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Free taxes Part Six -   Cómo Calcular los Impuestos y Créditos Los ocho capítulos de esta sección explican cómo calcular sus impuestos y cómo calcular los impuestos de determinados hijos con ingresos no derivados del trabajo de $2,000 o más. Free taxes Explican también créditos tributarios que, a diferencia de las deducciones, se restan directamente de los impuestos y los disminuyen, dólar por dólar. Free taxes El capítulo 36 trata sobre el crédito por ingreso del trabajo y el capítulo 37 abarca una amplia gama de otros créditos, como por ejemplo, el crédito por adopción. Free taxes Table of Contents 30. Free taxes   Cómo Calcular los ImpuestosIntroduction Cómo Calcular los Impuestos Impuesto Mínimo Alternativo (AMT) Impuestos Calculados por el IRS Cómo Presentar la Declaración 31. Free taxes   Impuesto sobre Ingresos No Derivados del Trabajo de Determinados Hijos¿Que Hay de Nuevo? Introduction Useful Items - You may want to see: Cómo Saber si se Tiene que Utilizar la Declaración del Padre o de la MadrePadres que no Presentan la Declaración Conjunta Elección de los Padres de Declarar los Intereses y Dividendos del HijoConsecuencias de Incluir los Ingresos del Hijo Cómo Calcular los Ingresos del Hijo Cómo Calcular el Impuesto Adicional Impuesto para Determinados Hijos con Ingresos No Derivados del TrabajoCómo Facilitar Información sobre los Padres (líneas A-C del Formulario 8615) Paso 1. Free taxes Cómo Calcular los Ingresos Netos No Derivados del Trabajo del Hijo (Parte I del Formulario 8615) Paso 2. Free taxes Cómo Calcular el Impuesto Provisional a la Tasa Impositiva de los Padres (Parte II del Formulario 8615) Paso 3. Free taxes Cómo Calcular el Impuesto del Hijo (Parte III del Formulario 8615) 32. Free taxes   Crédito por Gastos del Cuidado de Menores y DependientesRecordatorios Introduction Useful Items - You may want to see: Requisitos Para Reclamar el CréditoRequisitos de la Persona Calificada Requisito del Ingreso del Trabajo Requisito de Gastos Relacionados con el Trabajo Requisito de la Declaración Conjunta Requisito de Identificación del Proveedor de Cuidados Cómo Calcular el CréditoCómo Calcular el Total de los Gastos Relacionados con el Trabajo Límite del Ingreso del Trabajo Límite de Dinero Cantidad de Crédito Cómo Reclamar el CréditoCrédito tributario no reembolsable. Free taxes Impuestos sobre la Nómina para Empleadores de Empleados Domésticos 33. Free taxes   Crédito para Ancianos o Personas IncapacitadasIntroduction Useful Items - You may want to see: ¿Reúne los Requisitos del Crédito?Persona que Reúne los Requisitos Límites sobre los Ingresos Cómo Reclamar el CréditoEl Crédito Calculado por el IRS El Crédito Calculado por Usted Mismo 34. Free taxes   Crédito Tributario por HijosIntroduction Useful Items - You may want to see: Hijo Calificado Cantidad de CréditoLímites del Crédito Cómo Reclamar el Crédito Crédito Tributario Adicional por Hijos Cómo Completar el Anexo 8812 (Formulario 1040A o Formulario 1040)Parte I Partes II a IV 35. Free taxes   Créditos Tributarios por EstudiosIntroduction Useful Items - You may want to see: ¿Quién Puede Reclamar un Crédito Tributario por Estudios? Gastos de Estudios CalificadosNo se Permite Beneficio Doble Ajustes a los Gastos de Estudios Calificados 36. Free taxes   Crédito por Ingreso del Trabajo (EIC) Qué Hay de Nuevo Recordatorios Introduction Useful Items - You may want to see: ¿Reúne los Requisitos para el Crédito?Si se Hizo una Solicitud Indebida del Crédito en un Año Anterior Parte A. Free taxes Requisitos para TodosRequisito 1. Free taxes Tiene que Tener Ingresos Brutos Ajustados Inferiores a: Requisito 2. Free taxes Tiene que tener un número de Seguro Social válido Requisito 3. Free taxes Su Estado Civil para Efectos de la Declaración no Puede Ser Casado que Presenta la Declaración por Separado Requisito 4. Free taxes Tiene que Ser Ciudadano o Extranjero Residente de los Estados Unidos Durante Todo el Año Requisito 5. Free taxes No Puede Presentar el Formulario 2555 ni el Formulario 2555-EZ Requisito 6. Free taxes Tiene que Tener Ingresos de Inversiones de $3,300 o Menos Requisito 7. Free taxes Tiene que Haber Recibido Ingresos del Trabajo Parte B. Free taxes Requisitos si Tiene un Hijo CalificadoRequisito 8. Free taxes Su Hijo Tiene que Cumplir los Requisitos de Parentesco, Edad, Residencia y de la Declaración Conjunta Requisito 9. Free taxes Para Reclamar el Crédito por Ingreso del Trabajo, Sólo una Persona Puede Basarse en el Hijo Calificado de Usted Requisito 10. Free taxes Otro Contribuyente no Puede Reclamarlo a Usted como Hijo Calificado Parte C. Free taxes Requisitos si no Tiene un Hijo CalificadoRequisito 11. Free taxes Tiene que Tener por lo Menos 25 Años pero Menos de 65 Años Requisito 12. Free taxes No Puede Ser el Dependiente de Otra Persona Requisito 13. Free taxes Otro Contribuyente no Puede Reclamarlo a Usted como Hijo Calificado Requisito 14. Free taxes Tiene que Haber Vivido en los Estados Unidos durante más de la Mitad del Año Parte D. Free taxes Cómo Calcular y Reclamar el Crédito por Ingreso del TrabajoRequisito 15. Free taxes Su Ingreso del Trabajo Tiene que Ser Menos de: El IRS Puede Calcularle el Crédito por Ingreso del Trabajo Cómo Calcular Usted Mismo el Crédito por Ingreso del Trabajo EjemplosEjemplo 1. Free taxes Juan y Julia Martínez (Formulario 1040A) Ejemplo 2. Free taxes Carla Robles (Formulario 1040EZ) 37. Free taxes   Otros CréditosQué Hay de Nuevo Introduction Useful Items - You may want to see: Créditos no ReembolsablesCrédito por Adopción Crédito por Vehículo Motorizado Alternativo Crédito por Bienes de Reabastecimiento de Vehículos con Combustible Alternativo Crédito para Titulares de Bonos de Crédito Tributario Crédito por Impuestos Extranjeros Crédito por Intereses Hipotecarios Crédito no Reembolsable del Impuesto Mínimo de Años Anteriores Crédito por Vehículos Enchufables con Motor de Dirección Eléctrica Créditos por Energía de la Propiedad Residencial Crédito por Aportaciones a Cuentas de Ahorro para la Jubilación (Crédito del Ahorrador) Créditos ReembolsablesCrédito por el Impuesto sobre Ganancias de Capital no Distribuidas Crédito Tributario por Cobertura del Seguro Médico Crédito por Retención en Exceso del Impuesto del Seguro Social o del Impuesto de la Jubilación Ferroviaria Prev  Up  Next   Home   More Online Publications
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Free taxes 5. Free taxes   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 taxes Short-term lease. Free taxes Retail space. Free taxes Qualified long-term real property. Free taxes 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 taxes If there is a connection between any income you receive and your business, the income is business income. Free taxes 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 taxes You can have business income even if you are not involved in the activity on a regular full-time basis. Free taxes Income from work you do on the side in addition to your regular job can be business income. Free taxes You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Free taxes 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 taxes For information on selling business assets, see chapter 3. Free taxes Nonemployee compensation. Free taxes Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Free taxes This includes amounts reported as nonemployee compensation in box 7 of the form. Free taxes You can find more information in the instructions on the back of the Form 1099-MISC you received. Free taxes Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Free taxes In most cases, your business income will be in the form of cash, checks, and credit card charges. Free taxes But business income can be in other forms, such as property or services. Free taxes These and other types of income are explained next. Free taxes If you are a U. Free taxes S. Free taxes 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 taxes S. Free taxes law. Free taxes If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Free taxes For details, see Publication 54, Tax Guide for U. Free taxes S. Free taxes Citizens and Resident Aliens Abroad. Free taxes Bartering for Property or Services Bartering is an exchange of property or services. Free taxes 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 taxes 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 taxes Example 1. Free taxes You are a self-employed lawyer. Free taxes You perform legal services for a client, a small corporation. Free taxes In payment for your services, you receive shares of stock in the corporation. Free taxes You must include the fair market value of the shares in income. Free taxes Example 2. Free taxes You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Free taxes You must include the fair rental value of the apartment in your gross receipts. Free taxes Your landlord must include the fair market value of the work of art in his or her rental income. Free taxes Example 3. Free taxes You are a self-employed accountant. Free taxes 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 taxes Members get in touch with other members directly and bargain for the value of the services to be performed. Free taxes In return for accounting services you provided for the house painter's business, the house painter painted your home. Free taxes You must include in gross receipts the fair market value of the services you received from the house painter. Free taxes The house painter must include the fair market value of your accounting services in his or her gross receipts. Free taxes Example 4. Free taxes 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 taxes 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 taxes 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 taxes 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 taxes It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Free taxes See Publication 15 (Circular E), Employer's Tax Guide. Free taxes Example 5. Free taxes You operate a plumbing business and use the cash method of accounting. Free taxes You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Free taxes Each member has access to a directory that lists the members of the club and the services available. Free taxes Members contact each other directly and request services to be performed. Free taxes 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 taxes 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 taxes Information returns. Free taxes   If you are involved in a bartering transaction, you may have to file either of the following forms. Free taxes Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Free taxes Form 1099-MISC, Miscellaneous Income. Free taxes For information about these forms, see the General Instructions for Certain Information Returns. Free taxes 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 taxes , who provides services (maid services, etc. Free taxes ) for guests, report the rental income and expenses on Schedule C or C-EZ. Free taxes 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 taxes For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Free taxes Real estate dealer. Free taxes   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 taxes Rent you receive from real estate held for sale to customers is subject to SE tax. Free taxes However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Free taxes Trailer park owner. Free taxes   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 taxes    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 taxes Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Free taxes   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 taxes   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 taxes Hotels, boarding houses, and apartments. Free taxes   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 taxes   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 taxes An example of a service that is not normally provided for the convenience of the occupants is maid service. Free taxes However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Free taxes Prepaid rent. Free taxes   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 taxes This is true no matter what accounting method or period you use. Free taxes Lease bonus. Free taxes   A bonus you receive from a lessee for granting a lease is an addition to the rent. Free taxes Include it in your gross receipts in the year received. Free taxes Lease cancellation payments. Free taxes   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Free taxes Payments to third parties. Free taxes   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 taxes A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Free taxes Settlement payments. Free taxes   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 taxes Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Free taxes ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Free taxes Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Free taxes If you receive any of those payments, include them in your gross receipts as explained in that discussion. Free taxes Interest and Dividend Income Interest and dividends may be considered business income. Free taxes Interest. Free taxes   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Free taxes Interest received on loans is business income if you are in the business of lending money. Free taxes Uncollectible loans. Free taxes   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 taxes If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Free taxes See Bad Debts in chapter 8. Free taxes Unstated interest. Free taxes   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 taxes See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free taxes Dividends. Free taxes   Generally, dividends are business income to dealers in securities. Free taxes For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Free taxes If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Free taxes   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 taxes To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Free taxes Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Free taxes 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 taxes Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Free taxes If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Free taxes Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free taxes Price reduced after purchase. Free taxes   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 taxes 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 taxes Deductible debt. Free taxes   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Free taxes Example. Free taxes You get accounting services for your business on credit. Free taxes Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Free taxes Your accountant forgives part of the amount you owe for the accounting services. Free taxes How you treat the canceled debt depends on your method of accounting. Free taxes 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 taxes Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free taxes   For information on the cash and accrual methods of accounting, see chapter 2. Free taxes Exclusions Do not include canceled debt in income in the following situations. Free taxes However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Free taxes For more information, see Form 982. Free taxes The cancellation takes place in a bankruptcy case under title 11 of the U. Free taxes S. Free taxes Code (relating to bankruptcy). Free taxes See Publication 908, Bankruptcy Tax Guide. Free taxes The cancellation takes place when you are insolvent. Free taxes You can exclude the canceled debt to the extent you are insolvent. Free taxes See Publication 908. Free taxes The canceled debt is a qualified farm debt owed to a qualified person. Free taxes See chapter 3 in Publication 225, Farmer's Tax Guide. Free taxes The canceled debt is a qualified real property business debt. Free taxes This situation is explained later. Free taxes The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Free taxes See Form 982. Free taxes 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 taxes 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 taxes Debt. Free taxes   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Free taxes Qualified real property business debt. Free taxes   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Free taxes If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Free taxes Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Free taxes However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Free taxes Cancellation of qualified real property business debt. Free taxes   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Free taxes It was incurred or assumed in connection with real property used in a trade or business. Free taxes It was secured by such real property. Free taxes It was incurred or assumed at either of the following times. Free taxes Before January 1, 1993. Free taxes After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Free taxes It is debt to which you choose to apply these rules. Free taxes   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 taxes   You cannot exclude more than either of the following amounts. Free taxes 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 taxes The total adjusted bases of depreciable real property held by you immediately before the cancellation. Free taxes These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Free taxes Do not take into account depreciable real property acquired in contemplation of the cancellation. Free taxes Election. Free taxes   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 taxes You must file your return by the due date (including extensions). Free taxes 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 taxes For more information, see When To File in the form instructions. Free taxes Other Income The following discussion explains how to treat other types of business income you may receive. Free taxes Restricted property. Free taxes   Restricted property is property that has certain restrictions that affect its value. Free taxes 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 taxes However, you can choose to be taxed in the year you receive the property. Free taxes For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Free taxes Gains and losses. Free taxes   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 taxes Instead, you must report these gains and losses on other forms. Free taxes For more information, see chapter 3. Free taxes Promissory notes. Free taxes   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 taxes In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Free taxes Lost income payments. Free taxes   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 taxes Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Free taxes Damages. Free taxes   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 taxes Patent infringement. Free taxes Breach of contract or fiduciary duty. Free taxes Antitrust injury. Free taxes Economic injury. Free taxes   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Free taxes Your deduction is the smaller of the following amounts. Free taxes 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 taxes Your loss from the injury that you have not yet deducted. Free taxes Punitive damages. Free taxes   You must also include punitive damages in income. Free taxes Kickbacks. Free taxes   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Free taxes 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 taxes Recovery of items previously deducted. Free taxes   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 taxes 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 taxes If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Free taxes Example. Free taxes 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 taxes He also had 2 personal exemptions for a total of $7,800. Free taxes He would not pay income tax even if he did not deduct the bad debt. Free taxes Therefore, he will not report as income any part of the $300 he may recover in any future year. Free taxes Exception for depreciation. Free taxes   This rule does not apply to depreciation. Free taxes You recover depreciation using the rules explained next. Free taxes Recapture of depreciation. Free taxes   In the following situations, you have to recapture the depreciation deduction. Free taxes This means you include in income part or all of the depreciation you deducted in previous years. Free taxes Listed property. Free taxes   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 taxes You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Free taxes Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Free taxes For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Free taxes That chapter explains how to determine whether property is used more than 50% in your business. Free taxes Section 179 property. Free taxes   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 taxes You do this by including in income on Schedule C part of the deduction you took. Free taxes Use Part IV of Form 4797 to figure the amount to include on Schedule C. Free taxes See chapter 2 in Publication 946 to find out when you recapture the deduction. Free taxes Sale or exchange of depreciable property. Free taxes   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 taxes You figure the income due to depreciation recapture in Part III of Form 4797. Free taxes For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Free taxes Items That Are Not Income In some cases the property or money you receive is not income. Free taxes Appreciation. Free taxes   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Free taxes Consignments. Free taxes   Consignments of merchandise to others to sell for you are not sales. Free taxes The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Free taxes Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Free taxes Merchandise you have shipped out on consignment is included in your inventory until it is sold. Free taxes   Do not include merchandise you receive on consignment in your inventory. Free taxes 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 taxes Construction allowances. Free taxes   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 taxes Under a short-term lease of retail space. Free taxes For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Free taxes Amount you can exclude. Free taxes   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Free taxes Short-term lease. Free taxes   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Free taxes The following rules apply in determining whether the lease is for 15 years or less. Free taxes Take into account options to renew when figuring whether the lease is for 15 years or less. Free taxes But do not take into account any option to renew at fair market value determined at the time of renewal. Free taxes 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 taxes Retail space. Free taxes   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 taxes Qualified long-term real property. Free taxes   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 taxes Exchange of like-kind property. Free taxes   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 taxes This means that the gain is not taxable and the loss is not deductible. Free taxes A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Free taxes For more information, see Form 8824. Free taxes Leasehold improvements. Free taxes   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 taxes However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Free taxes Loans. Free taxes   Money borrowed through a bona fide loan is not income. Free taxes Sales tax. Free taxes   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 taxes 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 taxes Direct seller. Free taxes   You must report all income you receive as a direct seller on Schedule C or C-EZ. Free taxes This includes any of the following. Free taxes Income from sales—payments you receive from customers for products they buy from you. Free taxes Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Free taxes Prizes, awards, and gifts you receive from your selling business. Free taxes You must report this income regardless of whether it is reported to you on an information return. Free taxes   You are a direct seller if you meet all the following conditions. Free taxes You are engaged in one of the following trades or businesses. Free taxes 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 taxes Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Free taxes 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 taxes 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 taxes Executor or administrator. Free taxes   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 taxes A nonprofessional fiduciary (personal representative) and both of the following apply. Free taxes The estate includes an active trade or business in which you actively participate. Free taxes Your fees are related to the operation of that trade or business. Free taxes 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 taxes    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Free taxes Fishing crew member. Free taxes    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 taxes Insurance agent, former. Free taxes   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 taxes You received payments after your agreement to perform services for the company ended. Free taxes 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 taxes 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 taxes 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 taxes 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 taxes Insurance agent, retired. Free taxes   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 taxes Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Free taxes   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Free taxes Newspaper carrier or distributor. Free taxes   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free taxes 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 taxes 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 taxes You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free taxes   This rule applies whether or not you hire others to help you make deliveries. Free taxes It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Free taxes Newspaper or magazine vendor. Free taxes   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 taxes You sell newspapers or magazines to ultimate consumers. Free taxes You sell them at a fixed price. Free taxes Your earnings are based on the difference between the sales price and your cost of goods sold. Free taxes   This rule applies whether or not you are guaranteed a minimum amount of earnings. Free taxes It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Free taxes Notary public. Free taxes   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Free taxes These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Free taxes Public official. Free taxes   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Free taxes 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 taxes 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 taxes   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 taxes Real estate agent or direct seller. Free taxes   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 taxes 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 taxes You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free taxes Securities dealer. Free taxes   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 taxes For more information, see sections 1256 and 1402(i). Free taxes Securities trader. Free taxes   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Free taxes As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Free taxes However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Free taxes For more information about securities traders, see Publication 550, Investment Income and Expenses. Free taxes Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Free taxes This section discusses some of the more common differences that may affect business transactions. Free taxes Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Free taxes 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 taxes Dealers in real estate are not allowed to use inventories. Free taxes For more information on inventories, see chapter 2. Free taxes Income paid to a third party. Free taxes   All income you earn is taxable to you. Free taxes You cannot avoid tax by having the income paid to a third party. Free taxes Example. Free taxes You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Free taxes The amount paid to your son is gross income to you. Free taxes Cash discounts. Free taxes   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Free taxes For income tax purposes, you can use either of the following two methods to account for cash discounts. Free taxes Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Free taxes Credit the cash discount to a discount income account. Free taxes You must use the chosen method every year for all your purchase discounts. Free taxes   If you use the second method, the credit balance in the account at the end of your tax year is business income. Free taxes Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Free taxes 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 taxes Trade discounts. Free taxes   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Free taxes Do not enter these discounts on your books of account. Free taxes Instead, use only the net amount as the cost of the merchandise purchased. Free taxes For more information, see Trade discounts in chapter 6. Free taxes Payment placed in escrow. Free taxes   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 taxes 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 taxes Sales returns and allowances. Free taxes   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 taxes Advance payments. Free taxes   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Free taxes Insurance proceeds. Free taxes   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 taxes You cannot deduct the reimbursed part of a casualty or theft loss. Free taxes   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free taxes Prev  Up  Next   Home   More Online Publications