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H&r block federal free Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. H&r block federal free Employee-owners. H&r block federal free Other rules. H&r block federal free Other rules. H&r block federal free Property Exchanged for StockNonqualified preferred stock. H&r block federal free Liabilities. H&r block federal free Election to reduce basis. H&r block federal free Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. H&r block federal free S. H&r block federal free Real Property Interest Accounting MethodsSection 481(a) adjustment. H&r block federal free Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. H&r block federal free Business formed before 1997. H&r block federal free   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. H&r block federal free Business formed after 1996. H&r block federal free   The following businesses formed after 1996 are taxed as corporations. H&r block federal free A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. H&r block federal free A business formed under a state law that refers to it as a joint-stock company or joint-stock association. H&r block federal free An insurance company. H&r block federal free Certain banks. H&r block federal free A business wholly owned by a state or local government. H&r block federal free A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). H&r block federal free Certain foreign businesses. H&r block federal free Any other business that elects to be taxed as a corporation. H&r block federal free For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. H&r block federal free For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. H&r block federal free S corporations. H&r block federal free   Some corporations may meet the qualifications for electing to be S corporations. H&r block federal free For information on S corporations, see the instructions for Form 1120S, U. H&r block federal free S. H&r block federal free Income Tax Return for an S Corporation. H&r block federal free Personal service corporations. H&r block federal free   A corporation is a personal service corporation if it meets all of the following requirements. H&r block federal free Its principal activity during the “testing period” is performing personal services (defined later). H&r block federal free Generally, the testing period for any tax year is the prior tax year. H&r block federal free If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. H&r block federal free Its employee-owners substantially perform the services in (1), above. H&r block federal free This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. H&r block federal free Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. H&r block federal free Personal services. H&r block federal free   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. H&r block federal free Employee-owners. H&r block federal free   A person is an employee-owner of a personal service corporation if both of the following apply. H&r block federal free He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. H&r block federal free He or she owns any stock in the corporation at any time during the testing period. H&r block federal free Other rules. H&r block federal free   For other rules that apply to personal service corporations see Accounting Periods, later. H&r block federal free Closely held corporations. H&r block federal free   A corporation is closely held if all of the following apply. H&r block federal free It is not a personal service corporation. H&r block federal free At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. H&r block federal free “Individual” includes certain trusts and private foundations. H&r block federal free Other rules. H&r block federal free   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. H&r block federal free Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. H&r block federal free This rule applies both to individuals and to groups who transfer property to a corporation. H&r block federal free It also applies whether the corporation is being formed or is already operating. H&r block federal free It does not apply in the following situations. H&r block federal free The corporation is an investment company. H&r block federal free You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. H&r block federal free The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. H&r block federal free Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. H&r block federal free For more information, see section 1. H&r block federal free 351-3 of the Regulations. H&r block federal free Control of a corporation. H&r block federal free   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. H&r block federal free Example 1. H&r block federal free You and Bill Jones buy property for $100,000. H&r block federal free You both organize a corporation when the property has a fair market value of $300,000. H&r block federal free You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. H&r block federal free No gain is recognized by you, Bill, or the corporation. H&r block federal free Example 2. H&r block federal free You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. H&r block federal free This represents only 75% of each class of stock of the corporation. H&r block federal free The other 25% was already issued to someone else. H&r block federal free You and Bill recognize a taxable gain of $200,000 on the transaction. H&r block federal free Services rendered. H&r block federal free   The term property does not include services rendered or to be rendered to the issuing corporation. H&r block federal free The value of stock received for services is income to the recipient. H&r block federal free Example. H&r block federal free You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. H&r block federal free Right after the exchange, you own 85% of the outstanding stock. H&r block federal free No gain is recognized on the exchange of property. H&r block federal free However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. H&r block federal free Property of relatively small value. H&r block federal free   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. H&r block federal free   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. H&r block federal free Stock received in disproportion to property transferred. H&r block federal free   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. H&r block federal free If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. H&r block federal free It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. H&r block federal free Money or other property received. H&r block federal free   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. H&r block federal free You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. H&r block federal free The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. H&r block federal free If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. H&r block federal free See chapter 3 of Publication 544. H&r block federal free No loss is recognized. H&r block federal free Nonqualified preferred stock. H&r block federal free   Nonqualified preferred stock is treated as property other than stock. H&r block federal free Generally, it is preferred stock with any of the following features. H&r block federal free The holder has the right to require the issuer or a related person to redeem or buy the stock. H&r block federal free The issuer or a related person is required to redeem or buy the stock. H&r block federal free The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. H&r block federal free The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. H&r block federal free For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. H&r block federal free Liabilities. H&r block federal free   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. H&r block federal free There are two exceptions to this treatment. H&r block federal free If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. H&r block federal free However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. H&r block federal free If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. H&r block federal free For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. H&r block federal free Example. H&r block federal free You transfer property to a corporation for stock. H&r block federal free Immediately after the transfer, you control the corporation. H&r block federal free You also receive $10,000 in the exchange. H&r block federal free Your adjusted basis in the transferred property is $20,000. H&r block federal free The stock you receive has a fair market value (FMV) of $16,000. H&r block federal free The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. H&r block federal free Gain is realized as follows. H&r block federal free FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. H&r block federal free The recognized gain is limited to $10,000, the cash received. H&r block federal free Loss on exchange. H&r block federal free   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. H&r block federal free For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H&r block federal free Basis of stock or other property received. H&r block federal free   The basis of the stock you receive is generally the adjusted basis of the property you transfer. H&r block federal free Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. H&r block federal free Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. H&r block federal free Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. H&r block federal free    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. H&r block federal free This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. H&r block federal free The basis of any other property you receive is its fair market value on the date of the trade. H&r block federal free Basis of property transferred. H&r block federal free   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. H&r block federal free However, the increase for the gain recognized may be limited. H&r block federal free For more information, see section 362 of the Internal Revenue Code. H&r block federal free Election to reduce basis. H&r block federal free   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. H&r block federal free The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. H&r block federal free However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. H&r block federal free R. H&r block federal free B. H&r block federal free 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. H&r block federal free    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. H&r block federal free Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. H&r block federal free Paid-in capital. H&r block federal free   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. H&r block federal free These contributions are not taxable to the corporation. H&r block federal free Basis. H&r block federal free   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. H&r block federal free However, the increase for the gain recognized may be limited. H&r block federal free For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. H&r block federal free   The basis of property contributed to capital by a person other than a shareholder is zero. H&r block federal free   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. H&r block federal free If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. H&r block federal free Depreciable property. H&r block federal free Amortizable property. H&r block federal free Property subject to cost depletion but not to percentage depletion. H&r block federal free All other remaining properties. H&r block federal free   Reduce the basis of property in each category to zero before going on to the next category. H&r block federal free   There may be more than one piece of property in each category. H&r block federal free Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. H&r block federal free The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. H&r block federal free Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. H&r block federal free A corporation generally must make estimated tax payments as it earns or receives income during its tax year. H&r block federal free After the end of the year, the corporation must file an income tax return. H&r block federal free This section will help you determine when and how to pay and file corporate income taxes. H&r block federal free For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. H&r block federal free The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. H&r block federal free For more information, visit www. H&r block federal free irs. H&r block federal free gov/newsroom/article/0,,id=108362. H&r block federal free 00. H&r block federal free Income Tax Return This section will help you determine when and how to report a corporation's income tax. H&r block federal free Who must file. H&r block federal free   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. H&r block federal free Which form to file. H&r block federal free   A corporation generally must file Form 1120, U. H&r block federal free S. H&r block federal free Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. H&r block federal free Certain organizations and entities must file special returns. H&r block federal free For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. H&r block federal free Electronic filing. H&r block federal free   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. H&r block federal free Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. H&r block federal free However, in certain instances, these corporations can request a waiver. H&r block federal free For more information regarding electronic filing, visit www. H&r block federal free irs. H&r block federal free gov/efile. H&r block federal free When to file. H&r block federal free   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. H&r block federal free A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. H&r block federal free A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. H&r block federal free Example 1. H&r block federal free A corporation's tax year ends December 31. H&r block federal free It must file its income tax return by March 15th. H&r block federal free Example 2. H&r block federal free A corporation's tax year ends June 30. H&r block federal free It must file its income tax return by September 15th. H&r block federal free   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. H&r block federal free Extension of time to file. H&r block federal free   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. H&r block federal free The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. H&r block federal free   Form 7004 does not extend the time for paying the tax due on the return. H&r block federal free Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. H&r block federal free The interest is figured from the original due date of the return to the date of payment. H&r block federal free   For more information, see the instructions for Form 7004. H&r block federal free How to pay your taxes. H&r block federal free   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. H&r block federal free Electronic Federal Tax Payment System (EFTPS). H&r block federal free   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). H&r block federal free For more information on EFTPS and enrollment, visit www. H&r block federal free eftps. H&r block federal free gov or call 1-800-555-4477. H&r block federal free Also see Publication 966, The Secure Way to Pay Your Federal Taxes. H&r block federal free Note. H&r block federal free Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. H&r block federal free Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. H&r block federal free Do not attach an explanation when the corporation's return is filed. H&r block federal free See the instructions for your income tax return. H&r block federal free Late filing of return. H&r block federal free    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. H&r block federal free If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. H&r block federal free The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. H&r block federal free The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. H&r block federal free Late payment of tax. H&r block federal free    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. H&r block federal free The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. H&r block federal free Trust fund recovery penalty. H&r block federal free   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. H&r block federal free The penalty is the full amount of the unpaid trust fund tax. H&r block federal free This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. H&r block federal free   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. H&r block federal free   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. H&r block federal free A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. H&r block federal free   Willfully means voluntarily, consciously, and intentionally. H&r block federal free A responsible person acts willfully if the person knows the required actions are not taking place. H&r block federal free   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. H&r block federal free Other penalties. H&r block federal free   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. H&r block federal free See sections 6662, 6662A, and 6663 of the Internal Revenue Code. H&r block federal free Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. H&r block federal free If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. H&r block federal free This section will explain how to avoid this penalty. H&r block federal free When to pay estimated tax. H&r block federal free   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. H&r block federal free Example 1. H&r block federal free Your corporation's tax year ends December 31. H&r block federal free Installment payments are due on April 15, June 15, September 15, and December 15. H&r block federal free Example 2. H&r block federal free Your corporation's tax year ends June 30. H&r block federal free Installment payments are due on October 15, December 15, March 15, and June 15. H&r block federal free   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. H&r block federal free How to figure each required installment. H&r block federal free   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. H&r block federal free You will generally use one of the following two methods to figure each required installment. H&r block federal free You should use the method that yields the smallest installment payments. H&r block federal free Note. H&r block federal free In these discussions, “return” generally refers to the corporation's original return. H&r block federal free However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. H&r block federal free Method 1. H&r block federal free   Each required installment is 25% of the income tax the corporation will show on its return for the current year. H&r block federal free Method 2. H&r block federal free   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. H&r block federal free   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). H&r block federal free Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. H&r block federal free   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. H&r block federal free Other methods. H&r block federal free   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. H&r block federal free The annualized income installment method. H&r block federal free The adjusted seasonal installment method. H&r block federal free Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. H&r block federal free Refiguring required installments. H&r block federal free   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. H&r block federal free An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. H&r block federal free Underpayment penalty. H&r block federal free   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. H&r block federal free The penalty is figured separately for each installment due date. H&r block federal free The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. H&r block federal free This is true even if the corporation is due a refund when its return is filed. H&r block federal free Form 2220. H&r block federal free   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. H&r block federal free   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. H&r block federal free The amount of the underpayment. H&r block federal free The period during which the underpayment was due and unpaid. H&r block federal free The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. H&r block federal free   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. H&r block federal free However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. H&r block federal free The annualized income installment method was used to figure any required installment. H&r block federal free The adjusted seasonal installment method was used to figure any required installment. H&r block federal free The corporation is a large corporation figuring its first required installment based on the prior year's tax. H&r block federal free How to pay estimated tax. H&r block federal free   A corporation is generally required to use EFTPS to pay its taxes. H&r block federal free See Electronic Federal Tax Payment System (EFTPS), earlier. H&r block federal free Also see the Instructions for Form 1120-W. H&r block federal free Quick refund of overpayments. H&r block federal free   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. H&r block federal free Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. H&r block federal free A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. H&r block federal free Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. H&r block federal free File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. H&r block federal free Do not file Form 4466 before the end of the corporation's tax year. H&r block federal free An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. H&r block federal free The IRS will act on the form within 45 days from the date you file it. H&r block federal free U. H&r block federal free S. H&r block federal free Real Property Interest If a domestic corporation acquires a U. H&r block federal free S. H&r block federal free real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. H&r block federal free The amount paid includes cash, the fair market value of other property, and any assumed liability. H&r block federal free If a domestic corporation distributes a U. H&r block federal free S. H&r block federal free real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. H&r block federal free A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. H&r block federal free For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. H&r block federal free S. H&r block federal free Withholding Tax Return for Dispositions by Foreign Persons of U. H&r block federal free S. H&r block federal free Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. H&r block federal free S. H&r block federal free Real Property Interests. H&r block federal free Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. H&r block federal free Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. H&r block federal free In all cases, the method used must clearly show taxable income. H&r block federal free Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. H&r block federal free Accrual method. H&r block federal free   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. H&r block federal free A corporation engaged in farming operations also must use the accrual method. H&r block federal free   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. H&r block federal free However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. H&r block federal free   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. H&r block federal free   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. H&r block federal free   There are exceptions to the economic performance rule for certain items, including recurring expenses. H&r block federal free See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. H&r block federal free Nonaccrual experience method. H&r block federal free   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. H&r block federal free   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. H&r block federal free Percentage of completion method. H&r block federal free   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. H&r block federal free Mark-to-market accounting method. H&r block federal free   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. H&r block federal free Under this method any security held by a dealer as inventory must be included in inventory at its FMV. H&r block federal free Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. H&r block federal free Any gain or loss must be taken into account in determining gross income. H&r block federal free The gain or loss taken into account is treated as ordinary gain or loss. H&r block federal free   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. H&r block federal free Change in accounting method. H&r block federal free   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). H&r block federal free The corporation must file Form 3115, Application for Change in Accounting Method. H&r block federal free For more information, see Form 3115 and Publication 538. H&r block federal free Section 481(a) adjustment. H&r block federal free   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. H&r block federal free The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. H&r block federal free However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. H&r block federal free The corporation must complete the appropriate lines of Form 3115 to make the election. H&r block federal free See the Instructions for Form 3115. H&r block federal free Accounting Periods A corporation must figure its taxable income on the basis of a tax year. H&r block federal free A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. H&r block federal free Generally, corporations can use either a calendar year or a fiscal year as its tax year. H&r block federal free Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. H&r block federal free For more information, see Publication 538. H&r block federal free Personal service corporation. H&r block federal free   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. H&r block federal free See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. H&r block federal free Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. H&r block federal free   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. H&r block federal free See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. H&r block federal free Change of tax year. H&r block federal free   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. H&r block federal free However, under certain conditions, a corporation can change its tax year without getting the consent. H&r block federal free For more information, see Form 1128 and Publication 538. H&r block federal free Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. H&r block federal free Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. H&r block federal free Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. H&r block federal free The corporation should keep copies of all filed returns. H&r block federal free They help in preparing future and amended returns and in the calculation of earnings and profits. H&r block federal free Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. H&r block federal free However, the following special provisions apply only to corporations. H&r block federal free Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. H&r block federal free However, a corporation can elect to deduct a limited amount of start-up or organizational costs. H&r block federal free Any costs not deducted can be amortized. H&r block federal free Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. H&r block federal free Organizational costs are the direct costs of creating the corporation. H&r block federal free For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. H&r block federal free Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. H&r block federal free Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. H&r block federal free Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. H&r block federal free If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. H&r block federal free These rules also deny the deduction of losses on the sale or exchange of property between related persons. H&r block federal free Related persons. H&r block federal free   For purposes of this rule, the following persons are related to a corporation. H&r block federal free Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). H&r block federal free An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. H&r block federal free A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. H&r block federal free An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. H&r block federal free A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. H&r block federal free Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. H&r block federal free Ownership of stock. H&r block federal free   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. H&r block federal free Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. H&r block federal free An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. H&r block federal free Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. H&r block federal free Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. H&r block federal free To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. H&r block federal free But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. H&r block federal free Reallocation of income and deductions. H&r block federal free   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. H&r block federal free Complete liquidations. H&r block federal free   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. H&r block federal free More information. H&r block federal free   For more information about the related person rules, see Publication 544. H&r block federal free Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. H&r block federal free If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. H&r block federal free Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. H&r block federal free A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. H&r block federal free A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. H&r block federal free For more information regarding the election, see Form 8902. H&r block federal free Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. H&r block federal free The deduction is allowed for the year in which the property is placed in service. H&r block federal free A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. H&r block federal free For more information, see section 179C of the Internal Revenue Code and the related Regulations. H&r block federal free Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). H&r block federal free A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. H&r block federal free For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. H&r block federal free Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. H&r block federal free In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. H&r block federal free 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. H&r block federal free The deduction is limited to $1. H&r block federal free 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. H&r block federal free Other rules and limitations apply. H&r block federal free The corporation must reduce the basis of any property by any deduction taken. H&r block federal free The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. H&r block federal free For more information, see section 179D of the Internal Revenue Code. H&r block federal free Also see Notice 2006-52, 2006-26 I. H&r block federal free R. H&r block federal free B. H&r block federal free 1175, clarified and amplified by Notice 2008-40, 2008-14 I. H&r block federal free R. H&r block federal free B. H&r block federal free 725, and any successor. H&r block federal free Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. H&r block federal free These items are known as corporate preference items and they include the following. H&r block federal free Gain on the disposition of section 1250 property. H&r block federal free For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. H&r block federal free Percentage depletion for iron ore and coal (including lignite). H&r block federal free For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. H&r block federal free Amortization of pollution control facilities. H&r block federal free For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. H&r block federal free Mineral exploration and development costs. H&r block federal free For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. H&r block federal free For more information on corporate preference items, see section 291 of the Internal Revenue Code. H&r block federal free Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. H&r block federal free This section discusses the general rules that apply. H&r block federal free The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. H&r block federal free For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. H&r block federal free Dividends from domestic corporations. H&r block federal free   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. H&r block federal free If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. H&r block federal free Ownership. H&r block federal free   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. H&r block federal free Small business investment companies. H&r block federal free   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. H&r block federal free Dividends from regulated investment companies. H&r block federal free   Regulated investment company dividends received are subject to certain limits. H&r block federal free Capital gain dividends received from a regulated investment company do not qualify for the deduction. H&r block federal free For more information, see section 854 of the Internal Revenue Code. H&r block federal free No deduction allowed for certain dividends. H&r block federal free   Corporations cannot take a deduction for dividends received from the following entities. H&r block federal free A real estate investment trust (REIT). H&r block federal free A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. H&r block federal free A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. H&r block federal free Ex-dividend means the holder has no rights to the dividend. H&r block federal free A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. H&r block federal free Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. H&r block federal free Dividends on deposits. H&r block federal free   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. H&r block federal free They do not qualify for this deduction. H&r block federal free Limit on deduction for dividends. H&r block federal free   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). H&r block federal free Figuring the limit. H&r block federal free   In figuring the limit, determine taxable income without the following items. H&r block federal free The net operating loss deduction. H&r block federal free The domestic production activities deduction. H&r block federal free The deduction for dividends received. H&r block federal free Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). H&r block federal free Any capital loss carryback to the tax year. H&r block federal free Effect of net operating loss. H&r block federal free   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. H&r block federal free To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. H&r block federal free Example 1. H&r block federal free A corporation loses $25,000 from operations. H&r block federal free It receives $100,000 in dividends from a 20%-owned corporation. H&r block federal free Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. H&r block federal free If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). H&r block federal free Therefore, the 80% of taxable income limit does not apply. H&r block federal free The corporation can deduct the full $80,000. H&r block federal free Example 2. H&r block federal free Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. H&r block federal free Its taxable income is $85,000 before the deduction for dividends received. H&r block federal free After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. H&r block federal free Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). H&r block federal free Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. H&r block federal free The nontaxed part is any dividends-received deduction allowable for the dividends. H&r block federal free Extraordinary dividend. H&r block federal free   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. H&r block federal free The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. H&r block federal free Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. H&r block federal free Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. H&r block federal free Disqualified preferred stock. H&r block federal free   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. H&r block federal free   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. H&r block federal free The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. H&r block federal free The issue price of the stock exceeds its liquidation rights or stated redemption price. H&r block federal free The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. H&r block federal free   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. H&r block federal free More information. H&r block federal free   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. H&r block federal free Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. H&r block federal free A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. H&r block federal free A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. H&r block federal free Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. H&r block federal free Foregone interest. H&r block federal free   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. H&r block federal free See Below-market loans, in chapter 4 of Publication 535 for more information. H&r block federal free Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. H&r block federal free The contribution is deductible if made to, or for the use of, a qualified organization. H&r block federal free For more information on qualified organizations, see Publication 526, Charitable Contributions. H&r block federal free Also see, Exempt Organizations Select Check (EO Select Check) at www. H&r block federal free irs. H&r block federal free gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. H&r block federal free Note. H&r block federal free You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. H&r block federal free Cash method corporation. H&r block federal free   A corporation using the cash method of accounting deducts contributions in the tax year paid. H&r block federal free Accrual method corporation. H&r block federal free   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. H&r block federal free Make the choice by reporting the contribution on the corporation's return for the tax year. H&r block federal free A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. H&r block federal free The declaration must include the date the resolution was adopted. H&r block federal free Limitations on deduction. H&r block federal free   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. H&r block federal free Figure taxable income for this purpose without the following. H&r block federal free The deduction for charitable contributions. H&r block federal free The dividends-received deduction. H&r block federal free The deduction allowed under section 249 of the Internal Revenue Code. H&r block federal free The domestic production activities deduction. H&r block federal free Any net operating loss carryback to the tax year. H&r block federal free Any capital loss carryback to the tax year. H&r block federal free Farmers and ranchers. H&r block federal free    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. H&r block federal free Carryover of excess contributions. H&r block federal free   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. H&r block federal free You lose any excess not used within that period. H&r block federal free For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. H&r block federal free Any excess not used in 2015 is lost. H&r block federal free Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). H&r block federal free You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. H&r block federal free Cash contributions. H&r block federal free   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. H&r block federal free The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. H&r block federal free Keep the record of the contribution with the other corporate records. H&r block federal free Do not attach the records to the corporation's return. H&r block federal free For more information on cash contributions, see Publication 526. H&r block federal free Gifts of $250 or more. H&r block federal free   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. H&r block federal free The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. H&r block federal free The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. H&r block federal free Keep the acknowledgement with other corporate records. H&r block federal free Do not attach the acknowledgement to the return. H&r block federal free Contributions of property other than cash. H&r block federal free   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. H&r block federal free In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. H&r block federal free   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. H&r block federal free For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. H&r block federal free   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. H&r block federal free A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. H&r block federal free The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. H&r block federal free   See Form 8283 for more information. H&r block federal free Qualified conservation contributions. H&r block federal free   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. H&r block federal free For more information, see section 170(h) of the Internal Revenue Code. H&r block federal free Contributions of used vehicles. H&r block federal free   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. H&r block federal free The deduction is limited, and other special rules apply. H&r block federal free For more information, see Publication 526. H&r block federal free Reduction for contributions of certain property. H&r block federal free   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. H&r block federal free   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. H&r block federal free Larger deduction. H&r block federal free   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. H&r block federal free This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. H&r block federal free Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. H&r block federal free The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. H&r block federal free Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. H&r block federal free Contributions to organizations conducting lobbying activities. H&r block federal free   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. H&r block federal free More information. H&r block federal free   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. H&r block federal free Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. H&r block federal free In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. H&r block federal free Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. H&r block federal free A capital loss is carried to other years in the following order. H&r block federal free 3 years prior to the loss year. H&r block federal free 2 years prior to the loss year. H&r block federal free 1 year prior to the loss year. H&r block federal free Any loss remaining is carried forward for 5 years. H&r block federal free When you carry a net capital loss to another tax year, treat it as a short-term loss. H&r block federal free It does not retain its original identity as long term or short term. H&r block federal free Example. H&r block federal free A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. H&r block federal free The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. H&r block federal free The corporation treats this $6,000 as a short-term loss when carried back or forward. H&r block federal free The corporation carries the $6,000 short-term loss back 3 years. H&r block federal free In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. H&r block federal free It subtracts the $6,000 short-term loss first from the net short-term gain. H&r block federal free This results in a net capital gain for year 1 of $7,000. H&r block federal free This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. H&r block federal free S corporation status. H&r block federal free   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. H&r block federal free Rules for carryover and carryback. H&r block federal free   When carrying a capital loss from one year to another, the following rules apply. H&r block federal free When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. H&r block federal free In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. H&r block federal free If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. H&r block federal free You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. H&r block federal free Refunds. H&r block federal free   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. H&r block federal free If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. H&r block federal free S. H&r block federal free Corporation Income Tax Return, to apply for a refund. H&r block federal free Form 1139. H&r block federal free    A corporation can get a refund faster by using Form 1139. H&r block federal free It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. H&r block federal free Form 1120X. H&r block federal free   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. H&r block federal free The corporation must file the Form 1120X within 3 years of the due date, includin
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H&r block federal free 1. H&r block federal free   Filing Information Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Filing RequirementsWhen To File and Pay Foreign Currency Does My Return Have To Be On Paper? Where To File Nonresident Alien Spouse Treated as a ResidentSocial Security Number (SSN) How To Make the Choice Suspending the Choice Ending the Choice Estimated Tax Other Forms You May Have To File Topics - This chapter discusses: Whether you have to file a return, When to file your return and pay any tax due, How to treat foreign currency, How to file electronically, Where to file your return, When you can treat your nonresident alien spouse as a resident, and When you may have to make estimated tax payments. H&r block federal free Useful Items - You may want to see: Publication 3 Armed Forces' Tax Guide 501 Exemptions, Standard Deduction, and Filing Information 505 Tax Withholding and Estimated Tax 519 U. H&r block federal free S. H&r block federal free Tax Guide for Aliens 970 Tax Benefits for Education Form (and Instructions) 1040-ES Estimated Tax for Individuals 1040X Amended U. H&r block federal free S. H&r block federal free Individual Income Tax Return 2350 Application for Extension of Time To File U. H&r block federal free S. H&r block federal free Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion 4868 Application for Automatic Extension of Time To File U. H&r block federal free S. H&r block federal free Individual Income Tax Return 8822 Change of Address See chapter 7 for information about getting these publications and forms. H&r block federal free Filing Requirements If you are a U. H&r block federal free S. H&r block federal free citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad. H&r block federal free Your income, filing status, and age generally determine whether you must file an income tax return. H&r block federal free Generally, you must file a return for 2013 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table. H&r block federal free Filing Status*   Amount Single $10,000 65 or older $11,500 Head of household $12,850 65 or older $14,350 Qualifying widow(er) $16,100 65 or older $17,300 Married filing jointly $20,000 Not living with spouse at end of year $3,900 One spouse 65 or older $21,200 Both spouses 65 or older $22,400 Married filing separately $3,900 *If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return. H&r block federal free Gross income. H&r block federal free   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax. H&r block federal free   For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing amount. H&r block federal free If you are self-employed, your gross income includes the amount on Part I, line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business. H&r block federal free Self-employed individuals. H&r block federal free   If your net earnings from self-employment are $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier. H&r block federal free Net earnings from self-employment are defined in Publication 334, Tax Guide for Small Business. H&r block federal free 65 or older. H&r block federal free   You are considered to be age 65 on the day before your 65th birthday. H&r block federal free For example, if your 65th birthday is on January 1, 2014, you are considered 65 for 2013. H&r block federal free Residents of U. H&r block federal free S. H&r block federal free possessions. H&r block federal free   If you are (or were) a bona fide resident of a U. H&r block federal free S. H&r block federal free possession, you may be required to file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U. H&r block federal free S. H&r block federal free Possession. H&r block federal free See the instructions for the form for more information. H&r block federal free When To File and Pay If you file on a calendar year basis, the due date for filing your return is April 15 of the following year. H&r block federal free If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is 3 months and 15 days after the close of your fiscal year. H&r block federal free In general, the tax shown on your return should be paid by the due date of the return, without regard to any extension of time for filing the return. H&r block federal free When the due date for doing any act for tax purposes—filing a return, paying taxes, etc. H&r block federal free — falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. H&r block federal free A tax return delivered by the U. H&r block federal free S. H&r block federal free mail or a designated delivery service that is postmarked or dated by the delivery service on or before the due date is considered to have been filed on or before that date. H&r block federal free See your Form 1040 or Form 1040A instructions for a list of designated delivery services. H&r block federal free Foreign wire transfers. H&r block federal free   If you have a U. H&r block federal free S. H&r block federal free bank account, you can use: EFTPS (Electronic Federal Tax Payment System), or Federal Tax Application (same-day wire transfer). H&r block federal free If you do not have a U. H&r block federal free S. H&r block federal free bank account, ask if your financial institution has a U. H&r block federal free S. H&r block federal free affiliate that can help you make same-day wire transfers. H&r block federal free   For more information, visit www. H&r block federal free eftps. H&r block federal free gov. H&r block federal free Extensions You can get an extension of time to file your return. H&r block federal free In some circumstances, you also can get an extension of time to file and pay any tax due. H&r block federal free However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid. H&r block federal free This publication discusses four extensions: an automatic 2-month extension, an automatic 6-month extension, an additional extension for taxpayers out of the country, and an extension of time to meet tests. H&r block federal free If you served in a combat zone or qualified hazardous duty area, see Publication 3 for a discussion of extensions of deadlines. H&r block federal free Automatic 2-month extension. H&r block federal free   You are allowed an automatic 2-month extension to file your return and pay federal income tax if you are a U. H&r block federal free S. H&r block federal free citizen or resident alien, and on the regular due date of your return: You are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or You are in military or naval service on duty outside the United States and Puerto Rico. H&r block federal free   If you use a calendar year, the regular due date of your return is April 15. H&r block federal free Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return. H&r block federal free Married taxpayers. H&r block federal free   If you file a joint return, either you or your spouse can qualify for the automatic extension. H&r block federal free If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies for it. H&r block federal free How to get the extension. H&r block federal free   To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension. H&r block federal free Automatic 6-month extension. H&r block federal free   If you are not able to file your return by the due date, you generally can get an automatic 6-month extension of time to file (but not of time to pay). H&r block federal free To get this automatic extension, you must file a paper Form 4868 or use IRS e-file (electronic filing). H&r block federal free For more information about filing electronically, see E-file options , later. H&r block federal free   The form must show your properly estimated tax liability based on the information available to you. H&r block federal free    You may not be eligible. H&r block federal free You cannot use the automatic 6-month extension of time to file if: You want the IRS to figure your tax, or You are under a court order to file by the regular due date. H&r block federal free E-file options. H&r block federal free    You can use e-file to get an extension of time to file. H&r block federal free You can either file Form 4868 electronically or you can pay part or all of your estimate of tax due using a credit or debit card. H&r block federal free   First, complete Form 4868 to use as a worksheet. H&r block federal free If you think you may owe tax when you file your return, use Part II of the form to estimate your balance due. H&r block federal free    Then, do one of the following. H&r block federal free E-file Form 4868. H&r block federal free You can use a tax software package with your personal computer or a tax professional to file Form 4868 electronically. H&r block federal free You will need to provide certain information from your tax return for 2012. H&r block federal free If you wish to make a payment by electronic funds withdrawal, see the instructions for Form 4868. H&r block federal free If you e-file Form 4868, do not also send a paper Form 4868. H&r block federal free E-file and pay by credit or debit card. H&r block federal free You can get an extension by paying part or all of your estimate of tax due by using a credit or debit card. H&r block federal free You can do this by phone or over the Internet. H&r block federal free If you do this, you do not file Form 4868. H&r block federal free For more information, see the instructions for your tax return. H&r block federal free When to file. H&r block federal free   Generally, you must request the 6-month extension by the regular due date of your return. H&r block federal free Previous 2-month extension. H&r block federal free   If you cannot file your return within the automatic 2-month extension period, you generally can get an additional 4 months to file your return, for a total of 6 months. H&r block federal free The 2-month period and the 6-month period start at the same time. H&r block federal free You have to request the additional 4 months by the new due date allowed by the 2-month extension. H&r block federal free   The additional 4 months of time to file (unlike the original 2-month extension) is not an extension of time to pay. H&r block federal free You must make an accurate estimate of your tax based on the information available to you. H&r block federal free If you find you cannot pay the full amount due with Form 4868, you can still get the extension. H&r block federal free You will owe interest on the unpaid amount from the original due date of the return. H&r block federal free   You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. H&r block federal free Penalties for paying the tax late are assessed from the original due date of your return, unless you qualify for the automatic 2-month extension. H&r block federal free In that situation, penalties for paying late are assessed from the extended due date of the payment (June 15 for calendar year taxpayers). H&r block federal free Additional extension of time for taxpayers out of the country. H&r block federal free   In addition to the 6-month extension, taxpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). H&r block federal free   To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. H&r block federal free Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You will not receive any notification from the Internal Revenue Service unless your request is denied. H&r block federal free   The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350, discussed next. H&r block federal free Extension of time to meet tests. H&r block federal free   You generally cannot get an extension of more than 6 months. H&r block federal free However, if you are outside the United States and meet certain requirements, you may be able to get a longer extension. H&r block federal free   You can get an extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. H&r block federal free The tests, the exclusions, and the deduction are explained in chapter 4. H&r block federal free   You should request an extension if all three of the following apply. H&r block federal free You are a U. H&r block federal free S. H&r block federal free citizen or resident alien. H&r block federal free You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due. H&r block federal free Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies. H&r block federal free   If you are granted an extension, it generally will be to 30 days beyond the date on which you can reasonably expect to qualify for an exclusion or deduction under either the bona fide residence test or the physical presence test. H&r block federal free However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension until after the end of the second year. H&r block federal free How to get an extension. H&r block federal free   To obtain an extension, file Form 2350 either by giving it to a local IRS representative or other IRS employee or by mailing it to the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045   You must file Form 2350 by the due date for filing your return. H&r block federal free Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15. H&r block federal free What if tests are not met. H&r block federal free   If you obtain an extension and unforeseen events make it impossible for you to meet either the bona fide residence test or the physical presence test, you should file your income tax return as soon as possible because you must pay interest on any tax due after the regular due date of the return (even though an extension was granted). H&r block federal free    You should make any request for an extension early, so that if it is denied you still can file your return on time. H&r block federal free Otherwise, if you file late and additional tax is due, you may be subject to a penalty. H&r block federal free Return filed before test is met. H&r block federal free   If you file a return before you meet the bona fide residence test or the physical presence test, you must include all income from both U. H&r block federal free S. H&r block federal free and foreign sources and pay the tax on that income. H&r block federal free If you later meet either of the tests, you can claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction on Form 1040X. H&r block federal free Foreign Currency You must express the amounts you report on your U. H&r block federal free S. H&r block federal free tax return in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. H&r block federal free S. H&r block federal free dollars. H&r block federal free How you do this depends on your functional currency. H&r block federal free Your functional currency generally is the U. H&r block federal free S. H&r block federal free dollar unless you are required to use the currency of a foreign country. H&r block federal free You must make all federal income tax determinations in your functional currency. H&r block federal free The U. H&r block federal free S. H&r block federal free dollar is the functional currency for all taxpayers except some qualified business units (QBUs). H&r block federal free A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records. H&r block federal free Even if you have a QBU, your functional currency is the dollar if any of the following apply. H&r block federal free You conduct the business in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free The principal place of business is located in the United States. H&r block federal free You choose to or are required to use the U. H&r block federal free S. H&r block federal free dollar as your functional currency. H&r block federal free The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. H&r block federal free Make all income tax determinations in your functional currency. H&r block federal free If your functional currency is the U. H&r block federal free S. H&r block federal free dollar, you must immediately translate into U. H&r block federal free S. H&r block federal free dollars all items of income, expense, etc. H&r block federal free (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. H&r block federal free Use the exchange rate prevailing when you receive, pay, or accrue the item. H&r block federal free If there is more than one exchange rate, use the one that most properly reflects your income. H&r block federal free You can generally get exchange rates from banks and U. H&r block federal free S. H&r block federal free Embassies. H&r block federal free If your functional currency is not the U. H&r block federal free S. H&r block federal free dollar, make all income tax determinations in your functional currency. H&r block federal free At the end of the year, translate the results, such as income or loss, into U. H&r block federal free S. H&r block federal free dollars to report on your income tax return. H&r block federal free Blocked Income You generally must report your foreign income in terms of U. H&r block federal free S. H&r block federal free dollars and, with one exception (see Fulbright Grant, later), you must pay taxes due on it in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free If, because of restrictions in a foreign country, your income is not readily convertible into U. H&r block federal free S. H&r block federal free dollars or into other money or property that is readily convertible into U. H&r block federal free S. H&r block federal free dollars, your income is “blocked” or “deferrable” income. H&r block federal free You can report this income in one of two ways: Report the income and pay your federal income tax with U. H&r block federal free S. H&r block federal free dollars that you have in the United States or in some other country, or Postpone the reporting of the income until it becomes unblocked. H&r block federal free If you choose to postpone the reporting of the income, you must file an information return with your tax return. H&r block federal free For this information return, you should use another Form 1040 labeled “Report of Deferrable Foreign Income, pursuant to Rev. H&r block federal free Rul. H&r block federal free 74-351. H&r block federal free ” You must declare on the information return that you will include the deferrable income in your taxable income for the year that it becomes unblocked. H&r block federal free You also must state that you waive any right to claim that the deferrable income was includible in your income for any earlier year. H&r block federal free You must report your income on your information return using the foreign currency in which you received that income. H&r block federal free If you have blocked income from more than one foreign country, include a separate information return for each country. H&r block federal free Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into U. H&r block federal free S. H&r block federal free dollars or into other money or property that is convertible into U. H&r block federal free S. H&r block federal free currency. H&r block federal free Also, if you use blocked income for your personal expenses or dispose of it by gift, bequest, or devise, you must treat it as unblocked and reportable. H&r block federal free If you have received blocked income on which you have not paid tax, you should check to see whether that income is still blocked. H&r block federal free If it is not, you should take immediate steps to pay tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked. H&r block federal free If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so. H&r block federal free To apply for permission, file Form 3115, Application for Change in Accounting Method. H&r block federal free You also must request permission from the IRS on Form 3115 if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. H&r block federal free See the instructions for Form 3115 for information on changing your accounting method. H&r block federal free Fulbright Grant All income must be reported in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free In most cases, the tax also must be paid in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U. H&r block federal free S. H&r block federal free tax that is based on the blocked income. H&r block federal free Paying U. H&r block federal free S. H&r block federal free tax in foreign currency. H&r block federal free   To qualify for this method of payment, you must prepare a statement that shows the following information. H&r block federal free You were a Fulbright grantee and were paid in nonconvertible foreign currency. H&r block federal free The total grant you received during the year and the amount you received in nonconvertible foreign currency. H&r block federal free At least 70% of the grant was paid in nonconvertible foreign currency. H&r block federal free The statement must be certified by the U. H&r block federal free S. H&r block federal free educational foundation or commission paying the grant or other person having control of grant payments to you. H&r block federal free   You should prepare at least two copies of this statement. H&r block federal free Attach one copy to your Form 1040 and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency. H&r block federal free Figuring actual tax. H&r block federal free   When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. H&r block federal free If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the following formula. H&r block federal free   Adjusted gross income that is blocked income × Total U. H&r block federal free S. H&r block federal free tax = Tax on blocked income     Total adjusted  gross income     You must attach all of the following to the return. H&r block federal free A copy of the certified statement discussed earlier. H&r block federal free A detailed statement showing the allocation of tax attributable to amounts received in foreign currency and the rates of exchange used in determining your tax liability in U. H&r block federal free S. H&r block federal free dollars. H&r block federal free The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency. H&r block federal free Figuring estimated tax on nonconvertible foreign currency. H&r block federal free   If you are liable for estimated tax (discussed later), figure the amount you can pay to the IRS in nonconvertible foreign currency using the following formula. H&r block federal free   Adjusted gross income that is blocked income × Total estimated U. H&r block federal free S. H&r block federal free tax = Estimated tax on blocked income     Total adjusted  gross income     If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income. H&r block federal free Deposit of foreign currency with disbursing officer. H&r block federal free   Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located. H&r block federal free Estimated tax installments. H&r block federal free   You can either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. H&r block federal free See Estimated Tax , later. H&r block federal free Deposit receipt. H&r block federal free   Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. H&r block federal free The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U. H&r block federal free S. H&r block federal free dollars) should be attached to your Form 1040 or payment voucher from Form 1040-ES. H&r block federal free Keep the copy for your records. H&r block federal free Does My Return Have To Be On Paper? IRS e-file (electronic filing) is the fastest, easiest, and most convenient way to file your income tax return electronically. H&r block federal free IRS e-file offers accurate, safe, and fast alternatives to filing on paper. H&r block federal free IRS computers quickly and automatically check for errors or other missing information. H&r block federal free Even returns with a foreign address can be e-filed! How to e-file. H&r block federal free   There are three ways you can e-file. H&r block federal free Use your personal computer. H&r block federal free Use a volunteer. H&r block federal free Many programs offering free tax help can e-file your return. H&r block federal free Use a tax professional. H&r block federal free Most tax professionals can e-file your return. H&r block federal free These methods are explained in detail in the instructions for your tax return. H&r block federal free Where To File If any of the following situations apply to you, do not file your return with the service center listed for your home state. H&r block federal free You claim the foreign earned income exclusion. H&r block federal free You claim the foreign housing exclusion or deduction. H&r block federal free You live in a foreign country. H&r block federal free Instead, use one of the following special addresses. H&r block federal free If you are not enclosing a check or money order, file your return with the: Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0215 USA If you are enclosing a check or money order, file your return with: Internal Revenue Service Center P. H&r block federal free O. H&r block federal free Box 1303 Charlotte, NC 28201-1303 USA If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the appropriate address listed above. H&r block federal free However, you should not file with the addresses listed above if you are a bona fide resident of the U. H&r block federal free S. H&r block federal free Virgin Islands, Guam, or the Commonwealth of the Northern Mariana Islands during your entire tax year. H&r block federal free Resident of U. H&r block federal free S. H&r block federal free Virgin Islands (USVI). H&r block federal free   If you are a bona fide resident of the USVI during your entire tax year, you generally are not required to file a U. H&r block federal free S. H&r block federal free return. H&r block federal free However, you must file a return with the USVI. H&r block federal free    Send your return to the:     Virgin Islands Bureau of Internal Revenue 6115 Estate Smith Bay Suite 225 St. H&r block federal free Thomas, Virgin Islands 00802 Non-USVI resident with USVI income. H&r block federal free   If you are a U. H&r block federal free S. H&r block federal free citizen or resident alien and you have income from sources in the USVI or income effectively connected with the conduct of a trade or business in the USVI, and you are not a bona fide resident of the USVI during your entire tax year, you must file identical tax returns with the United States and the USVI. H&r block federal free File the original return with the United States and file a signed copy of the U. H&r block federal free S. H&r block federal free return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue. H&r block federal free   You must complete Form 8689, Allocation of Individual Income Tax to the U. H&r block federal free S. H&r block federal free Virgin Islands, and attach a copy to both your U. H&r block federal free S. H&r block federal free return and your USVI return. H&r block federal free You should file your U. H&r block federal free S. H&r block federal free return with the address listed under Where To File. H&r block federal free   See Publication 570, Tax Guide for Individuals With Income From U. H&r block federal free S. H&r block federal free Possessions, for information about filing Virgin Islands returns. H&r block federal free Resident of Guam. H&r block federal free   If you are a bona fide resident of Guam during your entire tax year, you should file a return with Guam. H&r block federal free    Send your return to the:     Department of Revenue and Taxation Government of Guam P. H&r block federal free O. H&r block federal free Box 23607 GMF, GU 96921   However, if you have income from sources within Guam and you are a U. H&r block federal free S. H&r block federal free citizen or resident alien, but not a bona fide resident of Guam during the entire tax year, you should file a return with the United States. H&r block federal free Send your return to the address listed under Where To File. H&r block federal free   See Publication 570 for information about filing Guam returns. H&r block federal free Resident of the Commonwealth of the Northern Mariana Islands. H&r block federal free   If you are a bona fide resident of the Commonwealth of the Northern Mariana Islands (CNMI) during your entire tax year, you should file a return with the Northern Mariana Islands. H&r block federal free    Send your return to the:      Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P. H&r block federal free O. H&r block federal free Box 5234, CHRB Saipan, MP 96950   However, if you have income from sources within the CNMI and you are a U. H&r block federal free S. H&r block federal free citizen or resident alien, but not a bona fide resident of the CNMI during the entire tax year, you should file a return with the United States. H&r block federal free Send your return to the address listed under Where To File. H&r block federal free   See Publication 570 for information about filing Northern Mariana Islands returns. H&r block federal free Nonresident Alien Spouse Treated as a Resident If, at the end of your tax year, you are married and one spouse is a U. H&r block federal free S. H&r block federal free citizen or a resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U. H&r block federal free S. H&r block federal free resident. H&r block federal free This includes situations in which one of you is a nonresident alien at the beginning of the tax year and a resident alien at the end of the year and the other is a nonresident alien at the end of the year. H&r block federal free If you make this choice, the following two rules apply. H&r block federal free You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect. H&r block federal free You must file a joint income tax return for the year you make the choice. H&r block federal free This means that neither of you can claim under any tax treaty not to be a U. H&r block federal free S. H&r block federal free resident for a tax year for which the choice is in effect. H&r block federal free You can file joint or separate returns in years after the year in which you make the choice. H&r block federal free Example 1. H&r block federal free Pat Smith, a U. H&r block federal free S. H&r block federal free citizen, is married to Norman, a nonresident alien. H&r block federal free Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. H&r block federal free Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. H&r block federal free Although Pat and Norman must file a joint return for the year they make the choice, they can file either joint or separate returns for later years. H&r block federal free Example 2. H&r block federal free When Bob and Sharon Williams got married, both were nonresident aliens. H&r block federal free In June of last year, Bob became a resident alien and remained a resident for the rest of the year. H&r block federal free Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return for last year. H&r block federal free Bob and Sharon must report their worldwide income for last year and all later years unless the choice is ended or suspended. H&r block federal free Bob and Sharon must file a joint return for last year, but they can file either joint or separate returns for later years. H&r block federal free If you do not choose to treat your nonresident alien spouse as a U. H&r block federal free S. H&r block federal free resident, you may be able to use head of household filing status. H&r block federal free To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. H&r block federal free For more information, see Publication 501. H&r block federal free Social Security Number (SSN) If you choose to treat your nonresident alien spouse as a U. H&r block federal free S. H&r block federal free resident, your spouse must have either an SSN or an individual taxpayer identification number (ITIN). H&r block federal free To get an SSN for a nonresident alien spouse, apply at an office of the U. H&r block federal free S. H&r block federal free Social Security Administration (SSA) or U. H&r block federal free S. H&r block federal free consulate. H&r block federal free You must complete Form SS-5, Application for a Social Security Card, available at www. H&r block federal free socialsecurity. H&r block federal free gov or by calling 1-800-772-1213. H&r block federal free You must also provide original or certified copies of documents to verify that spouse's age, identity, and citizenship. H&r block federal free If the nonresident alien spouse is not eligible to get an SSN, he or she can file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS to apply for an ITIN. H&r block federal free How To Make the Choice Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. H&r block federal free It should contain the following: A declaration that one spouse was a nonresident alien and the other spouse a U. H&r block federal free S. H&r block federal free citizen or resident alien on the last day of your tax year and that you choose to be treated as U. H&r block federal free S. H&r block federal free residents for the entire tax year, and The name, address, and social security number (or individual taxpayer identification number) of each spouse. H&r block federal free (If one spouse died, include the name and address of the person making the choice for the deceased spouse. H&r block federal free ) You generally make this choice when you file your joint return. H&r block federal free However, you also can make the choice by filing a joint amended return on Form 1040X. H&r block federal free Attach Form 1040, 1040A, or 1040EZ and print “Amended” across the top of the amended return. H&r block federal free If you make the choice with an amended return, you and your spouse also must amend any returns that you may have filed after the year for which you made the choice. H&r block federal free You generally must file the amended joint return within 3 years from the date you filed your original U. H&r block federal free S. H&r block federal free income tax return or 2 years from the date you paid your income tax for that year, whichever is later. H&r block federal free Table 1–1. H&r block federal free Ending the Choice To Treat Nonresident Alien Spouse as a Resident Revocation   Either spouse can revoke the choice for any tax year. H&r block federal free   • The revocation must be made by the due date for filing the tax return for that tax year. H&r block federal free   • The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. H&r block federal free The statement revoking the choice must include the following:     • The name, address, and social security number (or taxpayer identification number) of each spouse. H&r block federal free     • The name and address of any person who is revoking the choice for a deceased spouse. H&r block federal free     • A list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. H&r block federal free   • If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where the last joint return was filed. H&r block federal free Death   The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died. H&r block federal free   • If the surviving spouse is a U. H&r block federal free S. H&r block federal free citizen or resident alien and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the close of the last year for which these joint rates may be used. H&r block federal free   • If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died. H&r block federal free Divorce or  Legal separation   A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs. H&r block federal free Inadequate records   The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those records. H&r block federal free Suspending the Choice The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U. H&r block federal free S. H&r block federal free citizen or resident alien at any time during the later tax year. H&r block federal free Example. H&r block federal free Dick Brown was a resident alien on December 31, 2010, and married to Judy, a nonresident alien. H&r block federal free They chose to treat Judy as a resident alien and filed a joint 2010 income tax return. H&r block federal free On January 10, 2012, Dick became a nonresident alien. H&r block federal free Judy had remained a nonresident alien. H&r block federal free Because Dick was a resident alien during part of 2012, Dick and Judy can file joint or separate returns for that year. H&r block federal free Neither Dick nor Judy was a resident alien at any time during 2013 and their choice is suspended for that year. H&r block federal free For 2013, both are treated as nonresident aliens. H&r block federal free If Dick becomes a resident alien again in 2014, their choice is no longer suspended and both are treated as resident aliens. H&r block federal free Ending the Choice Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier) or ended in one of the ways shown in Table 1-1. H&r block federal free If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax year. H&r block federal free Estimated Tax The requirements for determining who must pay estimated tax are the same for a U. H&r block federal free S. H&r block federal free citizen or resident abroad as for a taxpayer in the United States. H&r block federal free For current instructions on making estimated tax payments, see Form 1040-ES. H&r block federal free If you had a tax liability for 2013, you may have to pay estimated tax for 2014. H&r block federal free Generally, you must make estimated tax payments for 2014 if you expect to owe at least $1,000 in tax for 2014 after subtracting your withholding and credits and you expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2014 tax return, or 100% of the tax shown on your 2013 tax return. H&r block federal free (The return must cover all 12 months. H&r block federal free ) If less than two-thirds of your gross income for 2013 and 2014 is from farming or fishing and your adjusted gross income for 2013 is more than $150,000 ($75,000 if you are married and file separately), substitute 110% for 100% in (2). H&r block federal free See Publication 505 for more information. H&r block federal free The first installment of estimated tax is due on April 15, 2014. H&r block federal free Foreign earned income exclusion. H&r block federal free   When figuring your estimated gross income, subtract amounts you expect to exclude under the foreign earned income exclusion and the foreign housing exclusion. H&r block federal free In addition, you can reduce your income by your estimated foreign housing deduction. H&r block federal free However, you must estimate tax on your nonexcluded income using the tax rates that will apply had you not excluded the income. H&r block federal free If the actual amount of the exclusion or deduction is less than you estimate, you may have to pay a penalty for underpayment of estimated tax. H&r block federal free   For more information about figuring your estimated tax, see Publication 505. H&r block federal free Other Forms You May Have To File FinCEN Form 114 (replaces Form TD F 90-22. H&r block federal free 1). H&r block federal free   Beginning October 1, 2013, Form 114, Report of Foreign Bank and Financial Accounts (FBAR), must be filed instead of Form TD F 90-22. H&r block federal free 1. H&r block federal free Form 114 is filed electronically with the Financial Crimes Enforcement Network (FinCEN). H&r block federal free See the filing instructions at www. H&r block federal free bsaefiling. H&r block federal free fincen. H&r block federal free treas. H&r block federal free gov/main. H&r block federal free html. H&r block federal free   You must file Form 114 if you had any financial interest in, or signature or other authority over a bank, securities, or other financial account in a foreign country. H&r block federal free You do not need to file the report if the assets are with a U. H&r block federal free S. H&r block federal free military banking facility operated by a financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year. H&r block federal free   More information about the filing of Form 114 can be found in the instructions for the form. H&r block federal free FinCEN Form 105. H&r block federal free   You must file Form 105, Report of International Transportation of Currency or Monetary Instruments, if you physically transport, mail, ship, or cause to be physically transported, mailed, or shipped into or out of the United States, currency or other monetary instruments totaling more than $10,000 at one time. H&r block federal free Certain recipients of currency or monetary instruments also must file Form 105. H&r block federal free   More information about the filing of Form 105 can be found in the instructions on the back of the form. H&r block federal free Form 8938. H&r block federal free   You must file Form 8938 to report the ownership of specified foreign financial assets if the total value of those assets exceeds an applicable threshold amount (the “reporting threshold ”). H&r block federal free The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. H&r block federal free Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U. H&r block federal free S. H&r block federal free person. H&r block federal free   You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. H&r block federal free   More information about the filing of Form 8938 can be found in the separate instructions for Form 8938. H&r block federal free Prev  Up  Next   Home   More Online Publications