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Tax extension 5. Tax extension Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Tax extension Short-term lease. Tax extension Retail space. Tax extension Qualified long-term real property. Tax extension Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Tax extension If there is a connection between any income you receive and your business, the income is business income. Tax extension A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Tax extension You can have business income even if you are not involved in the activity on a regular full-time basis. Tax extension Income from work you do on the side in addition to your regular job can be business income. Tax extension You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Tax extension But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Tax extension For information on selling business assets, see chapter 3. Tax extension Nonemployee compensation. Tax extension Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Tax extension This includes amounts reported as nonemployee compensation in box 7 of the form. Tax extension You can find more information in the instructions on the back of the Form 1099-MISC you received. Tax extension Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Tax extension In most cases, your business income will be in the form of cash, checks, and credit card charges. Tax extension But business income can be in other forms, such as property or services. Tax extension These and other types of income are explained next. Tax extension If you are a U. Tax extension S. Tax extension citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Tax extension S. Tax extension law. Tax extension If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Tax extension For details, see Publication 54, Tax Guide for U. Tax extension S. Tax extension Citizens and Resident Aliens Abroad. Tax extension Bartering for Property or Services Bartering is an exchange of property or services. Tax extension You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Tax extension If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Tax extension Example 1. Tax extension You are a self-employed lawyer. Tax extension You perform legal services for a client, a small corporation. Tax extension In payment for your services, you receive shares of stock in the corporation. Tax extension You must include the fair market value of the shares in income. Tax extension Example 2. Tax extension You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Tax extension You must include the fair rental value of the apartment in your gross receipts. Tax extension Your landlord must include the fair market value of the work of art in his or her rental income. Tax extension Example 3. Tax extension You are a self-employed accountant. Tax extension Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Tax extension Members get in touch with other members directly and bargain for the value of the services to be performed. Tax extension In return for accounting services you provided for the house painter's business, the house painter painted your home. Tax extension You must include in gross receipts the fair market value of the services you received from the house painter. Tax extension The house painter must include the fair market value of your accounting services in his or her gross receipts. Tax extension Example 4. Tax extension You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Tax extension As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Tax extension You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Tax extension The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Tax extension It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Tax extension See Publication 15 (Circular E), Employer's Tax Guide. Tax extension Example 5. Tax extension You operate a plumbing business and use the cash method of accounting. Tax extension You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Tax extension Each member has access to a directory that lists the members of the club and the services available. Tax extension Members contact each other directly and request services to be performed. Tax extension You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Tax extension You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Tax extension Information returns. Tax extension If you are involved in a bartering transaction, you may have to file either of the following forms. Tax extension Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Tax extension Form 1099-MISC, Miscellaneous Income. Tax extension For information about these forms, see the General Instructions for Certain Information Returns. Tax extension Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Tax extension , who provides services (maid services, etc. Tax extension ) for guests, report the rental income and expenses on Schedule C or C-EZ. Tax extension If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Tax extension For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Tax extension Real estate dealer. Tax extension You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Tax extension Rent you receive from real estate held for sale to customers is subject to SE tax. Tax extension However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Tax extension Trailer park owner. Tax extension Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Tax extension You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Tax extension Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Tax extension Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Tax extension Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Tax extension Hotels, boarding houses, and apartments. Tax extension Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Tax extension Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Tax extension An example of a service that is not normally provided for the convenience of the occupants is maid service. Tax extension However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Tax extension Prepaid rent. Tax extension Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Tax extension This is true no matter what accounting method or period you use. Tax extension Lease bonus. Tax extension A bonus you receive from a lessee for granting a lease is an addition to the rent. Tax extension Include it in your gross receipts in the year received. Tax extension Lease cancellation payments. Tax extension Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Tax extension Payments to third parties. Tax extension If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Tax extension A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Tax extension Settlement payments. Tax extension Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Tax extension Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Tax extension ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Tax extension Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Tax extension If you receive any of those payments, include them in your gross receipts as explained in that discussion. Tax extension Interest and Dividend Income Interest and dividends may be considered business income. Tax extension Interest. Tax extension Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Tax extension Interest received on loans is business income if you are in the business of lending money. Tax extension Uncollectible loans. Tax extension If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Tax extension If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Tax extension See Bad Debts in chapter 8. Tax extension Unstated interest. Tax extension If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Tax extension See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Tax extension Dividends. Tax extension Generally, dividends are business income to dealers in securities. Tax extension For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Tax extension If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Tax extension If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Tax extension To find out how much you have to report, see Recovery of items previously deducted under Other Income, later. Tax extension Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Tax extension General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Tax extension Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Tax extension If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Tax extension Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Tax extension Price reduced after purchase. Tax extension If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Tax extension Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Tax extension Deductible debt. Tax extension You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Tax extension Example. Tax extension You get accounting services for your business on credit. Tax extension Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Tax extension Your accountant forgives part of the amount you owe for the accounting services. Tax extension How you treat the canceled debt depends on your method of accounting. Tax extension Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Tax extension Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Tax extension For information on the cash and accrual methods of accounting, see chapter 2. Tax extension Exclusions Do not include canceled debt in income in the following situations. Tax extension However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Tax extension For more information, see Form 982. Tax extension The cancellation takes place in a bankruptcy case under title 11 of the U. Tax extension S. Tax extension Code (relating to bankruptcy). Tax extension See Publication 908, Bankruptcy Tax Guide. Tax extension The cancellation takes place when you are insolvent. Tax extension You can exclude the canceled debt to the extent you are insolvent. Tax extension See Publication 908. Tax extension The canceled debt is a qualified farm debt owed to a qualified person. Tax extension See chapter 3 in Publication 225, Farmer's Tax Guide. Tax extension The canceled debt is a qualified real property business debt. Tax extension This situation is explained later. Tax extension The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Tax extension See Form 982. Tax extension If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Tax extension If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Tax extension Debt. Tax extension For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Tax extension Qualified real property business debt. Tax extension You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Tax extension If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Tax extension Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Tax extension However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Tax extension Cancellation of qualified real property business debt. Tax extension Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Tax extension It was incurred or assumed in connection with real property used in a trade or business. Tax extension It was secured by such real property. Tax extension It was incurred or assumed at either of the following times. Tax extension Before January 1, 1993. Tax extension After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Tax extension It is debt to which you choose to apply these rules. Tax extension Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Tax extension You cannot exclude more than either of the following amounts. Tax extension The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Tax extension The total adjusted bases of depreciable real property held by you immediately before the cancellation. Tax extension These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Tax extension Do not take into account depreciable real property acquired in contemplation of the cancellation. Tax extension Election. Tax extension To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Tax extension You must file your return by the due date (including extensions). Tax extension If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax extension For more information, see When To File in the form instructions. Tax extension Other Income The following discussion explains how to treat other types of business income you may receive. Tax extension Restricted property. Tax extension Restricted property is property that has certain restrictions that affect its value. Tax extension If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Tax extension However, you can choose to be taxed in the year you receive the property. Tax extension For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Tax extension Gains and losses. Tax extension Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Tax extension Instead, you must report these gains and losses on other forms. Tax extension For more information, see chapter 3. Tax extension Promissory notes. Tax extension Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Tax extension In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Tax extension Lost income payments. Tax extension If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Tax extension Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Tax extension Damages. Tax extension You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Tax extension Patent infringement. Tax extension Breach of contract or fiduciary duty. Tax extension Antitrust injury. Tax extension Economic injury. Tax extension You may be entitled to a deduction against the income if it compensates you for actual economic injury. Tax extension Your deduction is the smaller of the following amounts. Tax extension The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Tax extension Your loss from the injury that you have not yet deducted. Tax extension Punitive damages. Tax extension You must also include punitive damages in income. Tax extension Kickbacks. Tax extension If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Tax extension However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Tax extension Recovery of items previously deducted. Tax extension If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Tax extension However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Tax extension If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Tax extension Example. Tax extension Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Tax extension He also had 2 personal exemptions for a total of $7,800. Tax extension He would not pay income tax even if he did not deduct the bad debt. Tax extension Therefore, he will not report as income any part of the $300 he may recover in any future year. Tax extension Exception for depreciation. Tax extension This rule does not apply to depreciation. Tax extension You recover depreciation using the rules explained next. Tax extension Recapture of depreciation. Tax extension In the following situations, you have to recapture the depreciation deduction. Tax extension This means you include in income part or all of the depreciation you deducted in previous years. Tax extension Listed property. Tax extension If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Tax extension You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Tax extension Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Tax extension For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Tax extension That chapter explains how to determine whether property is used more than 50% in your business. Tax extension Section 179 property. Tax extension If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Tax extension You do this by including in income on Schedule C part of the deduction you took. Tax extension Use Part IV of Form 4797 to figure the amount to include on Schedule C. Tax extension See chapter 2 in Publication 946 to find out when you recapture the deduction. Tax extension Sale or exchange of depreciable property. Tax extension If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Tax extension You figure the income due to depreciation recapture in Part III of Form 4797. Tax extension For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Tax extension Items That Are Not Income In some cases the property or money you receive is not income. Tax extension Appreciation. Tax extension Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Tax extension Consignments. Tax extension Consignments of merchandise to others to sell for you are not sales. Tax extension The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Tax extension Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Tax extension Merchandise you have shipped out on consignment is included in your inventory until it is sold. Tax extension Do not include merchandise you receive on consignment in your inventory. Tax extension Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Tax extension Construction allowances. Tax extension If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Tax extension Under a short-term lease of retail space. Tax extension For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Tax extension Amount you can exclude. Tax extension You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Tax extension Short-term lease. Tax extension A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Tax extension The following rules apply in determining whether the lease is for 15 years or less. Tax extension Take into account options to renew when figuring whether the lease is for 15 years or less. Tax extension But do not take into account any option to renew at fair market value determined at the time of renewal. Tax extension Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Tax extension Retail space. Tax extension Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Tax extension Qualified long-term real property. Tax extension Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Tax extension Exchange of like-kind property. Tax extension If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Tax extension This means that the gain is not taxable and the loss is not deductible. Tax extension A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Tax extension For more information, see Form 8824. Tax extension Leasehold improvements. Tax extension If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Tax extension However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Tax extension Loans. Tax extension Money borrowed through a bona fide loan is not income. Tax extension Sales tax. Tax extension State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Tax extension Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Tax extension Direct seller. Tax extension You must report all income you receive as a direct seller on Schedule C or C-EZ. Tax extension This includes any of the following. Tax extension Income from sales—payments you receive from customers for products they buy from you. Tax extension Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Tax extension Prizes, awards, and gifts you receive from your selling business. Tax extension You must report this income regardless of whether it is reported to you on an information return. Tax extension You are a direct seller if you meet all the following conditions. Tax extension You are engaged in one of the following trades or businesses. Tax extension Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Tax extension Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Tax extension Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Tax extension Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Tax extension Executor or administrator. Tax extension If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Tax extension A nonprofessional fiduciary (personal representative) and both of the following apply. Tax extension The estate includes an active trade or business in which you actively participate. Tax extension Your fees are related to the operation of that trade or business. Tax extension A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Tax extension If the fees do not meet the above requirements, report them on line 21 of Form 1040. Tax extension Fishing crew member. Tax extension If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Tax extension Insurance agent, former. Tax extension Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Tax extension You received payments after your agreement to perform services for the company ended. Tax extension You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Tax extension You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Tax extension The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Tax extension The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Tax extension Insurance agent, retired. Tax extension Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Tax extension Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Tax extension However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Tax extension Newspaper carrier or distributor. Tax extension You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Tax extension You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Tax extension Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Tax extension You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax extension This rule applies whether or not you hire others to help you make deliveries. Tax extension It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Tax extension Newspaper or magazine vendor. Tax extension If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Tax extension You sell newspapers or magazines to ultimate consumers. Tax extension You sell them at a fixed price. Tax extension Your earnings are based on the difference between the sales price and your cost of goods sold. Tax extension This rule applies whether or not you are guaranteed a minimum amount of earnings. Tax extension It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Tax extension Notary public. Tax extension Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Tax extension These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Tax extension Public official. Tax extension Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Tax extension This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Tax extension Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Tax extension Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Tax extension Real estate agent or direct seller. Tax extension If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Tax extension Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Tax extension You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax extension Securities dealer. Tax extension If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Tax extension For more information, see sections 1256 and 1402(i). Tax extension Securities trader. Tax extension You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Tax extension As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Tax extension However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Tax extension For more information about securities traders, see Publication 550, Investment Income and Expenses. Tax extension Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Tax extension This section discusses some of the more common differences that may affect business transactions. Tax extension Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Tax extension If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Tax extension Dealers in real estate are not allowed to use inventories. Tax extension For more information on inventories, see chapter 2. Tax extension Income paid to a third party. Tax extension All income you earn is taxable to you. Tax extension You cannot avoid tax by having the income paid to a third party. Tax extension Example. Tax extension You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Tax extension The amount paid to your son is gross income to you. Tax extension Cash discounts. Tax extension These are amounts the seller permits you to deduct from the invoice price for prompt payment. Tax extension For income tax purposes, you can use either of the following two methods to account for cash discounts. Tax extension Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Tax extension Credit the cash discount to a discount income account. Tax extension You must use the chosen method every year for all your purchase discounts. Tax extension If you use the second method, the credit balance in the account at the end of your tax year is business income. Tax extension Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Tax extension When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Tax extension Trade discounts. Tax extension These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Tax extension Do not enter these discounts on your books of account. Tax extension Instead, use only the net amount as the cost of the merchandise purchased. Tax extension For more information, see Trade discounts in chapter 6. Tax extension Payment placed in escrow. Tax extension If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Tax extension However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Tax extension Sales returns and allowances. Tax extension Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Tax extension Advance payments. Tax extension Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Tax extension Insurance proceeds. Tax extension If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Tax extension You cannot deduct the reimbursed part of a casualty or theft loss. Tax extension For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. 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Governmental Plans Updates
Governmental Plans Update - April 24, 2013
Determination letters for governmental plans - issues not addressed
Favorable letters don’t address employer pick-up contributions or qualified governmental excess benefit arrangements
Governmental Plans Update - November 29, 2012
Governmental Plans Update - April 18, 2012
Guidance on Normal Retirement Age Rules for Governmental Plans
Notice 2012-29 announces guidance under consideration that would affect NRA rules and extend the effective date of the 2007 regulations.
Governmental Plans Update - April 16, 2012
Register Now for the May 3 Governmental Plan Town Hall Meeting
Reserve your space now for the May 3, 2012, governmental plan town hall meeting in Cleveland, Ohio. Take advantage of this opportunity to provide your feedback on draft proposed standards for defining the term "governmental plan" under IRC section 414(d).
Governmental Plans Update - February 24, 2012
Meetings on Possible Governmental Plan Guidance
Two town hall meetings and one phone forum to discuss proposed drafts of the general guidance on possible standards for determining if a retirement plan is a governmental plan under IRC section 414(d).
Governmental Plans Update - February 6, 2012
Governmental and Indian Tribal Government Plans – Public Hearings
July 9 and 10 hearings will address two Advance Notices of Proposed Rulemaking
Governmental Plans Update - November 7, 2011
Request for Comments - Governmental Plans
IRS and Treasury solicit comments on possible standards for determining if a plan is a governmental plan under IRC section 414(d).
Sign up to receive free e-mail updates about recent developments for governmental plans, defined in Internal Revenue Code section 414(d) as an IRC section 401(a) retirement plan established and maintained for its employees by the:
- the United States or its agency or instrumentality;
- a state or political subdivision, or their agency or instrumentality; or
- an Indian tribal government, its subdivision, or an agency or instrumentality of either, the participants of which plan(s) are employees of that entity substantially performing services essential to governmental functions, rather than commercial activities.
The Governmental Plans Updates, prepared jointly by the offices of Employee Plans, Federal, State, and Local Governments, and Indian Tribal Governments, are brief summaries with links to other materials available on IRS.gov about:
- EP, FSLG and ITG’s ongoing efforts to address the concerns of the governmental plans community and the unique issues that raise special challenges for governmental plans;
- and recent guidance for governmental plans
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Page Last Reviewed or Updated: 14-Mar-2014
The Tax Extension
Tax extension Publication 529 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Tax extension Tax questions. Tax extension Useful Items - You may want to see: What's New Standard mileage rate. Tax extension The 2013 rate for business use of a vehicle is 56½ cents per mile. Tax extension Reminders Future developments. Tax extension For the latest information about developments related to Publication 529, such as legislation enacted after it was published, go to www. Tax extension irs. Tax extension gov/pub529. Tax extension Photographs of missing children. Tax extension The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Tax extension Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Tax extension You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Tax extension Introduction This publication explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). Tax extension You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Tax extension This publication covers the following topics. Tax extension Deductions subject to the 2% limit. Tax extension Deductions not subject to the 2% limit. Tax extension Expenses you cannot deduct. Tax extension How to report your deductions. Tax extension Some of the deductions previously discussed in this publication are adjustments to income rather than miscellaneous deductions. Tax extension These include certain employee business expenses that must be listed on Form 2106 or Form 2106-EZ and some that are entered directly on Form 1040. Tax extension Those deductions, which are discussed in Publication 463, Travel, Entertainment, Gift, and Car Expenses, include employee business expenses of officials paid on a fee basis and performing artists. Tax extension Note. Tax extension Generally, nonresident aliens are allowed miscellaneous itemized deductions to the extent they are directly related to income which is effectively connected with the conduct of a trade or business within the United States. Tax extension You must keep records to verify your deductions. Tax extension You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Tax extension For more information on recordkeeping, see Publication 552, Recordkeeping for Individuals. Tax extension Comments and suggestions. Tax extension We welcome your comments about this publication and your suggestions for future editions. Tax extension You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Tax extension NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Tax extension Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tax extension You can send your comments from www. Tax extension irs. Tax extension gov/formspubs. Tax extension Click on “More Information” and then on “Comment on Tax Forms and Publications. Tax extension ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Tax extension Ordering forms and publications. Tax extension Visit www. Tax extension irs. Tax extension gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Tax extension Internal Revenue Service 1201 N. Tax extension Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Tax extension If you have a tax question, check the information available on IRS. Tax extension gov or call 1-800-829-1040. Tax extension We cannot answer tax questions sent to either of the above addresses. Tax extension Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Tax extension Prev Up Next Home More Online Publications