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How To File Your State Taxes

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How To File Your State Taxes

How to file your state taxes Internal Revenue Bulletin:  2012-14  April 2, 2012  Rev. How to file your state taxes Proc. How to file your state taxes 2012-23 Table of Contents SECTION 1. How to file your state taxes PURPOSE SECTION 2. How to file your state taxes BACKGROUND SECTION 3. How to file your state taxes SCOPE SECTION 4. How to file your state taxes APPLICATION. How to file your state taxes 01 Limitations on Depreciation Deductions for Certain Automobiles. How to file your state taxes . How to file your state taxes 02 Inclusions in Income of Lessees of Passenger Automobiles. How to file your state taxes SECTION 5. How to file your state taxes EFFECTIVE DATE SECTION 6. How to file your state taxes DRAFTING INFORMATION SECTION 1. How to file your state taxes PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2012, including separate tables of limitations on depreciation deductions for trucks and vans; and (2) the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2012, including a separate table of inclusion amounts for lessees of trucks and vans. How to file your state taxes The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. How to file your state taxes SECTION 2. How to file your state taxes BACKGROUND . How to file your state taxes 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. How to file your state taxes For passenger automobiles placed in service after 1988, § 280F(d)(7) requires the Internal Revenue Service to increase the amounts allowable as depreciation deductions by a price inflation adjustment amount. How to file your state taxes The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. How to file your state taxes This change reflects the higher rate of price inflation for trucks and vans since 1988. How to file your state taxes . How to file your state taxes 02 Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. How to file your state taxes L. How to file your state taxes No. How to file your state taxes 111-312, 124 Stat. How to file your state taxes 3296 (Dec. How to file your state taxes 17, 2010) (the “Act”) extended the 50 percent additional first year depreciation deduction under § 168(k) to qualified property acquired by the taxpayer after December 31, 2007, and before January 1, 2013, if no written binding contract for the acquisition of the property existed before January 1, 2008, and if the taxpayer places the property in service generally before January 1, 2013. How to file your state taxes Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A)(i) by $8,000 for passenger automobiles to which the additional first year depreciation deduction under § 168(k) (hereinafter, referred to as “§ 168(k) additional first year depreciation deduction”) applies. How to file your state taxes . How to file your state taxes 03 Section 168(k)(2)(D)(i) provides that the § 168(k) additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). How to file your state taxes Section 168(k)(2)(D)(iii) permits a taxpayer to elect out of the § 168(k) additional first year depreciation deduction for any class of property. How to file your state taxes Section 168(k)(4), as amended by the Act, permits a corporation to elect to increase the alternative minimum tax (“AMT”) credit limitation under § 53(c), instead of claiming the § 168(k) additional first year depreciation deduction for all eligible qualified property placed in service after December 31, 2010, that is round 2 extension property (as defined in § 168(k)(4)(I)(iv)). How to file your state taxes Accordingly, this revenue procedure provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction applies. How to file your state taxes This revenue procedure also provides tables for passenger automobiles for which the § 168(k) additional first year depreciation deduction does not apply, either because taxpayer (1) purchased the passenger automobile used; (2) did not use the passenger automobile during 2012 more than 50 percent for business purposes; (3) elected out of the § 168(k) additional first year depreciation deduction pursuant to § 168(k)(2)(D)(iii); or (4) elected to increase the § 53 AMT credit limitation in lieu of claiming § 168(k) additional first year depreciation. How to file your state taxes . How to file your state taxes 04 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. How to file your state taxes The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. How to file your state taxes Under § 1. How to file your state taxes 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an amount determined by applying a formula to the amount obtained from a table. How to file your state taxes One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. How to file your state taxes Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. How to file your state taxes SECTION 3. How to file your state taxes SCOPE . How to file your state taxes 01 The limitations on depreciation deductions in section 4. How to file your state taxes 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2012, and continue to apply for each taxable year that the passenger automobile remains in service. How to file your state taxes . How to file your state taxes 02 The tables in section 4. How to file your state taxes 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2012. How to file your state taxes Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. How to file your state taxes See Rev. How to file your state taxes Proc. How to file your state taxes 2007-30, 2007-1 C. How to file your state taxes B. How to file your state taxes 1104, for passenger automobiles first leased during calendar year 2007; Rev. How to file your state taxes Proc. How to file your state taxes 2008-22, 2008-1 C. How to file your state taxes B. How to file your state taxes 658, for passenger automobiles first leased during calendar year 2008; Rev. How to file your state taxes Proc. How to file your state taxes 2009-24, 2009-17 I. How to file your state taxes R. How to file your state taxes B. How to file your state taxes 885, for passenger automobiles first leased during calendar year 2009; Rev. How to file your state taxes Proc. How to file your state taxes 2010-18, 2010-9 I. How to file your state taxes R. How to file your state taxes B. How to file your state taxes 427, as amplified and modified by section 4. How to file your state taxes 03 of Rev. How to file your state taxes Proc. How to file your state taxes 2011-21, 2011-12 I. How to file your state taxes R. How to file your state taxes B. How to file your state taxes 560, for passenger automobiles first leased during calendar year 2010; and Rev. How to file your state taxes Proc. How to file your state taxes 2011-21, for passenger automobiles first leased during calendar year 2011. How to file your state taxes SECTION 4. How to file your state taxes APPLICATION . How to file your state taxes 01 Limitations on Depreciation Deductions for Certain Automobiles. How to file your state taxes (1) Amount of the inflation adjustment. How to file your state taxes (a) Passenger automobiles (other than trucks or vans). How to file your state taxes Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. How to file your state taxes Section 280F(d)(7)(B)(ii) defines the term “CPI automobile component” as the automobile component of the Consumer Price Index for all Urban Consumers published by the Department of Labor. How to file your state taxes The new car component of the CPI was 115. How to file your state taxes 2 for October 1987 and 143. How to file your state taxes 419 for October 2011. How to file your state taxes The October 2011 index exceeded the October 1987 index by 28. How to file your state taxes 219. How to file your state taxes Therefore, the automobile price inflation adjustment for 2012 for passenger automobiles (other than trucks and vans) is 24. How to file your state taxes 5 percent (28. How to file your state taxes 219/115. How to file your state taxes 2 x 100%). How to file your state taxes The dollar limitations in § 280F(a) are multiplied by a factor of 0. How to file your state taxes 245, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2012. How to file your state taxes This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2012. How to file your state taxes (b) Trucks and vans. How to file your state taxes To determine the dollar limitations for trucks and vans first placed in service during calendar year 2012, the Service uses the new truck component of the CPI instead of the new car component. How to file your state taxes The new truck component of the CPI was 112. How to file your state taxes 4 for October 1987 and 146. How to file your state taxes 607 for October 2011. How to file your state taxes The October 2011 index exceeded the October 1987 index by 34. How to file your state taxes 207. How to file your state taxes Therefore, the automobile price inflation adjustment for 2012 for trucks and vans is 30. How to file your state taxes 43 percent (34. How to file your state taxes 207/112. How to file your state taxes 4 x 100%). How to file your state taxes The dollar limitations in § 280F(a) are multiplied by a factor of 0. How to file your state taxes 3043, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. How to file your state taxes This adjustment applies to all trucks and vans that are first placed in service in calendar year 2012. How to file your state taxes (2) Amount of the limitation. How to file your state taxes Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2012. How to file your state taxes Use Table 1 for a passenger automobile (other than a truck or van), and Table 2 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction applies. How to file your state taxes Use Table 3 for a passenger automobile (other than a truck or van), and Table 4 for a truck or van, placed in service in calendar year 2012 for which the § 168(k) additional first year depreciation deduction does not apply. How to file your state taxes REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 3 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2012 FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,360 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 . How to file your state taxes 02 Inclusions in Income of Lessees of Passenger Automobiles. How to file your state taxes A taxpayer must follow the procedures in § 1. How to file your state taxes 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2012. How to file your state taxes In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure, while lessees of trucks and vans should use Table 6 of this revenue procedure. How to file your state taxes REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 2 4 5 6 8 19,000 19,500 2 4 7 7 9 19,500 20,000 2 5 8 8 10 20,000 20,500 3 5 9 10 11 20,500 21,000 3 6 9 12 12 21,000 21,500 3 7 10 12 14 21,500 22,000 3 8 11 13 16 22,000 23,000 4 8 13 15 17 23,000 24,000 4 10 15 17 20 24,000 25,000 5 11 17 19 23 25,000 26,000 6 12 19 21 26 26,000 27,000 6 14 20 24 28 27,000 28,000 7 15 22 26 31 28,000 29,000 7 16 25 28 33 29,000 30,000 8 18 25 32 35 30,000 31,000 9 19 27 34 38 31,000 32,000 9 20 30 36 41 32,000 33,000 10 21 32 38 43 33,000 34,000 10 23 33 41 46 34,000 35,000 11 24 35 43 49 35,000 36,000 12 25 37 45 52 36,000 37,000 12 27 39 47 54 37,000 38,000 13 28 41 49 57 38,000 39,000 13 29 43 52 59 39,000 40,000 14 30 45 54 62 40,000 41,000 14 32 47 56 65 41,000 42,000 15 33 49 58 68 42,000 43,000 16 34 51 61 70 43,000 44,000 16 36 52 63 73 44,000 45,000 17 37 54 66 75 45,000 46,000 17 38 57 67 78 46,000 47,000 18 39 59 70 80 47,000 48,000 19 40 61 72 83 48,000 49,000 19 42 62 75 86 49,000 50,000 20 43 64 77 89 50,000 51,000 20 45 66 79 91 51,000 52,000 21 46 68 81 94 52,000 53,000 21 47 70 84 96 53,000 54,000 22 48 72 86 99 54,000 55,000 23 49 74 88 102 55,000 56,000 23 51 76 90 104 56,000 57,000 24 52 78 92 107 57,000 58,000 24 54 79 95 110 58,000 59,000 25 55 81 97 113 59,000 60,000 26 56 83 100 115 60,000 62,000 26 58 86 103 119 62,000 64,000 28 60 90 108 124 64,000 66,000 29 63 94 112 129 66,000 68,000 30 66 97 117 135 68,000 70,000 31 68 102 121 140 70,000 72,000 32 71 105 126 145 72,000 74,000 33 74 109 130 151 74,000 76,000 35 76 113 135 156 76,000 78,000 36 78 117 140 161 78,000 80,000 37 81 120 145 166 80,000 85,000 39 86 127 152 176 85,000 90,000 42 92 137 163 189 90,000 95,000 45 98 147 175 202 95,000 100,000 48 105 155 187 215 100,000 110,000 52 115 170 203 235 110,000 120,000 58 127 189 227 262 120,000 130,000 64 140 208 250 288 130,000 140,000 70 153 227 272 315 140,000 150,000 75 166 246 296 340 150,000 160,000 81 179 265 318 368 160,000 170,000 87 192 284 341 394 170,000 180,000 93 204 304 364 420 180,000 190,000 99 217 323 387 446 190,000 200,000 105 230 342 409 473 200,000 210,000 111 243 361 432 499 210,000 220,000 116 256 380 455 526 220,000 230,000 122 269 399 478 552 230,000 240,000 128 282 418 501 578 240,000 and up 134 294 437 524 605 REV. How to file your state taxes PROC. How to file your state taxes 2012-23 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2012 Fair Market Value of Truck or Van Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $19,000 $19,500 1 4 5 6 7 19,500 20,000 2 4 6 7 9 20,000 20,500 2 5 7 8 10 20,500 21,000 2 5 8 10 11 21,000 21,500 3 6 9 10 13 21,500 22,000 3 6 10 12 14 22,000 23,000 3 8 11 14 15 23,000 24,000 4 9 13 16 18 24,000 25,000 4 10 15 19 21 25,000 26,000 5 11 17 21 24 26,000 27,000 6 12 19 23 26 27,000 28,000 6 14 21 25 29 28,000 29,000 7 15 23 27 32 29,000 30,000 7 17 24 30 34 30,000 31,000 8 18 26 32 37 31,000 32,000 9 19 28 34 40 32,000 33,000 9 20 31 36 42 33,000 34,000 10 21 33 39 44 34,000 35,000 10 23 34 41 48 35,000 36,000 11 24 36 44 50 36,000 37,000 12 25 38 46 53 37,000 38,000 12 27 40 48 55 38,000 39,000 13 28 42 50 58 39,000 40,000 13 29 44 53 60 40,000 41,000 14 31 45 55 63 41,000 42,000 14 32 48 57 66 42,000 43,000 15 33 50 59 69 43,000 44,000 16 34 52 61 72 44,000 45,000 16 36 53 64 74 45,000 46,000 17 37 55 66 77 46,000 47,000 17 38 58 68 79 47,000 48,000 18 40 59 70 82 48,000 49,000 19 41 61 73 84 49,000 50,000 19 42 63 75 87 50,000 51,000 20 43 65 78 89 51,000 52,000 20 45 66 80 93 52,000 53,000 21 46 68 83 95 53,000 54,000 21 48 70 84 98 54,000 55,000 22 49 72 87 100 55,000 56,000 23 50 74 89 103 56,000 57,000 23 51 76 92 105 57,000 58,000 24 52 78 94 108 58,000 59,000 24 54 80 96 111 59,000 60,000 25 55 82 98 114 60,000 62,000 26 57 85 101 118 62,000 64,000 27 60 88 106 123 64,000 66,000 28 62 93 110 128 66,000 68,000 29 65 96 115 134 68,000 70,000 30 67 100 120 139 70,000 72,000 32 70 103 125 144 72,000 74,000 33 72 108 129 149 74,000 76,000 34 75 111 134 155 76,000 78,000 35 78 115 138 160 78,000 80,000 36 80 119 143 165 80,000 85,000 38 85 125 151 175 85,000 90,000 41 91 135 163 187 90,000 95,000 44 98 144 174 201 95,000 100,000 47 104 154 185 214 100,000 110,000 52 113 169 202 234 110,000 120,000 57 127 187 225 261 120,000 130,000 63 139 207 248 287 130,000 140,000 69 152 226 271 313 140,000 150,000 75 165 245 294 339 150,000 160,000 81 178 264 316 366 160,000 170,000 87 190 283 340 392 170,000 180,000 92 204 302 362 419 180,000 190,000 98 216 322 385 445 190,000 200,000 104 229 340 409 471 200,000 210,000 110 242 359 431 498 210,000 220,000 116 255 378 454 524 220,000 230,000 122 267 398 477 551 230,000 240,000 127 281 416 500 577 240,000 and up 133 294 435 523 603 SECTION 5. How to file your state taxes EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2012. How to file your state taxes SECTION 6. How to file your state taxes DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. How to file your state taxes Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). How to file your state taxes For further information regarding this revenue procedure, contact Mr. How to file your state taxes Harvey at (202) 622-4930 (not a toll-free call). How to file your state taxes Prev  Up  Next   Home   More Internal Revenue Bulletins
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IRS Statement on Court Ruling Related to Return Preparers

Update Feb. 21, 2014

On Feb. 11, 2014, the U.S. Court of Appeals for the District of Columbia Circuit upheld the decision of the lower court in the case of Loving vs. IRS, finding insufficient statutory support for the IRS’ regulation of federal tax return preparers.

Taxpayer reliance on paid tax return preparers and effective tax administration are inextricably linked to quality return preparation. As we assess the scope and impact of the court’s decision and determine our way forward, our focus on improved competency will continue.  

Please continue to check this site for additional information as it becomes available.

Background

On Friday, Jan. 18, 2013, the United States District Court for the District of Columbia enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not required to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

On Friday, Feb. 1, 2013, the court modified its order to clarify that the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). Consistent with this modification, the IRS has reopened the online PTIN system. On March 29, 2013, the IRS appealed the district court opinion.

In July 2013, the IRS refunded testing fees to return preparers who tested or were scheduled to test on or after Jan. 18, 2013 (the date the registered tax return preparer test was enjoined). No decisions have been made about additional refunds related to registered tax return preparer regulations at this time.

 

 

Page Last Reviewed or Updated: 05-Mar-2014

The How To File Your State Taxes

How to file your state taxes Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. How to file your state taxes More information. How to file your state taxes Exception—Community Income. How to file your state taxes Exception—Qualified joint venture. How to file your state taxes More information. How to file your state taxes More information. How to file your state taxes Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. How to file your state taxes Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. How to file your state taxes Table 1 can help you learn what those responsibilities are. How to file your state taxes Ask yourself each question listed in the table, then see the related discussion to find the answer. How to file your state taxes In addition to knowing about federal taxes, you need to make some basic business decisions. How to file your state taxes Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. How to file your state taxes For information on how to contact the SBA, see How to Get More Information, later. How to file your state taxes Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. How to file your state taxes When beginning a business, you must decide which form of business to use. How to file your state taxes Legal and tax considerations enter into this decision. How to file your state taxes Only tax considerations are discussed in this publication. How to file your state taxes Your form of business determines which income tax return form you have to file. How to file your state taxes See Table 2 to find out which form you have to file. How to file your state taxes Sole proprietorships. How to file your state taxes   A sole proprietorship is an unincorporated business that is owned by one individual. How to file your state taxes It is the simplest form of business organization to start and maintain. How to file your state taxes The business has no existence apart from you, the owner. How to file your state taxes Its liabilities are your personal liabilities. How to file your state taxes You undertake the risks of the business for all assets owned, whether or not used in the business. How to file your state taxes You include the income and expenses of the business on your personal tax return. How to file your state taxes More information. How to file your state taxes   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. How to file your state taxes If you are a farmer, see Publication 225, Farmer's Tax Guide. How to file your state taxes Partnerships. How to file your state taxes   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. How to file your state taxes Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. How to file your state taxes   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. How to file your state taxes , from its operations, but it does not pay income tax. How to file your state taxes Instead, it “passes through” any profits or losses to its partners. How to file your state taxes Each partner includes his or her share of the partnership's items on his or her tax return. How to file your state taxes More information. How to file your state taxes   For more information on partnerships, see Publication 541, Partnerships. How to file your state taxes Husband and wife business. How to file your state taxes   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. How to file your state taxes Do not use Schedule C or C-EZ. How to file your state taxes Instead, file Form 1065, U. How to file your state taxes S. How to file your state taxes Return of Partnership Income. How to file your state taxes For more information, see Publication 541, Partnerships. How to file your state taxes Exception—Community Income. How to file your state taxes   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. How to file your state taxes S. How to file your state taxes possession, you can treat the business either as a sole proprietorship or a partnership. How to file your state taxes The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. How to file your state taxes A change in your reporting position will be treated as a conversion of the entity. How to file your state taxes Exception—Qualified joint venture. How to file your state taxes   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. How to file your state taxes Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. How to file your state taxes For an explanation of "material participation," see the Instructions for Schedule C, line G. How to file your state taxes   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. How to file your state taxes Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. How to file your state taxes For more information, see Qualified Joint Venture in the Instructions for Schedule SE. How to file your state taxes Corporations. How to file your state taxes   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. How to file your state taxes A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. How to file your state taxes A corporation can also take special deductions. How to file your state taxes   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. How to file your state taxes However, shareholders cannot deduct any loss of the corporation. How to file your state taxes More information. How to file your state taxes   For more information on corporations, see Publication 542, Corporations. How to file your state taxes S corporations. How to file your state taxes   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. How to file your state taxes Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. How to file your state taxes On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. How to file your state taxes More information. How to file your state taxes   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. How to file your state taxes S. How to file your state taxes Income Tax Return for an S Corporation. How to file your state taxes Limited liability company. How to file your state taxes   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. How to file your state taxes The members of an LLC are not personally liable for its debts. How to file your state taxes An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. How to file your state taxes 7701-3. How to file your state taxes For more information, see the instructions for Form 8832, Entity Classification Election. How to file your state taxes Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. How to file your state taxes The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). How to file your state taxes An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. How to file your state taxes An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. How to file your state taxes You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. How to file your state taxes You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. How to file your state taxes This includes returns or documents filed to report the following information. How to file your state taxes Interest, dividends, royalties, etc. How to file your state taxes , paid to you. How to file your state taxes Any amount paid to you as a dependent care provider. How to file your state taxes Certain other amounts paid to you that total $600 or more for the year. How to file your state taxes If you do not furnish your identification number as required, you may be subject to penalties. How to file your state taxes See Penalties, later. How to file your state taxes Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. How to file your state taxes If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. How to file your state taxes Applying for an EIN. How to file your state taxes   You may apply for an EIN: Online—Click on the EIN link at www. How to file your state taxes irs. How to file your state taxes gov/businesses/small. How to file your state taxes The EIN is issued immediately once the application information is validated. How to file your state taxes By telephone at 1-800-829-4933. How to file your state taxes By mailing or faxing Form SS-4, Application for Employer Identification Number. How to file your state taxes When to apply. How to file your state taxes   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. How to file your state taxes If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. How to file your state taxes If you apply by telephone or through the IRS website, you can get an EIN immediately. How to file your state taxes If you apply by fax, you can get an EIN within 4 business days. How to file your state taxes   If you do not receive your EIN by the time a return is due, file your return anyway. How to file your state taxes Write “Applied for” and the date you applied for the number in the space for the EIN. How to file your state taxes Do not use your social security number as a substitute for an EIN on your tax returns. How to file your state taxes More than one EIN. How to file your state taxes   You should have only one EIN. How to file your state taxes If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. How to file your state taxes Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. How to file your state taxes The IRS will tell you which number to use. How to file your state taxes More information. How to file your state taxes   For more information about EINs, see Publication 1635, Understanding Your EIN. How to file your state taxes Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). How to file your state taxes The forms used to report these payments must include the payee's identification number. How to file your state taxes Employee. How to file your state taxes   If you have employees, you must get an SSN from each of them. How to file your state taxes Record the name and SSN of each employee exactly as they are shown on the employee's social security card. How to file your state taxes If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. How to file your state taxes This may occur, for example, if the employee's name has changed due to marriage or divorce. How to file your state taxes   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. How to file your state taxes This form is available at SSA offices or by calling 1-800-772-1213. How to file your state taxes It is also available from the SSA website at www. How to file your state taxes ssa. How to file your state taxes gov. How to file your state taxes Other payee. How to file your state taxes   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. How to file your state taxes If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. How to file your state taxes   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. How to file your state taxes This form is available from IRS offices or by calling 1-800-829-3676. How to file your state taxes It is also available from the IRS website at IRS. How to file your state taxes gov. How to file your state taxes    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. How to file your state taxes For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. How to file your state taxes Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. How to file your state taxes A tax year is usually 12 consecutive months. How to file your state taxes There are two kinds of tax years. How to file your state taxes Calendar tax year. How to file your state taxes A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. How to file your state taxes Fiscal tax year. How to file your state taxes A fiscal tax year is 12 consecutive months ending on the last day of any month except December. How to file your state taxes A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. How to file your state taxes If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. How to file your state taxes You must use a calendar tax year if: You keep no books. How to file your state taxes You have no annual accounting period. How to file your state taxes Your present tax year does not qualify as a fiscal year. How to file your state taxes You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. How to file your state taxes For more information, see Publication 538, Accounting Periods and Methods. How to file your state taxes First-time filer. How to file your state taxes   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. How to file your state taxes You adopt a tax year by filing your first income tax return using that tax year. How to file your state taxes You have not adopted a tax year if you merely did any of the following. How to file your state taxes Filed an application for an extension of time to file an income tax return. How to file your state taxes Filed an application for an employer identification number. How to file your state taxes Paid estimated taxes for that tax year. How to file your state taxes Changing your tax year. How to file your state taxes   Once you have adopted your tax year, you may have to get IRS approval to change it. How to file your state taxes To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. How to file your state taxes You may have to pay a fee. How to file your state taxes For more information, see Publication 538. How to file your state taxes Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. How to file your state taxes You choose an accounting method for your business when you file your first income tax return. How to file your state taxes There are two basic accounting methods. How to file your state taxes Cash method. How to file your state taxes Under the cash method, you report income in the tax year you receive it. How to file your state taxes You usually deduct or capitalize expenses in the tax year you pay them. How to file your state taxes Accrual method. How to file your state taxes Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. How to file your state taxes You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. How to file your state taxes For other methods, see Publication 538. How to file your state taxes If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. How to file your state taxes Inventories include goods held for sale in the normal course of business. How to file your state taxes They also include raw materials and supplies that will physically become a part of merchandise intended for sale. How to file your state taxes Inventories are explained in Publication 538. How to file your state taxes Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. How to file your state taxes For more information, see Publication 538. How to file your state taxes You must use the same accounting method to figure your taxable income and to keep your books. How to file your state taxes Also, you must use an accounting method that clearly shows your income. How to file your state taxes In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. How to file your state taxes An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. How to file your state taxes More than one business. How to file your state taxes   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. How to file your state taxes You must keep a complete and separate set of books and records for each business. How to file your state taxes Changing your method of accounting. How to file your state taxes   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. How to file your state taxes A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. How to file your state taxes For examples of changes that require approval and information on how to get approval for the change, see Publication 538. How to file your state taxes Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. How to file your state taxes The following are the four general kinds of business taxes. How to file your state taxes Income tax. How to file your state taxes Self-employment tax. How to file your state taxes Employment taxes. How to file your state taxes Excise taxes. How to file your state taxes See Table 2 for the forms you file to report these taxes. How to file your state taxes You may want to get Publication 509. How to file your state taxes It has tax calendars that tell you when to file returns and make tax payments. How to file your state taxes Income Tax All businesses except partnerships must file an annual income tax return. How to file your state taxes Partnerships file an information return. How to file your state taxes Which form you use depends on how your business is organized. How to file your state taxes See Table 2 to find out which return you have to file. How to file your state taxes The federal income tax is a pay-as-you-go tax. How to file your state taxes You must pay the tax as you earn or receive income during the year. How to file your state taxes An employee usually has income tax withheld from his or her pay. How to file your state taxes If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. How to file your state taxes If you are not required to make estimated tax payments, you may pay any tax due when you file your return. How to file your state taxes Table 2. How to file your state taxes Which Forms Must I File? IF you are a. How to file your state taxes . How to file your state taxes . How to file your state taxes   THEN you may be liable for. How to file your state taxes . How to file your state taxes . How to file your state taxes   Use Form. How to file your state taxes . How to file your state taxes . How to file your state taxes Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. How to file your state taxes 2 Various other schedules may be needed. How to file your state taxes Estimated tax. How to file your state taxes   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. How to file your state taxes Sole proprietors, partners, and S corporation shareholders. How to file your state taxes   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. How to file your state taxes Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. How to file your state taxes For more information, see Publication 505, Tax Withholding and Estimated Tax. How to file your state taxes Corporations. How to file your state taxes   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. How to file your state taxes Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. How to file your state taxes You must deposit the payments as explained later under Depositing Taxes. How to file your state taxes For more information, see Publication 542. How to file your state taxes Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. How to file your state taxes Your payments of SE tax contribute to your coverage under the social security system. How to file your state taxes Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. How to file your state taxes You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. How to file your state taxes Your net earnings from self-employment were $400 or more. How to file your state taxes You had church employee income of $108. How to file your state taxes 28 or more. How to file your state taxes Use Schedule SE (Form 1040) to figure your SE tax. How to file your state taxes For more information, see Publication 334, Tax Guide for Small Business. How to file your state taxes You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. How to file your state taxes The Social Security Administration (SSA) time limit for posting self-employment income. How to file your state taxes   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. How to file your state taxes If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. How to file your state taxes The SSA will not change its records to increase your self-employment income. How to file your state taxes Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. How to file your state taxes Employment taxes include the following. How to file your state taxes Social security and Medicare taxes. How to file your state taxes Federal income tax withholding. How to file your state taxes Federal unemployment (FUTA) tax. How to file your state taxes If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. How to file your state taxes If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. How to file your state taxes These publications explain your tax responsibilities as an employer. How to file your state taxes If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. How to file your state taxes That publication has information to help you determine whether an individual is an employee or an independent contractor. How to file your state taxes If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. How to file your state taxes An independent contractor is someone who is self-employed. How to file your state taxes Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. How to file your state taxes Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. How to file your state taxes To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. How to file your state taxes Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). How to file your state taxes Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. How to file your state taxes Medicare tax pays for benefits under the hospital insurance part of FICA. How to file your state taxes You withhold part of these taxes from your employee's wages and you pay a part yourself. How to file your state taxes To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. How to file your state taxes Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. How to file your state taxes (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. How to file your state taxes ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. How to file your state taxes You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. How to file your state taxes You pay FUTA tax only from your own funds. How to file your state taxes Employees do not pay this tax or have it withheld from their pay. How to file your state taxes Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. How to file your state taxes See Publication 15 to find out if you can use this form. How to file your state taxes Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. How to file your state taxes Form I-9. How to file your state taxes   You must verify that each new employee is legally eligible to work in the United States. How to file your state taxes Both you and the employee must complete the U. How to file your state taxes S. How to file your state taxes Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. How to file your state taxes You can get the form from USCIS offices or from the USCIS website at www. How to file your state taxes uscis. How to file your state taxes gov. How to file your state taxes Call the USCIS at 1-800-375-5283 for more information about your responsibilities. How to file your state taxes Form W-4. How to file your state taxes   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. How to file your state taxes You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. How to file your state taxes For more information, see Publication 15. How to file your state taxes Employees claiming more than 10 withholding allowances. How to file your state taxes   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. How to file your state taxes See section 16 of Publication 15. How to file your state taxes Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. How to file your state taxes You must also send copies to the Social Security Administration. How to file your state taxes See Information Returns, later, for more information on Form W-2. How to file your state taxes Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. How to file your state taxes Manufacture or sell certain products. How to file your state taxes Operate certain kinds of businesses. How to file your state taxes Use various kinds of equipment, facilities, or products. How to file your state taxes Receive payment for certain services. How to file your state taxes For more information on excise taxes, see Publication 510, Excise Taxes. How to file your state taxes Form 720. How to file your state taxes   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. How to file your state taxes Environmental taxes. How to file your state taxes Communications and air transportation taxes. How to file your state taxes Fuel taxes. How to file your state taxes Tax on the first retail sale of heavy trucks, trailers, and tractors. How to file your state taxes Manufacturers taxes on the sale or use of a variety of different articles. How to file your state taxes Form 2290. How to file your state taxes   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. How to file your state taxes The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. How to file your state taxes Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. How to file your state taxes For more information, see the instructions for Form 2290. How to file your state taxes Form 730. How to file your state taxes   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. How to file your state taxes Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. How to file your state taxes Form 11-C. How to file your state taxes   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. How to file your state taxes Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. How to file your state taxes Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). How to file your state taxes Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. How to file your state taxes Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. How to file your state taxes Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. How to file your state taxes The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. How to file your state taxes You must give a copy of each information return you are required to file to the recipient or payer. How to file your state taxes In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. How to file your state taxes For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. How to file your state taxes Form 1099-MISC. How to file your state taxes   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. How to file your state taxes These payments include the following items. How to file your state taxes Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. How to file your state taxes Rent payments of $600 or more, other than rents paid to real estate agents. How to file your state taxes Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. How to file your state taxes Royalty payments of $10 or more. How to file your state taxes Payments to certain crew members by operators of fishing boats. How to file your state taxes You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. How to file your state taxes Form W-2. How to file your state taxes   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. How to file your state taxes For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. How to file your state taxes Form 8300. How to file your state taxes   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. How to file your state taxes Cash includes U. How to file your state taxes S. How to file your state taxes and foreign coin and currency. How to file your state taxes It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. How to file your state taxes For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). How to file your state taxes Penalties The law provides penalties for not filing returns or paying taxes as required. How to file your state taxes Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. How to file your state taxes Failure to file tax returns. How to file your state taxes   If you do not file your tax return by the due date, you may have to pay a penalty. How to file your state taxes The penalty is based on the tax not paid by the due date. How to file your state taxes See your tax return instructions for more information about this penalty. How to file your state taxes Failure to pay tax. How to file your state taxes   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. How to file your state taxes For more information, see your tax return instructions. How to file your state taxes Failure to withhold, deposit, or pay taxes. How to file your state taxes   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. How to file your state taxes You may also be subject to penalties if you deposit the taxes late. How to file your state taxes For more information, see Publication 15. How to file your state taxes Failure to follow information reporting requirements. How to file your state taxes   The following penalties apply if you are required to file information returns. How to file your state taxes For more information, see the General Instructions for Certain Information Returns. How to file your state taxes Failure to file information returns. How to file your state taxes A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. How to file your state taxes Failure to furnish correct payee statements. How to file your state taxes A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. How to file your state taxes Waiver of penalty. How to file your state taxes   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. How to file your state taxes   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. How to file your state taxes (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. How to file your state taxes ) Failure to supply taxpayer identification number. How to file your state taxes   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. How to file your state taxes You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. How to file your state taxes Business Expenses You can deduct business expenses on your income tax return. How to file your state taxes These are the current operating costs of running your business. How to file your state taxes To be deductible, a business expense must be both ordinary and necessary. How to file your state taxes An ordinary expense is one that is common and accepted in your field of business, trade, or profession. How to file your state taxes A necessary expense is one that is helpful and appropriate for your business, trade, or profession. How to file your state taxes An expense does not have to be indispensable to be considered necessary. How to file your state taxes The following are brief explanations of some expenses that are of interest to people starting a business. How to file your state taxes There are many other expenses that you may be able to deduct. How to file your state taxes See your form instructions and Publication 535, Business Expenses. How to file your state taxes Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. How to file your state taxes Your business start-up costs will depend on the type of business you are starting. How to file your state taxes They may include costs for advertising, travel, surveys, and training. How to file your state taxes These costs are generally capital expenses. How to file your state taxes You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). How to file your state taxes You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. How to file your state taxes The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. How to file your state taxes Any remaining cost must be amortized. How to file your state taxes For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. How to file your state taxes Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. How to file your state taxes You must spread the cost over more than one tax year and deduct part of it each year. How to file your state taxes This method of deducting the cost of business property is called depreciation. How to file your state taxes Business property you must depreciate includes the following items. How to file your state taxes Office furniture. How to file your state taxes Buildings. How to file your state taxes Machinery and equipment. How to file your state taxes You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. How to file your state taxes This deduction is known as the “section 179 deduction. How to file your state taxes ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. How to file your state taxes Depreciation must be taken in the year it is allowable. How to file your state taxes Allowable depreciation not taken in a prior year cannot be taken in the current year. How to file your state taxes If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. How to file your state taxes S. How to file your state taxes Individual Income Tax Return, or by changing your accounting method. How to file your state taxes For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. How to file your state taxes Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. How to file your state taxes Even then, your deduction may be limited. How to file your state taxes To qualify to claim expenses for business use of your home, you must meet both the following tests. How to file your state taxes Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. How to file your state taxes Exclusive use. How to file your state taxes   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. How to file your state taxes The area used for business can be a room or other separately identifiable space. How to file your state taxes The space does not need to be marked off by a permanent partition. How to file your state taxes   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. How to file your state taxes Exceptions to exclusive use. How to file your state taxes   You do not have to meet the exclusive use test if either of the following applies. How to file your state taxes You use part of your home for the storage of inventory or product samples. How to file your state taxes You use part of your home as a daycare facility. How to file your state taxes For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). How to file your state taxes Principal place of business. How to file your state taxes   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. How to file your state taxes You use it exclusively and regularly for administrative or management activities of your trade or business. How to file your state taxes You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. How to file your state taxes   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. How to file your state taxes The relative importance of the activities performed at each location. How to file your state taxes If the relative importance factor does not determine your principal place of business, the time spent at each location. How to file your state taxes    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. How to file your state taxes However, for other ways to qualify to deduct home office expenses, see Publication 587. How to file your state taxes Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. How to file your state taxes If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. How to file your state taxes More information. How to file your state taxes   For more information about business use of your home, see Publication 587. How to file your state taxes Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. How to file your state taxes You generally can deduct either your actual expenses or the standard mileage rate. How to file your state taxes Actual expenses. How to file your state taxes   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. How to file your state taxes You can divide your expenses based on the miles driven for each purpose. How to file your state taxes Example. How to file your state taxes You are the sole proprietor of a flower shop. How to file your state taxes You drove your van 20,000 miles during the year. How to file your state taxes 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. How to file your state taxes You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. How to file your state taxes Standard mileage rate. How to file your state taxes   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. How to file your state taxes You can use the standard mileage rate for a vehicle you own or lease. How to file your state taxes The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. How to file your state taxes It is announced annually by the IRS. How to file your state taxes To figure your deduction, multiply your business miles by the standard mileage rate for the year. How to file your state taxes    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. How to file your state taxes However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. How to file your state taxes Choosing the standard mileage rate. How to file your state taxes   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. How to file your state taxes In later years, you can choose to use either the standard mileage rate or actual expenses. How to file your state taxes   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). How to file your state taxes Additional information. How to file your state taxes   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. How to file your state taxes Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. How to file your state taxes It also explains how long you must keep your records for federal tax purposes. How to file your state taxes A sample recordkeeping system is illustrated at the end of this part. How to file your state taxes Why Keep Records? Everyone in business must keep records. How to file your state taxes Good records will help you do the following. How to file your state taxes Monitor the progress of your business. How to file your state taxes   You need good records to monitor the progress of your business. How to file your state taxes Records can show whether your business is improving, which items are selling, or what changes you need to make. How to file your state taxes Good records can increase the likelihood of business success. How to file your state taxes Prepare your financial statements. How to file your state taxes   You need good records to prepare accurate financial statements. How to file your state taxes These include income (profit and loss) statements and balance sheets. How to file your state taxes These statements can help you in dealing with your bank or creditors and help you manage your business. How to file your state taxes An income statement shows the income and expenses of the business for a given period of time. How to file your state taxes A balance sheet shows the assets, liabilities, and your equity in the business on a given date. How to file your state taxes Identify source of receipts. How to file your state taxes   You will receive money or property from many sources. How to file your state taxes Your records can identify the source of your receipts. How to file your state taxes You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. How to file your state taxes Keep track of deductible expenses. How to file your state taxes   You may forget expenses when you prepare your tax return unless you record them when they occur. How to file your state taxes Prepare your tax returns. How to file your state taxes   You need good records to prepare your tax returns. How to file your state taxes These records must support the income, expenses, and credits you report. How to file your state taxes Generally, these are the same records you use to monitor your business and prepare your financial statements. How to file your state taxes Support items reported on tax returns. How to file your state taxes   You must keep your business records available at all times for inspection by the IRS. How to file your state taxes If the IRS examines any of your tax returns, you may be asked to explain the items reported. How to file your state taxes A complete set of records will speed up the examination. How to file your state taxes Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. How to file your state taxes You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. How to file your state taxes The business you are in affects the type of records you need to keep for federal tax purposes. How to file your state taxes You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. How to file your state taxes See Accounting Method, earlier. How to file your state taxes If you are in more than one business, you should keep a complete and separate set of records for each business. How to file your state taxes A corporation should keep minutes of board of directors' meetings. How to file your state taxes Your recordkeeping system should include a summary of your business transactions. How to file your state taxes This summary is ordinarily made in your books (for example, accounting journals and ledgers). How to file your state taxes Your books must show your gross income, as well as your deductions and credits. How to file your state taxes For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. How to file your state taxes In addition, you must keep supporting documents, explained later. How to file your state taxes Electronic records. How to file your state taxes   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. How to file your state taxes When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. How to file your state taxes An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. How to file your state taxes The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. How to file your state taxes All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. How to file your state taxes Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. How to file your state taxes   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. How to file your state taxes You still have the responsibility of retaining any other books and records that are required to be retained. How to file your state taxes   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. How to file your state taxes This test is not considered an examination and the results must be shared with you. How to file your state taxes If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. How to file your state taxes If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. How to file your state taxes For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. How to file your state taxes Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. How to file your state taxes Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. How to file your state taxes These documents contain information you need to record in your books. How to file your state taxes It is important to keep these documents because they support the entries in your books and on your tax return. How to file your state taxes Keep them in an orderly fashion and in a safe place. How to file your state taxes For instance, organize them by year and type of income or expense. How to file your state taxes Gross receipts. How to file your state taxes   Gross receipts are the income you receive from your business. How to file your state taxes You should keep supporting documents that show the amounts and sources of your gross receipts. How to file your state taxes Documents that show gross receipts include the following. How to file your state taxes Cash register tapes. How to file your state taxes Bank deposit slips. How to file your state taxes Receipt books. How to file your state taxes Invoices. How to file your state taxes Credit card charge slips. How to file your state taxes Forms 1099-MISC. How to file your state taxes Purchases. How to file your state taxes   Purchases are the items you buy and resell to customers. How to file your state taxes If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. How to file your state taxes Your supporting documents should show the amount paid and that the amount was for purchases. How to file your state taxes Documents for purchases include the following. How to file your state taxes Canceled checks. How to file your state taxes Cash register tape receipts. How to file your state taxes Credit card sales slips. How to file your state taxes Invoices. How to file your state taxes These records will help you determine the value of your inventory at the end of the year. How to file your state taxes See Publication 538 for information on methods for valuing inventory. How to file your state taxes Expenses. How to file your state taxes   Expenses are the costs you incur (other than purchases) to carry on your business. How to file your state taxes Your supporting documents should show the amount paid and that the amount was for a business expense. How to file your state taxes Documents for expenses include the following. How to file your state taxes Canceled checks. How to file your state taxes Cash register tapes. How to file your state taxes Account statements. How to file your state taxes Credit card sales slips. How to file your state taxes Invoices. How to file your state taxes Petty cash slips for small cash payments. How to file your state taxes    A petty cash fund allows you to make small payments without having to write checks for small amounts. How to file your state taxes Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. How to file your state taxes Travel, transportation, entertainment, and gift expenses. How to file your state taxes   Specific recordkeeping rules apply to these expenses. How to file your state taxes For more information, see Publication 463. How to file your state taxes Employment taxes. How to file your state taxes   There are specific employment tax records you must keep. How to file your state taxes For a list, see Publication 15. How to file your state taxes Assets. How to file your state taxes   Assets are the property, such as machinery and furniture you own and use in your business. How to file your state taxes You must keep records to verify certain information about your business assets. How to file your state taxes You need records to figure the annual depreciation and the gain or loss when you sell the assets. How to file your state taxes Your records should show the following information. How to file your state taxes When and how you acquired the asset. How to file your state taxes Purchase price. How to file your state taxes Cost of any improvements. How to file your state taxes Section 179 deduction taken. How to file your state taxes Deductions taken for depreciation. How to file your state taxes Deductions taken for casualty losses, such as losses resulting from fires or storms. How to file your state taxes How you used the asset. How to file your state taxes When and how you disposed of the asset. How to file your state taxes Selling price. How to file your state taxes Expenses of sale. How to file your state taxes   The following documents may show this information. How to file your state taxes Purchase and sales invoices. How to file your state taxes Real estate closing statements. How to file your state taxes Canceled checks. How to file your state taxes What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. How to file your state taxes These include account statements prepared for the financial institution by a third party. How to file your state taxes These account statements must be highly legible. How to file your state taxes The following table lists acceptable account statements. How to file your state taxes  IF payment is by. How to file your state taxes . How to file your state taxes . How to file your state taxes THEN the statement must show the. How to file your state taxes . How to file your state taxes . How to file your state taxes Check Check number. How to file your state taxes Amount. How to file your state taxes Payee's name. How to file your state taxes Date the check amount was posted to the account by the financial institution. How to file your state taxes Electronic funds transfer Amount transferred. How to file your state taxes Payee's name. How to file your state taxes Date the transfer was posted to the account by the financial institution. How to file your state taxes Credit card Amount charged. How to file your state taxes Payee's name. How to file your state taxes Transaction date. How to file your state taxes    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. How to file your state taxes You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. How to file your state taxes Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. How to file your state taxes (Your business transactions are shown on the supporting documents just discussed. How to file your state taxes ) Business transactions are ordinarily summarized in books called journals and ledgers. How to file your state taxes You can buy them at your local stationery or office supply store. How to file your state taxes A journal is a book where you record each business transaction shown on your supporting documents. How to file your state taxes You may have to keep separate journals for transactions that occur frequently. How to file your state taxes A ledger is a book that contains the totals from all of your journals. How to file your state taxes It is organized into different accounts. How to file your state taxes Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. How to file your state taxes For example, a recordkeeping system for a small business might include the following items. How to file your state taxes Business checkbook. How to file your state taxes Daily summary of cash receipts. How to file your state taxes Monthly summary of cash receipts. How to file your state taxes Check disbursements journal. How to file your state taxes Depreciation worksheet. How to file your state taxes Employee compensation record. How to file your state taxes The business checkbook is explained next. How to file your state taxes The other items are illustrated later under Sample Record System. How to file your state taxes The system you use to record business transactions will be more effective if you follow good recordkeeping practices. How to file your state taxes For example, record expenses when they occur, and identify the source of recorded receipts. How to file your state taxes Generally, it is best to record transactions on a daily basis. How to file your state taxes Business checkbook. How to file your state taxes   One of the first things you should do when you start a business is open a business checking account. How to file your state taxes You should keep your business account separate from your personal checking account. How to file your state taxes   The business checkbook is your basic source of information for recording your business expenses. How to file your state taxes You should deposit all daily receipts in your business checking account. How to file your state taxes You should check your account for errors by reconciling it. How to file your state taxes See Reconciling the checking account, later. How to file your state taxes   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. How to file your state taxes You should also note on the deposit slip the source of the deposit and keep copies of all slips. How to file your state taxes   You should make all payments by check to document business expenses. How to file your state taxes Write checks payable to yourself only when making withdrawals from your business for personal use. How to file your state taxes Avoid writing checks payable to cash. How to file your state taxes If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. How to file your state taxes If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. How to file your state taxes    Use the business account for business purposes only. How to file your state taxes Indicate the source of deposits and the type of expense in the checkbook. How to file your state taxes Reconciling the checking account. How to file your state taxes   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. How to file your state taxes The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. How to file your state taxes   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. How to file your state taxes    You should reconcile your checking account each month. How to file your state taxes     Before you reconcile your monthly bank statement, check your own figures. How to file your state taxes Begin with the balance shown in your checkbook at the end of the previous month. How to file your state taxes To this balance, add the total cash deposited during the month and subtract the total cash disbursements. How to file your state taxes   After checking your figures, the result should agree with your checkbook balance at the end of the month. How to file your state taxes If the result does not agree, you may have made an error in recording a check or deposit. How to file your state taxes You can find the error by doing the following. How to file your state taxes Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. How to file your state taxes If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. How to file your state taxes Adding the deposit amounts in your checkbook. How to file your state taxes Compare that total with the monthly total in your cash receipt book, if you have one. How to file your state taxes If the totals do not agree, check the individual amounts to find any errors. How to file your state taxes   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. How to file your state taxes   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. How to file your state taxes Many banks print a reconciliation worksheet on the back of the statement. How to file your state taxes   To reconcile your account, follow these steps. How to file your state taxes Compare the deposits listed on the bank statement with the deposits shown in your checkbook. How to file your state taxes Note all differences in the dollar amounts. How to file your state taxes Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. How to file your state taxes Note all differences in the dollar amounts. How to file your state taxes Mark the check number in the checkbook as having cleared the bank. How to file your state taxes After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. How to file your state taxes Prepare a bank reconciliation. How to file your state taxes One is illustrated later under Sample Record System. How to file your state taxes Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. How to file your state taxes At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. How to file your state taxes If you still have differences, check the previous steps to find the errors. How to file your state taxes   Table 3. How to file your state taxes Period of Limitations IF you. How to file your state taxes . How to file your state taxes . How to file your state taxes   THEN the period is. How to file your state taxes . How to file your state taxes . How to file your state taxes 1. How to file your state taxes Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. How to file your state taxes Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. How to file your state taxes File a fraudulent return   Not limited 4. How to file your state taxes Do not file a return   Not limited 5. How to file your state taxes File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. How to file your state taxes File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. How to file your state taxes The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. How to file your state taxes You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. How to file your state taxes Single-entry. How to file your state taxes   A single-entry system is based on the income statement (profit or loss statement). How to file your state taxes It can be a simple and practical system if you are starting a small business. How to file your state taxes The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. How to file your state taxes Double-entry. How to file your state taxes   A double-entry bookkeeping system uses journals and ledgers. How to file your state taxes Transactions are first entered in a journal and then posted to ledger accounts. How to file your state taxes These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). How to file your state taxes You close income and expense accounts at the end of each tax year. How to file your state taxes You keep asset, liability, and net worth accounts open on a permanent basis. How to file your state taxes   In the double-entry system, each account has a left side for debits and a right side for credits. How to file your state taxes It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. How to file your state taxes   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. How to file your state taxes If the amounts do not balance, you have made an error and you must find and correct it. How to file your state taxes   An example of a journal entry exhibiting a payment of rent in October is shown next. How to file your state taxes General Journal Date Description of Entry Debit  Credit Oct. How to file your state taxes 5 Rent expense 780. How to file your state taxes 00     Cash   780. How to file your state taxes 00                 Computerized System There are computer software packages you can use for recordkeeping. How to file your state taxes They can be purchased in many retail stores. How to file your state taxes These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. How to file your state taxes If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. How to file your state taxes To meet this qualification, the machine-sensible records must reconcile with your books and return. How to file your state taxes These records must provide enough detail to identify the underlying source documents. How to file your state taxes You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. How to file your state taxes This documentation must be sufficiently detailed to show all of the following items. How to file your state taxes Functions being performed as the data flows through the system. How to file your state taxes Controls used to ensure accurate and reliable processing. How to file your state taxes Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. How to file your state taxes Charts of accounts and detailed account descriptions. How to file your state taxes See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. How to file your state taxes How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. How to file your state taxes Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. How to file your state taxes The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. How to file your state taxes Table 3 contains the periods of limitations that apply to income tax returns. How to file your state taxes Unless otherwise stated, the years refer to the period after the return was filed. How to file your state taxes Returns filed before the due date are treated as filed on the due date. How to file your state taxes Keep copies of your filed tax returns. How to file your state taxes They help in preparing future tax returns and making computations if you file an amended return. How to file your state taxes Employment taxes. How to file your state taxes   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. How to file your state taxes For more information about recordkeeping for employment taxes, see Publication 15. How to file your state taxes Assets. How to file your state taxes   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. How to file your state taxes You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. How to file your state taxes   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. How to file your state taxes You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. How to file your state taxes Records for nontax purposes. How to file your state taxes   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. How to file your state taxes For example, your insurance company or creditors may require you to keep them longer than the IRS does. How to file your state taxes Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. How to file your state taxes Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. How to file your state taxes These sample records should not be viewed as a recommendation of how to keep your records. How to file your state taxes They are intended only to show how one business keeps its records. How to file your state taxes 1. How to file your state taxes Daily Summary of Cash Receipts This summary is a record of cash sales for the day. How to file your state taxes It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. How to file your state taxes Henry takes the cash sales entry from his cash register tape. How to file your state taxes If he had no cash register, he would simply total his cash sale slips and any other cash received that day. How to file your state taxes He carries the total receipts shown in this summary for January 3 ($267. How to file your state taxes 80), including cash sales ($263. How to file your state taxes 60) and sales tax ($4. How to file your state taxes 20), to the Monthly Summary of Cash Receipts. How to file your state taxes Petty cash fund. How to file your state taxes   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. How to file your state taxes Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. How to file your state taxes He sets up a fixed amount ($50) in his petty cash fund. How to file your state taxes The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. How to file your state taxes When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. How to file your state taxes (See the Check Disbursements Journal entry for check number 92. How to file your state taxes ) This restores the fund to its fixed amount of $50. How to file your state taxes He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. How to file your state taxes 2. How to file your state taxes Monthly Summary of Cash Receipts This shows the income activity for the month. How to file your state taxes Henry carries the total monthly net sales shown in this summary for January ($4,865. How to file your state taxes 05) to his Annual Summary. How to file your state taxes To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. How to file your state taxes He cannot take a deduction for sales tax turned over to the state because he only collected the tax. How to file your state taxes He does not include the tax in his income. How to file your state taxes 3. How to file your state taxes Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. How to file your state taxes All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. How to file your state taxes Frequent expenses have their own headings across the sheet. How to file your state taxes He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. How to file your state taxes Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. How to file your state taxes Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. How to file your state taxes If he did, he would record them in the journal, even though he could not deduct them as business expenses. How to file your state taxes Henry carries the January total of expenses for materials ($1,083. How to file your state taxes 50) to the Annual Summary. How to file your state taxes Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. How to file your state taxes , in the appropriate columns of that summary. How to file your state taxes 4. How to file your state taxes Employee Compensation Record This record shows the following information. How to file your state taxes The number of hours Henry's employee worked in a pay period. How to file your state taxes The employee's total pay for the period. How to file your state taxes The deductions Henry withheld in figuring the employee's net pay. How to file your state taxes The monthly gross payroll. How to file your state taxes Henry carries the January gross payroll ($520) to the Annual Summary. How to file your state taxes 5. How to file your state taxes Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. How to file your state taxes He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. How to file your state taxes He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. How to file your state taxes As in the journal, he keeps each major expense in a separate column. How to file your state taxes Henry carries the cash receipts total shown in the annual summary ($47,440. How to file your state taxes 9