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Tax Rates And Tables

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Tax Rates And Tables

Tax rates and tables Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. Tax rates and tables After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. Tax rates and tables Examination selection criteria. Tax rates and tables   Your return may be selected for examination on the basis of computer scoring. Tax rates and tables A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. Tax rates and tables If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. Tax rates and tables   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. Tax rates and tables Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. Tax rates and tables   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. Tax rates and tables This information can come from a number of sources, including newspapers, public records, and individuals. Tax rates and tables The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. Tax rates and tables Notice of IRS contact of third parties. Tax rates and tables    The IRS must give you reasonable notice before contacting other persons about your tax matters. Tax rates and tables You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. Tax rates and tables The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. Tax rates and tables    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. Tax rates and tables Taxpayer Advocate Service. Tax rates and tables   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. Tax rates and tables If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. Tax rates and tables    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. Tax rates and tables Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. Tax rates and tables   For more information, see Publication 1546. Tax rates and tables See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. Tax rates and tables Comments from small business. Tax rates and tables    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. Tax rates and tables The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. Tax rates and tables If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. Tax rates and tables Fax your comments to 1-202-481-5719. Tax rates and tables Write to the following address: Office of the National Ombudsman U. Tax rates and tables S. Tax rates and tables Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. Tax rates and tables Send an email to ombudsman@sba. Tax rates and tables gov. Tax rates and tables File a comment or complaint online at www. Tax rates and tables sba. Tax rates and tables gov/ombudsman. Tax rates and tables If Your Return Is Examined Some examinations are handled entirely by mail. Tax rates and tables Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. Tax rates and tables If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. Tax rates and tables However, the IRS makes the final determination of when, where, and how the examination will take place. Tax rates and tables Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. Tax rates and tables If you filed a joint return, either you or your spouse, or both, can meet with the IRS. Tax rates and tables The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. Tax rates and tables If you want someone to represent you in your absence, you must furnish that person with proper written authorization. Tax rates and tables You can use Form 2848 or any other properly written authorization. Tax rates and tables If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. Tax rates and tables In most cases, the IRS must suspend the interview and reschedule it. Tax rates and tables The IRS cannot suspend the interview if you are there because of an administrative summons. Tax rates and tables Third party authorization. Tax rates and tables   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. Tax rates and tables The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. Tax rates and tables For more information, see the instructions for your return. Tax rates and tables Confidentiality privilege. Tax rates and tables   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Tax rates and tables   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. Tax rates and tables   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. Tax rates and tables   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. Tax rates and tables Recordings. Tax rates and tables    You can make an audio recording of the examination interview. Tax rates and tables Your request to record the interview should be made in writing. Tax rates and tables You must notify the examiner 10 days in advance and bring your own recording equipment. Tax rates and tables The IRS also can record an interview. Tax rates and tables If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. Tax rates and tables Transfers to another area. Tax rates and tables    Generally, your return is examined in the area where you live. Tax rates and tables But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. Tax rates and tables Repeat examinations. Tax rates and tables    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. Tax rates and tables If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. Tax rates and tables The Examination An examination usually begins when you are notified that your return has been selected. Tax rates and tables The IRS will tell you which records you will need. Tax rates and tables The examination can proceed more easily if you gather your records before any interview. Tax rates and tables Any proposed changes to your return will be explained to you or your authorized representative. Tax rates and tables It is important that you understand the reasons for any proposed changes. Tax rates and tables You should not hesitate to ask about anything that is unclear to you. Tax rates and tables The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. Tax rates and tables The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. Tax rates and tables However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. Tax rates and tables Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. Tax rates and tables If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. Tax rates and tables A more complete discussion of appeal rights is found later under Appeal Rights . Tax rates and tables If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. Tax rates and tables You must pay interest on any additional tax. Tax rates and tables If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. Tax rates and tables If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. Tax rates and tables If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. Tax rates and tables This period is extended to 21 calendar days if the amount due is less than $100,000. Tax rates and tables If you are due a refund, you will receive it sooner if you sign the agreement form. Tax rates and tables You will be paid interest on the refund. Tax rates and tables If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. Tax rates and tables You should keep this letter with your tax records. Tax rates and tables If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. Tax rates and tables If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. Tax rates and tables If an agreement is reached, your case will be closed. Tax rates and tables If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. Tax rates and tables The examiner will forward your case for processing. Tax rates and tables Fast track mediation. Tax rates and tables   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. Tax rates and tables   Most cases that are not docketed in any court qualify for fast track mediation. Tax rates and tables Mediation can take place at a conference you request with a supervisor, or later. Tax rates and tables The process involves an Appeals Officer who has been trained in mediation. Tax rates and tables You may represent yourself at the mediation session, or someone else can act as your representative. Tax rates and tables For more information, see Publication 3605. Tax rates and tables 30-day letter and 90-day letter. Tax rates and tables   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. Tax rates and tables You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. Tax rates and tables The letter will explain what steps you should take, depending on which action you choose. Tax rates and tables Be sure to follow the instructions carefully. Tax rates and tables Appeal Rights are explained later. Tax rates and tables 90-day letter. Tax rates and tables   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. Tax rates and tables You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. Tax rates and tables Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . Tax rates and tables The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Tax rates and tables Suspension of interest and penalties. Tax rates and tables   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. Tax rates and tables However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. Tax rates and tables If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. Tax rates and tables   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. Tax rates and tables Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. Tax rates and tables    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. Tax rates and tables Seeking relief from improperly assessed interest. Tax rates and tables   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. Tax rates and tables   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. Tax rates and tables The IRS will review the Form 843 and notify you whether interest will be abated. Tax rates and tables If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. Tax rates and tables If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. Tax rates and tables   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. Tax rates and tables If the IRS denies your claim, the Tax Court may be able to review that determination. Tax rates and tables See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . Tax rates and tables If you later agree. Tax rates and tables    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. Tax rates and tables Keep a copy for your records. Tax rates and tables You can pay any additional amount you owe without waiting for a bill. Tax rates and tables Include interest on the additional tax at the applicable rate. Tax rates and tables This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. Tax rates and tables The examiner can tell you the interest rate(s) or help you figure the amount. Tax rates and tables   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. Tax rates and tables Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. Tax rates and tables   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. Tax rates and tables This period is extended to 21 calendar days if the amount due is less than $100,000. Tax rates and tables How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. Tax rates and tables Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. Tax rates and tables You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. Tax rates and tables Both a deposit and a payment stop any further accrual of interest. Tax rates and tables However, making a deposit or payment will stop the accrual of interest on only the amount you sent. Tax rates and tables Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. Tax rates and tables To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. Tax rates and tables Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. Tax rates and tables However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. Tax rates and tables Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. Tax rates and tables The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. Tax rates and tables The IRS determines that the deposit should be applied against another tax liability. Tax rates and tables Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). Tax rates and tables The deposit returned will be treated as a tax payment to the extent of the disputed tax. Tax rates and tables A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. Tax rates and tables Notice not mailed. Tax rates and tables    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. Tax rates and tables You must make your request in writing. Tax rates and tables   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. Tax rates and tables Keep copies of all correspondence you send to the IRS. Tax rates and tables   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. Tax rates and tables If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. Tax rates and tables See Tax Court , later under Appeal Rights . Tax rates and tables Notice mailed. Tax rates and tables    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. Tax rates and tables You will still be able to petition the Tax Court. Tax rates and tables   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. Tax rates and tables Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. Tax rates and tables The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. Tax rates and tables If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. Tax rates and tables Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. Tax rates and tables You will still have the right to take your case to the Tax Court. Tax rates and tables Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. Tax rates and tables To be valid, your request must be approved by the IRS. Tax rates and tables However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. Tax rates and tables Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. Tax rates and tables You will continue to be charged interest and penalties on the amount you owe until it is paid in full. Tax rates and tables Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). Tax rates and tables If your income is below a certain level, you may qualify to pay a reduced fee of $43. Tax rates and tables For more information about installment agreements, see Form 9465, Installment Agreement Request. Tax rates and tables Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). Tax rates and tables As a result, the net rate is zero for that period. Tax rates and tables Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). Tax rates and tables Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. Tax rates and tables The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. Tax rates and tables Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. Tax rates and tables An audit notification letter is such a contact. Tax rates and tables The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. Tax rates and tables Ministerial act. Tax rates and tables    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. Tax rates and tables A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. Tax rates and tables Example 1. Tax rates and tables You move from one state to another before the IRS selects your tax return for examination. Tax rates and tables A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. Tax rates and tables When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. Tax rates and tables The examination group manager approves your request. Tax rates and tables After your request has been approved, the transfer is a ministerial act. Tax rates and tables The IRS can reduce the interest because of any unreasonable delay in transferring the case. Tax rates and tables Example 2. Tax rates and tables An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. Tax rates and tables After you and the IRS discuss the issues, the notice is prepared and reviewed. Tax rates and tables After the review process, issuing the notice of deficiency is a ministerial act. Tax rates and tables If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. Tax rates and tables Managerial act. Tax rates and tables    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. Tax rates and tables A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Tax rates and tables Example. Tax rates and tables A revenue agent is examining your tax return. Tax rates and tables During the middle of the examination, the agent is sent to an extended training course. Tax rates and tables The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. Tax rates and tables Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. Tax rates and tables How to request abatement of interest. Tax rates and tables    You request an abatement (reduction) of interest on Form 843. Tax rates and tables You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. Tax rates and tables   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. Tax rates and tables If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. Tax rates and tables   Generally, you should file a separate Form 843 for each tax period and each type of tax. Tax rates and tables However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). Tax rates and tables   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. Tax rates and tables Tax Court can review failure to abate interest. Tax rates and tables    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. Tax rates and tables The IRS has mailed you a notice of final determination or a notice of disallowance. Tax rates and tables You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. Tax rates and tables   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. Tax rates and tables For this purpose, individuals filing a joint return shall be treated as separate individuals. Tax rates and tables For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. Tax rates and tables For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. Tax rates and tables Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. Tax rates and tables The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. Tax rates and tables The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. Tax rates and tables If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. Tax rates and tables To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. Tax rates and tables Notify you when the adjustments are made. Tax rates and tables Refund any interest paid by you where appropriate. Tax rates and tables For more information on disaster area losses, see Disaster Area Losses in Publication 547. Tax rates and tables For more information on other tax relief for victims of terrorist attacks, see Publication 3920. Tax rates and tables Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. Tax rates and tables If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. Tax rates and tables The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). Tax rates and tables There is doubt as to whether you can pay the amount you owe based on your financial situation. Tax rates and tables An economic hardship would result if you had to pay the full amount owed. Tax rates and tables Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. Tax rates and tables If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. Tax rates and tables The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. Tax rates and tables For more information, see Publication 3605. Tax rates and tables Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. Tax rates and tables The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. Tax rates and tables The 30 days immediately after the offer is rejected. Tax rates and tables While your timely-filed appeal is being considered by Appeals. Tax rates and tables Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. Tax rates and tables For more information about submitting an offer in compromise, see Form 656. Tax rates and tables Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. Tax rates and tables Most differences can be settled within this system without expensive and time-consuming court trials. Tax rates and tables However, your reasons for disagreeing must come within the scope of the tax laws. Tax rates and tables For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. Tax rates and tables In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. Tax rates and tables See Appeals to the Courts , later, for more information. Tax rates and tables Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. Tax rates and tables The Appeals Office is the only level of appeal within the IRS. Tax rates and tables Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. Tax rates and tables If you want an appeals conference, follow the instructions in the letter you received. Tax rates and tables Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. Tax rates and tables You or your representative should be prepared to discuss all disputed issues at the conference. Tax rates and tables Most differences are settled at this level. Tax rates and tables If agreement is not reached at your appeals conference, you may be eligible to take your case to court. Tax rates and tables See Appeals to the Courts , later. Tax rates and tables Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. Tax rates and tables Also, see the special appeal request procedures in Publication 1660. Tax rates and tables Written protest. Tax rates and tables   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. Tax rates and tables All partnership and S corporation cases without regard to the dollar amount at issue. Tax rates and tables All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. Tax rates and tables   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. Tax rates and tables The IRS urges you to provide as much information as you can, as it will help speed up your appeal. Tax rates and tables That will save you both time and money. Tax rates and tables    Be sure to send the protest within the time limit specified in the letter you received. Tax rates and tables Small case request. Tax rates and tables   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. Tax rates and tables In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. Tax rates and tables If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. Tax rates and tables For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. Tax rates and tables Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. Tax rates and tables If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. Tax rates and tables You can use a Form 2848 or any other properly written power of attorney or authorization. Tax rates and tables You can also bring witnesses to support your position. Tax rates and tables Confidentiality privilege. Tax rates and tables   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. Tax rates and tables See Confidentiality privilege under If Your Return Is Examined , earlier. Tax rates and tables Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. Tax rates and tables These courts are independent of the IRS. Tax rates and tables If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. Tax rates and tables However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. Tax rates and tables If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. Tax rates and tables See Appeal Within the IRS, earlier. Tax rates and tables Prohibition on requests to taxpayers to give up rights to bring civil action. Tax rates and tables   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. Tax rates and tables However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. Tax rates and tables Burden of proof. Tax rates and tables   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. Tax rates and tables You complied with all substantiation requirements of the Internal Revenue Code. Tax rates and tables You maintained all records required by the Internal Revenue Code. Tax rates and tables You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. Tax rates and tables You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. Tax rates and tables    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. Tax rates and tables Use of statistical information. Tax rates and tables   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. Tax rates and tables Penalties. Tax rates and tables   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. Tax rates and tables Recovering litigation or administrative costs. Tax rates and tables   These are the expenses that you pay to defend your position to the IRS or the courts. Tax rates and tables You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. Tax rates and tables You exhaust all administrative remedies within the IRS. Tax rates and tables Your net worth is below a certain limit (see Net worth requirements , later). Tax rates and tables You do not unreasonably delay the proceeding. Tax rates and tables You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. Tax rates and tables You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. Tax rates and tables ustaxcourt. Tax rates and tables gov  www. Tax rates and tables ustaxcourt. Tax rates and tables gov . Tax rates and tables   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. Tax rates and tables Note. Tax rates and tables If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. Tax rates and tables Prevailing party. Tax rates and tables   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. Tax rates and tables   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. Tax rates and tables The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. Tax rates and tables ), or Has lost in courts of appeal for other circuits on substantially similar issues. Tax rates and tables   The court will generally decide who is the prevailing party. Tax rates and tables Reasonable litigation costs. Tax rates and tables   These include the following costs: Reasonable court costs. Tax rates and tables The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. Tax rates and tables The reasonable costs of expert witnesses. Tax rates and tables Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Tax rates and tables See Attorney fees , later. Tax rates and tables Reasonable administrative costs. Tax rates and tables   These include the following costs: Any administrative fees or similar charges imposed by the IRS. Tax rates and tables The reasonable costs of studies, analyses, engineering reports, tests, or projects. Tax rates and tables The reasonable costs of expert witnesses. Tax rates and tables Attorney fees that generally may not exceed $125 per hour. Tax rates and tables See Attorney fees , later. Tax rates and tables Timing of costs. Tax rates and tables    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. Tax rates and tables Net worth requirements. Tax rates and tables   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. Tax rates and tables For this purpose, individuals filing a joint return are treated as separate individuals. Tax rates and tables For estates — your net worth does not exceed $2 million as of the date of the decedent's death. Tax rates and tables For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. Tax rates and tables For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. Tax rates and tables Qualified offer rule. Tax rates and tables    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. Tax rates and tables You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. Tax rates and tables Qualified offer. Tax rates and tables    This is a written offer made by you during the qualified offer period. Tax rates and tables It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. Tax rates and tables   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. Tax rates and tables Qualified offer period. Tax rates and tables    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. Tax rates and tables It ends 30 days before your case is first set for trial. Tax rates and tables Attorney fees. Tax rates and tables   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. Tax rates and tables However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. Tax rates and tables See IRS. Tax rates and tables gov for more information. Tax rates and tables    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. Tax rates and tables In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. Tax rates and tables   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. Tax rates and tables Jurisdiction for determination of employment status. Tax rates and tables    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. Tax rates and tables Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). Tax rates and tables   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. Tax rates and tables S. Tax rates and tables Tax Court for a determination of employment status. Tax rates and tables There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. Tax rates and tables   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. Tax rates and tables Section 530(a) of the Revenue Act of 1978. Tax rates and tables   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. Tax rates and tables It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. Tax rates and tables Tax Court review of request for relief from joint and several liability on a joint return. Tax rates and tables    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). Tax rates and tables You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. Tax rates and tables   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. Tax rates and tables See Publication 971 for more information. Tax rates and tables Note. Tax rates and tables Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. Tax rates and tables See Rev. Tax rates and tables Proc. Tax rates and tables 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. Tax rates and tables irs. Tax rates and tables gov/pub/irs-irbs/irb03-05. Tax rates and tables pdf. Tax rates and tables Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. Tax rates and tables For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. Tax rates and tables For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. Tax rates and tables For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. Tax rates and tables You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. Tax rates and tables You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). Tax rates and tables The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. Tax rates and tables Withdrawal of notice of deficiency. Tax rates and tables If you consent, the IRS can withdraw a notice of deficiency. Tax rates and tables A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. Tax rates and tables However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. Tax rates and tables See Revenue Procedure 98-54 for a more detailed explanation of the requirements. Tax rates and tables Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. Tax rates and tables The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. Tax rates and tables After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. Tax rates and tables Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. Tax rates and tables Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. Tax rates and tables If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. Tax rates and tables Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). Tax rates and tables Collection can proceed even if you think that the amount is excessive. Tax rates and tables Publication 594 explains IRS collection procedures. Tax rates and tables If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. Tax rates and tables You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. Tax rates and tables Small tax case procedure. Tax rates and tables   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. Tax rates and tables If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. Tax rates and tables You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. Tax rates and tables W. Tax rates and tables , Washington, DC 20217. Tax rates and tables More information can be found on the Tax Court's website at www. Tax rates and tables ustaxcourt. Tax rates and tables gov. Tax rates and tables Motion to request redetermination of interest. Tax rates and tables   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. Tax rates and tables You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. Tax rates and tables The assessment included interest. Tax rates and tables You have paid the entire amount of the deficiency plus the interest claimed by the IRS. Tax rates and tables The Tax Court has found that you made an overpayment. Tax rates and tables You must file the motion within one year after the decision of the Tax Court becomes final. Tax rates and tables District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. Tax rates and tables The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. Tax rates and tables Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. Tax rates and tables Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. Tax rates and tables As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. Tax rates and tables If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. Tax rates and tables If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. Tax rates and tables You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. Tax rates and tables However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. Tax rates and tables You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. Tax rates and tables However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. Tax rates and tables For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. Tax rates and tables Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. Tax rates and tables In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. Tax rates and tables The court can order these refunds before its decision on the case is final. Tax rates and tables Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. Tax rates and tables Note. Tax rates and tables The court may no longer order a refund of an overpayment after the case is final. Tax rates and tables Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. Tax rates and tables Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. Tax rates and tables You can claim a credit or refund by filing Form 1040X. Tax rates and tables See Time for Filing a Claim for Refund , later. Tax rates and tables File your claim by mailing it to the IRS Service Center where you filed your original return. Tax rates and tables File a separate form for each year or period involved. Tax rates and tables Include an explanation of each item of income, deduction, or credit on which you are basing your claim. Tax rates and tables Corporations should file Form 1120X, Amended U. Tax rates and tables S. Tax rates and tables Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. Tax rates and tables See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. Tax rates and tables Requesting a copy of your tax return. Tax rates and tables   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. Tax rates and tables This includes a copy of the Form W-2 or Form 1099 filed with your return. Tax rates and tables Use Form 4506 to make your request. Tax rates and tables You will be charged a fee, which you must pay when you submit Form 4506. Tax rates and tables Requesting a copy of your tax account information. Tax rates and tables   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. Tax rates and tables The tax return transcript contains most of the line items of a tax return. Tax rates and tables A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. Tax rates and tables A record of account is a combination of line item information and later adjustments to the account. Tax rates and tables Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. Tax rates and tables Penalty for erroneous claim for refund. Tax rates and tables   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. Tax rates and tables An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. Tax rates and tables The penalty may be waived if you can show that you had a reasonable basis for making the claim. Tax rates and tables Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. Tax rates and tables If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. Tax rates and tables If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. Tax rates and tables Returns you filed before the due date are considered filed on the due date. Tax rates and tables This is true even when the due date is a Saturday, Sunday, or legal holiday. Tax rates and tables Disaster area claims for refund. Tax rates and tables   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. Tax rates and tables This section discusses the special rules that apply to Presidentially declared disaster area refunds. Tax rates and tables    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. Tax rates and tables Postponed refund deadlines. Tax rates and tables   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. Tax rates and tables The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. Tax rates and tables The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. Tax rates and tables For more information, see Publication 547. Tax rates and tables   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. Tax rates and tables A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. Tax rates and tables fema. Tax rates and tables gov and at the IRS website at www. Tax rates and tables irs. Tax rates and tables gov. Tax rates and tables Nonfilers can get refund of overpayments paid within 3-year period. Tax rates and tables   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. Tax rates and tables This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. Tax rates and tables The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. Tax rates and tables For more information, see Publication 3920. Tax rates and tables Claim for refund by estates electing the installment method of payment. Tax rates and tables   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. Tax rates and tables S. Tax rates and tables District Court or the U. Tax rates and tables S. Tax rates and tables Court of Federal Claims before all the installment payments have been made. Tax rates and tables However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. Tax rates and tables All installment payments due on or before the date the suit is filed have been made. Tax rates and tables No accelerated installment payments have been made. Tax rates and tables No Tax Court case is pending with respect to any estate tax liability. Tax rates and tables If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. Tax rates and tables No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. Tax rates and tables The executor has not included any previously litigated issues in the current suit for refund. Tax rates and tables The executor does not discontinue making installment payments timely, while the court considers the suit for refund. Tax rates and tables    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. Tax rates and tables This includes any part of the disallowed amount previously collected by the IRS. Tax rates and tables Protective claim for refund. Tax rates and tables   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. Tax rates and tables A protective claim can be either a formal claim or an amended return for credit or refund. Tax rates and tables Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. Tax rates and tables A protective claim preserves your right to claim a refund when the contingency is resolved. Tax rates and tables A protective claim does not have to state a particular dollar amount or demand an immediate refund. Tax rates and tables However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. Tax rates and tables   Generally, the IRS will delay action on the protective claim until the contingency is resolved. Tax rates and tables Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. Tax rates and tables   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. Tax rates and tables Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. Tax rates and tables Special refunds. Tax rates and tables   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. Tax rates and tables These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. Tax rates and tables   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. Tax rates and tables For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. Tax rates and tables Periods of financial disability. Tax rates and tables   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. Tax rates and tables    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. Tax rates and tables   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. Tax rates and tables Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. Tax rates and tables    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. Tax rates and tables Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi
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Hopefully, since you did your research and asked smart questions of the sales staff, you have made a purchase that you are completely satisfied with. However, even careful buyers can run into unforeseen problems later on. To minimize them, follow these steps after you buy:

  • Make sure to get your receipt at the end of your purchase. Keep all contracts, sales receipts, canceled checks, owner's manuals and warranty documents.
  • Read and follow product and service instructions. The way you use or take care of a product will affect your warranty rights. 

If you encounter a problem with your purchase, you can write a complaint letter to the seller to explain your problem and how you would like them to resolve it. If the seller will not help you or respond to your complaint, you should then contact the manufacturer. Continue this process of reporting the problem in writing to industry trade organizations, local consumer protection agencies, and if necessary the Better Business Bureau, until your problem is resolved.

The Tax Rates And Tables

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