictions apply. Filing taxes previous years If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Filing taxes previous years See Exceptions under Inventories, later. Filing taxes previous years Generally, you can use the cash method for all other items of income and expenses. Filing taxes previous years See Inventories, later. Filing taxes previous years If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Filing taxes previous years If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Filing taxes previous years Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Filing taxes previous years Business and personal items. Filing taxes previous years   You can account for business and personal items using different accounting methods. Filing taxes previous years For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Filing taxes previous years Two or more businesses. Filing taxes previous years   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Filing taxes previous years No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Filing taxes previous years Note. Filing taxes previous years If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Filing taxes previous years Cash Method Most individuals and many small businesses use the cash method of accounting. Filing taxes previous years Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Filing taxes previous years See Inventories, later, for exceptions to this rule. Filing taxes previous years Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Filing taxes previous years If you receive property and services, you must include their fair market value (FMV) in income. Filing taxes previous years Constructive receipt. Filing taxes previous years   Income is constructively received when an amount is credited to your account or made available to you without restriction. Filing taxes previous years You need not have possession of it. Filing taxes previous years If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Filing taxes previous years Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Filing taxes previous years Example. Filing taxes previous years You are a calendar year taxpayer. Filing taxes previous years Your bank credited, and made available, interest to your bank account in December 2012. Filing taxes previous years You did not withdraw it or enter it into your books until 2013. Filing taxes previous years You must include the amount in gross income for 2012, the year you constructively received it. Filing taxes previous years You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Filing taxes previous years You must report the income in the year the property is received or made available to you without restriction. Filing taxes previous years Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Filing taxes previous years This includes business expenses for which you contest liability. Filing taxes previous years However, you may not be able to deduct an expense paid in advance. Filing taxes previous years Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Filing taxes previous years Expense paid in advance. Filing taxes previous years   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Filing taxes previous years   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Filing taxes previous years 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Filing taxes previous years   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Filing taxes previous years See Change in Accounting Method, later. Filing taxes previous years Example 1. Filing taxes previous years You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Filing taxes previous years The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Filing taxes previous years Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Filing taxes previous years Example 2. Filing taxes previous years You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Filing taxes previous years The 12-month rule applies. Filing taxes previous years Therefore, the full $10,000 is deductible in 2012. Filing taxes previous years Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Filing taxes previous years (See Special rules for farming businesses, later. Filing taxes previous years ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Filing taxes previous years See Gross receipts test, below. Filing taxes previous years A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Filing taxes previous years See Gross receipts test, below. Filing taxes previous years A tax shelter. Filing taxes previous years Exceptions The following entities are not prohibited from using the cash method of accounting. Filing taxes previous years Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Filing taxes previous years A qualified personal service corporation (PSC). Filing taxes previous years Gross receipts test. Filing taxes previous years   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Filing taxes previous years A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Filing taxes previous years    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Filing taxes previous years See Gross receipts test for qualifying taxpayers, for more information. Filing taxes previous years Generally, a partnership applies the test at the partnership level. Filing taxes previous years Gross receipts for a short tax year are annualized. Filing taxes previous years Aggregation rules. Filing taxes previous years   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Filing taxes previous years Change to accrual method. Filing taxes previous years   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Filing taxes previous years Special rules for farming businesses. Filing taxes previous years   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Filing taxes previous years However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Filing taxes previous years For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Filing taxes previous years   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Filing taxes previous years For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Filing taxes previous years See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Filing taxes previous years Qualified PSC. Filing taxes previous years   A PSC that meets the following function and ownership tests can use the cash method. Filing taxes previous years Function test. Filing taxes previous years   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Filing taxes previous years Ownership test. Filing taxes previous years   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Filing taxes previous years Employees performing services for the corporation in a field qualifying under the function test. Filing taxes previous years Retired employees who had performed services in those fields. Filing taxes previous years The estate of an employee described in (1) or (2). Filing taxes previous years Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Filing taxes previous years   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Filing taxes previous years Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Filing taxes previous years Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Filing taxes previous years   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Filing taxes previous years Change to accrual method. Filing taxes previous years   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Filing taxes previous years A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Filing taxes previous years Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Filing taxes previous years The purpose of an accrual method of accounting is to match income and expenses in the correct year. Filing taxes previous years Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Filing taxes previous years Under this rule, you report an amount in your gross income on the earliest of the following dates. Filing taxes previous years When you receive payment. Filing taxes previous years When the income amount is due to you. Filing taxes previous years When you earn the income. Filing taxes previous years When title has passed. Filing taxes previous years Estimated income. Filing taxes previous years   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Filing taxes previous years Change in payment schedule. Filing taxes previous years   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Filing taxes previous years Continue this procedure until you complete the services, then account for the difference. Filing taxes previous years Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Filing taxes previous years However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Filing taxes previous years However, you cannot postpone including any payment beyond that tax year. Filing taxes previous years Service agreement. Filing taxes previous years   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Filing taxes previous years This includes an agreement providing for incidental replacement of parts or materials. Filing taxes previous years However, this applies only if you offer the property without a service agreement in the normal course of business. Filing taxes previous years Postponement not allowed. Filing taxes previous years   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Filing taxes previous years You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Filing taxes previous years You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Filing taxes previous years Examples. Filing taxes previous years   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Filing taxes previous years Example 1. Filing taxes previous years You manufacture, sell, and service computers. Filing taxes previous years You received payment in 2012 for a one-year contingent service contract on a computer you sold. Filing taxes previous years You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Filing taxes previous years Example 2. Filing taxes previous years You are in the television repair business. Filing taxes previous years You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Filing taxes previous years You include the payments in gross income as you earn them. Filing taxes previous years Example 3. Filing taxes previous years You own a dance studio. Filing taxes previous years On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Filing taxes previous years You give eight lessons in 2012. Filing taxes previous years Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Filing taxes previous years Example 4. Filing taxes previous years Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Filing taxes previous years You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Filing taxes previous years Guarantee or warranty. Filing taxes previous years   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Filing taxes previous years Prepaid rent. Filing taxes previous years   You cannot postpone reporting income from prepaid rent. Filing taxes previous years Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Filing taxes previous years You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Filing taxes previous years Books and records. Filing taxes previous years   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Filing taxes previous years Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Filing taxes previous years IRS approval. Filing taxes previous years   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Filing taxes previous years Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Filing taxes previous years However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Filing taxes previous years An agreement includes a gift certificate that can be redeemed for goods. Filing taxes previous years Amounts due and payable are considered received. Filing taxes previous years How to report payments. Filing taxes previous years   Generally, include an advance payment in income in the year in which you receive it. Filing taxes previous years However, you can use the alternative method, discussed next. Filing taxes previous years Alternative method of reporting. Filing taxes previous years   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Filing taxes previous years Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Filing taxes previous years Example 1. Filing taxes previous years You are a retailer. Filing taxes previous years You use an accrual method of accounting and account for the sale of goods when you ship the goods. Filing taxes previous years You use this method for both tax and financial reporting purposes. Filing taxes previous years You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Filing taxes previous years However, see Exception for inventory goods, later. Filing taxes previous years Example 2. Filing taxes previous years You are a calendar year taxpayer. Filing taxes previous years You manufacture household furniture and use an accrual method of accounting. Filing taxes previous years Under this method, you accrue income for your financial reports when you ship the furniture. Filing taxes previous years For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Filing taxes previous years In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Filing taxes previous years You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Filing taxes previous years For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Filing taxes previous years Information schedule. Filing taxes previous years   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Filing taxes previous years Total advance payments received in the current tax year. Filing taxes previous years Total advance payments received in earlier tax years and not included in income before the current tax year. Filing taxes previous years Total payments received in earlier tax years included in income for the current tax year. Filing taxes previous years Exception for inventory goods. Filing taxes previous years   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Filing taxes previous years You account for the advance payment under the alternative method (discussed earlier). Filing taxes previous years You have received a substantial advance payment on the agreement (discussed next). Filing taxes previous years You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Filing taxes previous years These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Filing taxes previous years   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Filing taxes previous years You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Filing taxes previous years If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Filing taxes previous years Note. Filing taxes previous years You must report any advance payments you receive after the second year in the year received. Filing taxes previous years No further deferral is allowed. Filing taxes previous years Substantial advance payments. Filing taxes previous years   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Filing taxes previous years Example. Filing taxes previous years You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Filing taxes previous years In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Filing taxes previous years The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Filing taxes previous years You receive the following advance payments under the contract. Filing taxes previous years 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Filing taxes previous years In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Filing taxes previous years Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Filing taxes previous years   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Filing taxes previous years You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Filing taxes previous years If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Filing taxes previous years   No further deferral is allowed. Filing taxes previous years You must include in gross income the advance payment you receive each remaining year of the contract. Filing taxes previous years Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Filing taxes previous years IRS approval. Filing taxes previous years   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Filing taxes previous years Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Filing taxes previous years The all-events test has been met. Filing taxes previous years The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Filing taxes previous years Economic performance has occurred. Filing taxes previous years Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Filing taxes previous years If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Filing taxes previous years If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Filing taxes previous years Example. Filing taxes previous years You are a calendar year taxpayer. Filing taxes previous years You buy office supplies in December 2012. Filing taxes previous years You receive the supplies and the bill in December, but you pay the bill in January 2013. Filing taxes previous years You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Filing taxes previous years Your office supplies may qualify as a recurring item, discussed later. Filing taxes previous years If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Filing taxes previous years Workers' compensation and tort liability. Filing taxes previous years   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Filing taxes previous years If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Filing taxes previous years Taxes. Filing taxes previous years   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Filing taxes previous years are paid. Filing taxes previous years However, you can elect to treat taxes as a recurring item, discussed later. Filing taxes previous years You can also elect to ratably accrue real estate taxes. Filing taxes previous years See chapter 5 of Publication 535 for information about real estate taxes. Filing taxes previous years Other liabilities. Filing taxes previous years   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Filing taxes previous years Interest. Filing taxes previous years   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Filing taxes previous years Compensation for services. Filing taxes previous years   Generally, economic performance occurs as an employee renders service to the employer. Filing taxes previous years However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Filing taxes previous years For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Filing taxes previous years Vacation pay. Filing taxes previous years   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Filing taxes previous years If you pay it later than this, you must deduct it in the year actually paid. Filing taxes previous years An amount is vested if your right to it cannot be nullified or cancelled. Filing taxes previous years Exception for recurring items. Filing taxes previous years   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Filing taxes previous years The exception applies if all the following requirements are met. Filing taxes previous years The all-events test, discussed earlier, is met. Filing taxes previous years Economic performance occurs by the earlier of the following dates. Filing taxes previous years 8½ months after the close of the year. Filing taxes previous years The date you file a timely return (including extensions) for the year. Filing taxes previous years The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Filing taxes previous years Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Filing taxes previous years This exception does not apply to workers' compensation or tort liabilities. Filing taxes previous years Amended return. Filing taxes previous years   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Filing taxes previous years You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Filing taxes previous years Recurrence and consistency. Filing taxes previous years   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Filing taxes previous years A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Filing taxes previous years Materiality. Filing taxes previous years   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Filing taxes previous years   An item considered material for financial statement purposes is also considered material for tax purposes. Filing taxes previous years However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Filing taxes previous years Matching expenses with income. Filing taxes previous years   Costs directly associated with the revenue of a period are properly allocable to that period. Filing taxes previous years To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Filing taxes previous years fasab. Filing taxes previous years gov/accepted. Filing taxes previous years html) are an important factor. Filing taxes previous years   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Filing taxes previous years Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Filing taxes previous years However, the matching requirement is considered met for certain types of expenses. Filing taxes previous years These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Filing taxes previous years Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Filing taxes previous years Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Filing taxes previous years 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Filing taxes previous years If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Filing taxes previous years See Change in Accounting Method, later, for information on how to get IRS approval. Filing taxes previous years See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Filing taxes previous years Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Filing taxes previous years Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Filing taxes previous years See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Filing taxes previous years Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Filing taxes previous years If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Filing taxes previous years However, see Exceptions, next. Filing taxes previous years See also Accrual Method, earlier. Filing taxes previous years To figure taxable income, you must value your inventory at the beginning and end of each tax year. Filing taxes previous years To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Filing taxes previous years See Identifying Cost and Valuing Inventory, later. Filing taxes previous years The rules for valuing inventory are not the same for all businesses. Filing taxes previous years The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Filing taxes previous years Your inventory practices must be consistent from year to year. Filing taxes previous years The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Filing taxes previous years Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Filing taxes previous years These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Filing taxes previous years A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Filing taxes previous years irs. Filing taxes previous years gov/pub/irs-irbs/irb01–02. Filing taxes previous years pdf. Filing taxes previous years A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Filing taxes previous years irs. Filing taxes previous years gov/pub/irs-irbs/irb02–18. Filing taxes previous years pdf. Filing taxes previous years In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Filing taxes previous years Qualifying taxpayer. Filing taxes previous years   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Filing taxes previous years Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Filing taxes previous years You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Filing taxes previous years Gross receipts test for qualifying taxpayers. Filing taxes previous years   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Filing taxes previous years List each of the test years. Filing taxes previous years For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Filing taxes previous years Step 2. Filing taxes previous years Determine your average annual gross receipts for each test year listed in Step 1. Filing taxes previous years Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Filing taxes previous years Step 3. Filing taxes previous years You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Filing taxes previous years Qualifying small business taxpayer. Filing taxes previous years   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Filing taxes previous years Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Filing taxes previous years You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Filing taxes previous years Your principle business activity is an eligible business. Filing taxes previous years See Eligible business, later. Filing taxes previous years You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Filing taxes previous years Note. Filing taxes previous years Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Filing taxes previous years A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Filing taxes previous years See Special rules for farming businesses under Cash Method, earlier. Filing taxes previous years Gross receipts test for qualifying small business taxpayers. Filing taxes previous years   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Filing taxes previous years List each of the test years. Filing taxes previous years For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Filing taxes previous years Step 2. Filing taxes previous years Determine your average annual gross receipts for each test year listed in Step 1. Filing taxes previous years Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Filing taxes previous years Step 3. Filing taxes previous years You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Filing taxes previous years Eligible business. Filing taxes previous years   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Filing taxes previous years You have an eligible business if you meet any of the following requirements. Filing taxes previous years Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Filing taxes previous years NAICS codes 31-33 (manufacturing). Filing taxes previous years NAICS code 42 (wholesale trade). Filing taxes previous years NAICS codes 44-45 (retail trade). Filing taxes previous years NAICS codes 5111 and 5122 (information industries). Filing taxes previous years Your principal business activity is the provision of services, including the provision of property incident to those services. Filing taxes previous years Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Filing taxes previous years   Information about the NAICS codes can be found at http://www. Filing taxes previous years census. Filing taxes previous years gov/naics or in the instructions for your federal income tax return. Filing taxes previous years Gross receipts. Filing taxes previous years   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Filing taxes previous years See the definit