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Free E-file For 2011

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Free E-file For 2011

Free e-file for 2011 5. Free e-file for 2011   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Free e-file for 2011 Short-term lease. Free e-file for 2011 Retail space. Free e-file for 2011 Qualified long-term real property. Free e-file for 2011 Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Free e-file for 2011 If there is a connection between any income you receive and your business, the income is business income. Free e-file for 2011 A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Free e-file for 2011 You can have business income even if you are not involved in the activity on a regular full-time basis. Free e-file for 2011 Income from work you do on the side in addition to your regular job can be business income. Free e-file for 2011 You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Free e-file for 2011 But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Free e-file for 2011 For information on selling business assets, see chapter 3. Free e-file for 2011 Nonemployee compensation. Free e-file for 2011 Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Free e-file for 2011 This includes amounts reported as nonemployee compensation in box 7 of the form. Free e-file for 2011 You can find more information in the instructions on the back of the Form 1099-MISC you received. Free e-file for 2011 Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Free e-file for 2011 In most cases, your business income will be in the form of cash, checks, and credit card charges. Free e-file for 2011 But business income can be in other forms, such as property or services. Free e-file for 2011 These and other types of income are explained next. Free e-file for 2011 If you are a U. Free e-file for 2011 S. Free e-file for 2011 citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Free e-file for 2011 S. Free e-file for 2011 law. Free e-file for 2011 If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Free e-file for 2011 For details, see Publication 54, Tax Guide for U. Free e-file for 2011 S. Free e-file for 2011 Citizens and Resident Aliens Abroad. Free e-file for 2011 Bartering for Property or Services Bartering is an exchange of property or services. Free e-file for 2011 You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Free e-file for 2011 If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Free e-file for 2011 Example 1. Free e-file for 2011 You are a self-employed lawyer. Free e-file for 2011 You perform legal services for a client, a small corporation. Free e-file for 2011 In payment for your services, you receive shares of stock in the corporation. Free e-file for 2011 You must include the fair market value of the shares in income. Free e-file for 2011 Example 2. Free e-file for 2011 You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Free e-file for 2011 You must include the fair rental value of the apartment in your gross receipts. Free e-file for 2011 Your landlord must include the fair market value of the work of art in his or her rental income. Free e-file for 2011 Example 3. Free e-file for 2011 You are a self-employed accountant. Free e-file for 2011 Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Free e-file for 2011 Members get in touch with other members directly and bargain for the value of the services to be performed. Free e-file for 2011 In return for accounting services you provided for the house painter's business, the house painter painted your home. Free e-file for 2011 You must include in gross receipts the fair market value of the services you received from the house painter. Free e-file for 2011 The house painter must include the fair market value of your accounting services in his or her gross receipts. Free e-file for 2011 Example 4. Free e-file for 2011 You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Free e-file for 2011 As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Free e-file for 2011 You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Free e-file for 2011 The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Free e-file for 2011 It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Free e-file for 2011 See Publication 15 (Circular E), Employer's Tax Guide. Free e-file for 2011 Example 5. Free e-file for 2011 You operate a plumbing business and use the cash method of accounting. Free e-file for 2011 You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Free e-file for 2011 Each member has access to a directory that lists the members of the club and the services available. Free e-file for 2011 Members contact each other directly and request services to be performed. Free e-file for 2011 You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Free e-file for 2011 You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Free e-file for 2011 Information returns. Free e-file for 2011   If you are involved in a bartering transaction, you may have to file either of the following forms. Free e-file for 2011 Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Free e-file for 2011 Form 1099-MISC, Miscellaneous Income. Free e-file for 2011 For information about these forms, see the General Instructions for Certain Information Returns. Free e-file for 2011 Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Free e-file for 2011 , who provides services (maid services, etc. Free e-file for 2011 ) for guests, report the rental income and expenses on Schedule C or C-EZ. Free e-file for 2011 If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Free e-file for 2011 For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Free e-file for 2011 Real estate dealer. Free e-file for 2011   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Free e-file for 2011 Rent you receive from real estate held for sale to customers is subject to SE tax. Free e-file for 2011 However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Free e-file for 2011 Trailer park owner. Free e-file for 2011   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Free e-file for 2011    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Free e-file for 2011 Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Free e-file for 2011   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Free e-file for 2011   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Free e-file for 2011 Hotels, boarding houses, and apartments. Free e-file for 2011   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Free e-file for 2011   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Free e-file for 2011 An example of a service that is not normally provided for the convenience of the occupants is maid service. Free e-file for 2011 However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Free e-file for 2011 Prepaid rent. Free e-file for 2011   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Free e-file for 2011 This is true no matter what accounting method or period you use. Free e-file for 2011 Lease bonus. Free e-file for 2011   A bonus you receive from a lessee for granting a lease is an addition to the rent. Free e-file for 2011 Include it in your gross receipts in the year received. Free e-file for 2011 Lease cancellation payments. Free e-file for 2011   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Free e-file for 2011 Payments to third parties. Free e-file for 2011   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Free e-file for 2011 A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Free e-file for 2011 Settlement payments. Free e-file for 2011   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Free e-file for 2011 Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Free e-file for 2011 ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Free e-file for 2011 Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Free e-file for 2011 If you receive any of those payments, include them in your gross receipts as explained in that discussion. Free e-file for 2011 Interest and Dividend Income Interest and dividends may be considered business income. Free e-file for 2011 Interest. Free e-file for 2011   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Free e-file for 2011 Interest received on loans is business income if you are in the business of lending money. Free e-file for 2011 Uncollectible loans. Free e-file for 2011   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Free e-file for 2011 If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Free e-file for 2011 See Bad Debts in chapter 8. Free e-file for 2011 Unstated interest. Free e-file for 2011   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Free e-file for 2011 See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free e-file for 2011 Dividends. Free e-file for 2011   Generally, dividends are business income to dealers in securities. Free e-file for 2011 For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Free e-file for 2011 If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Free e-file for 2011   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Free e-file for 2011 To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Free e-file for 2011 Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Free e-file for 2011 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Free e-file for 2011 Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Free e-file for 2011 If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Free e-file for 2011 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free e-file for 2011 Price reduced after purchase. Free e-file for 2011   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Free e-file for 2011 Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Free e-file for 2011 Deductible debt. Free e-file for 2011   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Free e-file for 2011 Example. Free e-file for 2011 You get accounting services for your business on credit. Free e-file for 2011 Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Free e-file for 2011 Your accountant forgives part of the amount you owe for the accounting services. Free e-file for 2011 How you treat the canceled debt depends on your method of accounting. Free e-file for 2011 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Free e-file for 2011 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free e-file for 2011   For information on the cash and accrual methods of accounting, see chapter 2. Free e-file for 2011 Exclusions Do not include canceled debt in income in the following situations. Free e-file for 2011 However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Free e-file for 2011 For more information, see Form 982. Free e-file for 2011 The cancellation takes place in a bankruptcy case under title 11 of the U. Free e-file for 2011 S. Free e-file for 2011 Code (relating to bankruptcy). Free e-file for 2011 See Publication 908, Bankruptcy Tax Guide. Free e-file for 2011 The cancellation takes place when you are insolvent. Free e-file for 2011 You can exclude the canceled debt to the extent you are insolvent. Free e-file for 2011 See Publication 908. Free e-file for 2011 The canceled debt is a qualified farm debt owed to a qualified person. Free e-file for 2011 See chapter 3 in Publication 225, Farmer's Tax Guide. Free e-file for 2011 The canceled debt is a qualified real property business debt. Free e-file for 2011 This situation is explained later. Free e-file for 2011 The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Free e-file for 2011 See Form 982. Free e-file for 2011 If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Free e-file for 2011 If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Free e-file for 2011 Debt. Free e-file for 2011   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Free e-file for 2011 Qualified real property business debt. Free e-file for 2011   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Free e-file for 2011 If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Free e-file for 2011 Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Free e-file for 2011 However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Free e-file for 2011 Cancellation of qualified real property business debt. Free e-file for 2011   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Free e-file for 2011 It was incurred or assumed in connection with real property used in a trade or business. Free e-file for 2011 It was secured by such real property. Free e-file for 2011 It was incurred or assumed at either of the following times. Free e-file for 2011 Before January 1, 1993. Free e-file for 2011 After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Free e-file for 2011 It is debt to which you choose to apply these rules. Free e-file for 2011   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Free e-file for 2011   You cannot exclude more than either of the following amounts. Free e-file for 2011 The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Free e-file for 2011 The total adjusted bases of depreciable real property held by you immediately before the cancellation. Free e-file for 2011 These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Free e-file for 2011 Do not take into account depreciable real property acquired in contemplation of the cancellation. Free e-file for 2011 Election. Free e-file for 2011   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Free e-file for 2011 You must file your return by the due date (including extensions). Free e-file for 2011 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Free e-file for 2011 For more information, see When To File in the form instructions. Free e-file for 2011 Other Income The following discussion explains how to treat other types of business income you may receive. Free e-file for 2011 Restricted property. Free e-file for 2011   Restricted property is property that has certain restrictions that affect its value. Free e-file for 2011 If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Free e-file for 2011 However, you can choose to be taxed in the year you receive the property. Free e-file for 2011 For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Free e-file for 2011 Gains and losses. Free e-file for 2011   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Free e-file for 2011 Instead, you must report these gains and losses on other forms. Free e-file for 2011 For more information, see chapter 3. Free e-file for 2011 Promissory notes. Free e-file for 2011   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Free e-file for 2011 In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Free e-file for 2011 Lost income payments. Free e-file for 2011   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Free e-file for 2011 Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Free e-file for 2011 Damages. Free e-file for 2011   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Free e-file for 2011 Patent infringement. Free e-file for 2011 Breach of contract or fiduciary duty. Free e-file for 2011 Antitrust injury. Free e-file for 2011 Economic injury. Free e-file for 2011   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Free e-file for 2011 Your deduction is the smaller of the following amounts. Free e-file for 2011 The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Free e-file for 2011 Your loss from the injury that you have not yet deducted. Free e-file for 2011 Punitive damages. Free e-file for 2011   You must also include punitive damages in income. Free e-file for 2011 Kickbacks. Free e-file for 2011   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Free e-file for 2011 However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Free e-file for 2011 Recovery of items previously deducted. Free e-file for 2011   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Free e-file for 2011 However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Free e-file for 2011 If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Free e-file for 2011 Example. Free e-file for 2011 Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Free e-file for 2011 He also had 2 personal exemptions for a total of $7,800. Free e-file for 2011 He would not pay income tax even if he did not deduct the bad debt. Free e-file for 2011 Therefore, he will not report as income any part of the $300 he may recover in any future year. Free e-file for 2011 Exception for depreciation. Free e-file for 2011   This rule does not apply to depreciation. Free e-file for 2011 You recover depreciation using the rules explained next. Free e-file for 2011 Recapture of depreciation. Free e-file for 2011   In the following situations, you have to recapture the depreciation deduction. Free e-file for 2011 This means you include in income part or all of the depreciation you deducted in previous years. Free e-file for 2011 Listed property. Free e-file for 2011   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Free e-file for 2011 You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Free e-file for 2011 Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Free e-file for 2011 For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Free e-file for 2011 That chapter explains how to determine whether property is used more than 50% in your business. Free e-file for 2011 Section 179 property. Free e-file for 2011   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Free e-file for 2011 You do this by including in income on Schedule C part of the deduction you took. Free e-file for 2011 Use Part IV of Form 4797 to figure the amount to include on Schedule C. Free e-file for 2011 See chapter 2 in Publication 946 to find out when you recapture the deduction. Free e-file for 2011 Sale or exchange of depreciable property. Free e-file for 2011   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Free e-file for 2011 You figure the income due to depreciation recapture in Part III of Form 4797. Free e-file for 2011 For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Free e-file for 2011 Items That Are Not Income In some cases the property or money you receive is not income. Free e-file for 2011 Appreciation. Free e-file for 2011   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Free e-file for 2011 Consignments. Free e-file for 2011   Consignments of merchandise to others to sell for you are not sales. Free e-file for 2011 The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Free e-file for 2011 Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Free e-file for 2011 Merchandise you have shipped out on consignment is included in your inventory until it is sold. Free e-file for 2011   Do not include merchandise you receive on consignment in your inventory. Free e-file for 2011 Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Free e-file for 2011 Construction allowances. Free e-file for 2011   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Free e-file for 2011 Under a short-term lease of retail space. Free e-file for 2011 For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Free e-file for 2011 Amount you can exclude. Free e-file for 2011   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Free e-file for 2011 Short-term lease. Free e-file for 2011   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Free e-file for 2011 The following rules apply in determining whether the lease is for 15 years or less. Free e-file for 2011 Take into account options to renew when figuring whether the lease is for 15 years or less. Free e-file for 2011 But do not take into account any option to renew at fair market value determined at the time of renewal. Free e-file for 2011 Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Free e-file for 2011 Retail space. Free e-file for 2011   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Free e-file for 2011 Qualified long-term real property. Free e-file for 2011   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Free e-file for 2011 Exchange of like-kind property. Free e-file for 2011   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Free e-file for 2011 This means that the gain is not taxable and the loss is not deductible. Free e-file for 2011 A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Free e-file for 2011 For more information, see Form 8824. Free e-file for 2011 Leasehold improvements. Free e-file for 2011   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Free e-file for 2011 However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Free e-file for 2011 Loans. Free e-file for 2011   Money borrowed through a bona fide loan is not income. Free e-file for 2011 Sales tax. Free e-file for 2011   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Free e-file for 2011 Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Free e-file for 2011 Direct seller. Free e-file for 2011   You must report all income you receive as a direct seller on Schedule C or C-EZ. Free e-file for 2011 This includes any of the following. Free e-file for 2011 Income from sales—payments you receive from customers for products they buy from you. Free e-file for 2011 Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Free e-file for 2011 Prizes, awards, and gifts you receive from your selling business. Free e-file for 2011 You must report this income regardless of whether it is reported to you on an information return. Free e-file for 2011   You are a direct seller if you meet all the following conditions. Free e-file for 2011 You are engaged in one of the following trades or businesses. Free e-file for 2011 Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Free e-file for 2011 Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Free e-file for 2011 Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Free e-file for 2011 Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Free e-file for 2011 Executor or administrator. Free e-file for 2011   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Free e-file for 2011 A nonprofessional fiduciary (personal representative) and both of the following apply. Free e-file for 2011 The estate includes an active trade or business in which you actively participate. Free e-file for 2011 Your fees are related to the operation of that trade or business. Free e-file for 2011 A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Free e-file for 2011    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Free e-file for 2011 Fishing crew member. Free e-file for 2011    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Free e-file for 2011 Insurance agent, former. Free e-file for 2011   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Free e-file for 2011 You received payments after your agreement to perform services for the company ended. Free e-file for 2011 You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Free e-file for 2011 You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Free e-file for 2011 The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Free e-file for 2011 The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Free e-file for 2011 Insurance agent, retired. Free e-file for 2011   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Free e-file for 2011 Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Free e-file for 2011   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Free e-file for 2011 Newspaper carrier or distributor. Free e-file for 2011   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free e-file for 2011 You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Free e-file for 2011 Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Free e-file for 2011 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free e-file for 2011   This rule applies whether or not you hire others to help you make deliveries. Free e-file for 2011 It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Free e-file for 2011 Newspaper or magazine vendor. Free e-file for 2011   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free e-file for 2011 You sell newspapers or magazines to ultimate consumers. Free e-file for 2011 You sell them at a fixed price. Free e-file for 2011 Your earnings are based on the difference between the sales price and your cost of goods sold. Free e-file for 2011   This rule applies whether or not you are guaranteed a minimum amount of earnings. Free e-file for 2011 It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Free e-file for 2011 Notary public. Free e-file for 2011   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Free e-file for 2011 These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Free e-file for 2011 Public official. Free e-file for 2011   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Free e-file for 2011 This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Free e-file for 2011 Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Free e-file for 2011   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Free e-file for 2011 Real estate agent or direct seller. Free e-file for 2011   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Free e-file for 2011 Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Free e-file for 2011 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free e-file for 2011 Securities dealer. Free e-file for 2011   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Free e-file for 2011 For more information, see sections 1256 and 1402(i). Free e-file for 2011 Securities trader. Free e-file for 2011   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Free e-file for 2011 As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Free e-file for 2011 However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Free e-file for 2011 For more information about securities traders, see Publication 550, Investment Income and Expenses. Free e-file for 2011 Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Free e-file for 2011 This section discusses some of the more common differences that may affect business transactions. Free e-file for 2011 Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Free e-file for 2011 If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Free e-file for 2011 Dealers in real estate are not allowed to use inventories. Free e-file for 2011 For more information on inventories, see chapter 2. Free e-file for 2011 Income paid to a third party. Free e-file for 2011   All income you earn is taxable to you. Free e-file for 2011 You cannot avoid tax by having the income paid to a third party. Free e-file for 2011 Example. Free e-file for 2011 You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Free e-file for 2011 The amount paid to your son is gross income to you. Free e-file for 2011 Cash discounts. Free e-file for 2011   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Free e-file for 2011 For income tax purposes, you can use either of the following two methods to account for cash discounts. Free e-file for 2011 Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Free e-file for 2011 Credit the cash discount to a discount income account. Free e-file for 2011 You must use the chosen method every year for all your purchase discounts. Free e-file for 2011   If you use the second method, the credit balance in the account at the end of your tax year is business income. Free e-file for 2011 Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Free e-file for 2011 When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Free e-file for 2011 Trade discounts. Free e-file for 2011   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Free e-file for 2011 Do not enter these discounts on your books of account. Free e-file for 2011 Instead, use only the net amount as the cost of the merchandise purchased. Free e-file for 2011 For more information, see Trade discounts in chapter 6. Free e-file for 2011 Payment placed in escrow. Free e-file for 2011   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Free e-file for 2011 However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Free e-file for 2011 Sales returns and allowances. Free e-file for 2011   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Free e-file for 2011 Advance payments. Free e-file for 2011   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Free e-file for 2011 Insurance proceeds. Free e-file for 2011   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Free e-file for 2011 You cannot deduct the reimbursed part of a casualty or theft loss. Free e-file for 2011   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free e-file for 2011 Prev  Up  Next   Home   More Online Publications
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The Free E-file For 2011

Free e-file for 2011 Publication 575 - Additional Material Table of Contents Worksheet A. Free e-file for 2011 Simplified Method 1. Free e-file for 2011 Enter the total pension or annuity payments received this year. Free e-file for 2011 Also, add this amount to the total for Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a 1. Free e-file for 2011   2. Free e-file for 2011 Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion. Free e-file for 2011 * See Cost (Investment in the Contract) , earlier 2. Free e-file for 2011   Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). Free e-file for 2011 Otherwise, go to line 3. Free e-file for 2011   3. Free e-file for 2011 Enter the appropriate number from Table 1 below. Free e-file for 2011 But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below. Free e-file for 2011 3. Free e-file for 2011   4. Free e-file for 2011 Divide line 2 by the number on line 3 4. Free e-file for 2011   5. Free e-file for 2011 Multiply line 4 by the number of months for which this year's payments were made. Free e-file for 2011 If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. Free e-file for 2011 Otherwise, go to line 6 5. Free e-file for 2011   6. Free e-file for 2011 Enter any amounts previously recovered tax free in years after 1986. Free e-file for 2011 This is the amount shown on line 10 of your worksheet for last year 6. Free e-file for 2011   7. Free e-file for 2011 Subtract line 6 from line 2 7. Free e-file for 2011   8. Free e-file for 2011 Enter the smaller of line 5 or line 7 8. Free e-file for 2011   9. Free e-file for 2011 Taxable amount for year. Free e-file for 2011 Subtract line 8 from line 1. Free e-file for 2011 Enter the result, but not less than zero. Free e-file for 2011 Also, add this amount to the total for Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Free e-file for 2011  Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. Free e-file for 2011 If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers , earlier, before entering an amount on your tax return 9. Free e-file for 2011   10. Free e-file for 2011 Was your annuity starting date before 1987? □ Yes. Free e-file for 2011 STOP. Free e-file for 2011 Do not complete the rest of this worksheet. Free e-file for 2011  □ No. Free e-file for 2011 Add lines 6 and 8. Free e-file for 2011 This is the amount you have recovered tax free through 2013. Free e-file for 2011 You will need this number if you need to fill out this worksheet next year 10. Free e-file for 2011   11. Free e-file for 2011 Balance of cost to be recovered. Free e-file for 2011 Subtract line 10 from line 2. Free e-file for 2011 If zero, you will not have to complete this worksheet next year. Free e-file for 2011 The payments you receive next year will generally be fully taxable 11. Free e-file for 2011   * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. Free e-file for 2011 Table 1 for Line 3 Above   IF the age at  annuity starting date was . Free e-file for 2011 . Free e-file for 2011 . Free e-file for 2011         AND your annuity starting date was—     BEFORE November 19, 1996,  enter on line 3 . Free e-file for 2011 . Free e-file for 2011 . Free e-file for 2011 AFTER November 18, 1996,  enter on line 3 . Free e-file for 2011 . Free e-file for 2011 . Free e-file for 2011   55 or under 300 360   56-60 260 310   61-65 240 260   66-70 170 210   71 or over 120 160 Table 2 for Line 3 Above   IF the combined ages at annuity starting date were . Free e-file for 2011 . Free e-file for 2011 . Free e-file for 2011   THEN enter on line 3 . Free e-file for 2011 . Free e-file for 2011 . Free e-file for 2011         110 or under   410         111-120   360         121-130   310         131-140   260         141 or over   210       Prev  Up  Next   Home   More Online Publications