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1040nr Ez Software

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1040nr ez software Publication 575 - Introductory Material Table of Contents What's New Reminders IntroductionThe General Rule. 1040nr ez software Individual retirement arrangements (IRAs). 1040nr ez software Civil service retirement benefits. 1040nr ez software Social security and equivalent tier 1 railroad retirement benefits. 1040nr ez software Tax-sheltered annuity plans (403(b) plans). 1040nr ez software Ordering forms and publications. 1040nr ez software Tax questions. 1040nr ez software Useful Items - You may want to see: What's New For purposes of the net investment income tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). 1040nr ez software However, these distributions are taken into account when determining the modified adjusted gross income threshold. 1040nr ez software Distributions from a nonqualified retirement plan are included in net investment income. 1040nr ez software See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. 1040nr ez software Reminders Future developments. 1040nr ez software  For the latest information about developments related to Publication 575, such as legislation enacted after it was published, go to www. 1040nr ez software irs. 1040nr ez software gov/pub575. 1040nr ez software In-plan Roth rollovers. 1040nr ez software   Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. 1040nr ez software For more information, see In-plan Roth rollovers under Rollovers, discussed later. 1040nr ez software Photographs of missing children. 1040nr ez software  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 1040nr ez software Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040nr ez software You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040nr ez software Introduction This publication discusses the tax treatment of distributions you receive from pension and annuity plans and also shows you how to report the income on your federal income tax return. 1040nr ez software How these distributions are taxed depends on whether they are periodic payments (amounts received as an annuity) that are paid at regular intervals over several years or nonperiodic payments (amounts not received as an annuity). 1040nr ez software What is covered in this publication?   This publication contains information that you need to understand the following topics. 1040nr ez software How to figure the tax-free part of periodic payments under a pension or annuity plan, including using a simple worksheet for payments under a qualified plan. 1040nr ez software How to figure the tax-free part of nonperiodic payments from qualified and nonqualified plans, and how to use the optional methods to figure the tax on lump-sum distributions from pension, stock bonus, and profit-sharing plans. 1040nr ez software How to roll over certain distributions from a retirement plan into another retirement plan or IRA. 1040nr ez software How to report disability payments, and how beneficiaries and survivors of employees and retirees must report benefits paid to them. 1040nr ez software How to report railroad retirement benefits. 1040nr ez software When additional taxes on certain distributions may apply (including the tax on early distributions and the tax on excess accumulation). 1040nr ez software For additional information on how to report pension or annuity payments on your federal income tax return, be sure to review the instructions on the back of Copies B, C, and 2 of the Form 1099-R that you received and the instructions for Form 1040, lines 16a and 16b (Form 1040A, lines 12a and 12b or Form 1040NR, lines 17a and 17b). 1040nr ez software A “corrected” Form 1099-R replaces the corresponding original Form 1099-R if the original Form 1099-R contained an error. 1040nr ez software Make sure you use the amounts shown on the corrected Form 1099-R when reporting information on your tax return. 1040nr ez software What is not covered in this publication?   The following topics are not discussed in this publication. 1040nr ez software The General Rule. 1040nr ez software   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). 1040nr ez software For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. 1040nr ez software Although this publication will help you determine whether you can use the General Rule, it will not help you use it to determine the tax treatment of your pension or annuity income. 1040nr ez software For that and other information on the General Rule, see Publication 939, General Rule for Pensions and Annuities. 1040nr ez software Individual retirement arrangements (IRAs). 1040nr ez software   Information on the tax treatment of amounts you receive from an IRA is in Publication 590, Individual Retirement Arrangements (IRAs). 1040nr ez software Civil service retirement benefits. 1040nr ez software   If you are retired from the federal government (regular, phased, or disability retirement) or are the survivor or beneficiary of a federal employee or retiree who died, get Publication 721, Tax Guide to U. 1040nr ez software S. 1040nr ez software Civil Service Retirement Benefits. 1040nr ez software Publication 721 covers the tax treatment of federal retirement benefits, primarily those paid under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). 1040nr ez software It also covers benefits paid from the Thrift Savings Plan (TSP). 1040nr ez software Social security and equivalent tier 1 railroad retirement benefits. 1040nr ez software   For information about the tax treatment of these benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. 1040nr ez software However, this publication (575) covers the tax treatment of the non-social security equivalent benefit portion of tier 1 railroad retirement benefits, tier 2 benefits, vested dual benefits, and supplemental annuity benefits paid by the U. 1040nr ez software S. 1040nr ez software Railroad Retirement Board. 1040nr ez software Tax-sheltered annuity plans (403(b) plans). 1040nr ez software   If you work for a public school or certain tax-exempt organizations, you may be eligible to participate in a 403(b) retirement plan offered by your employer. 1040nr ez software Although this publication covers the treatment of benefits under 403(b) plans and discusses in-plan Roth rollovers from 403(b) plans to designated Roth accounts, it does not cover other tax provisions that apply to these plans. 1040nr ez software For that and other information on 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations. 1040nr ez software Comments and suggestions. 1040nr ez software   We welcome your comments about this publication and your suggestions for future editions. 1040nr ez software   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 1040nr ez software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 1040nr ez software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040nr ez software   You can send your comments from www. 1040nr ez software irs. 1040nr ez software gov/formspubs/. 1040nr ez software Click on “More Information” and then on “Comment on Tax Forms and Publications. 1040nr ez software ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040nr ez software Ordering forms and publications. 1040nr ez software   Visit www. 1040nr ez software irs. 1040nr ez software gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 1040nr ez software Internal Revenue Service 1201 N. 1040nr ez software Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 1040nr ez software   If you have a tax question, check the information available on IRS. 1040nr ez software gov or call 1-800-829-1040. 1040nr ez software We cannot answer tax questions sent to either of the above addresses. 1040nr ez software Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 571 Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. 1040nr ez software S. 1040nr ez software Civil Service Retirement Benefits 915 Social Security and Equivalent Railroad Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1040nr ez software 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. 1040nr ez software Prev  Up  Next   Home 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Tax Fraud Alerts
"If it sounds too good to be true, it probably is!" Seek expert advice before you subscribe to any scheme that offers instant wealth or exemption from your obligation as a United States Citizen to pay taxes. Buying into a tax evasion scheme can be very costly. To arrive at the 'Tax Fraud Alerts' page quickly, use the Keyword 'Fraud' from www.irs.gov

Criminal Investigation (CI) At-a-Glance
Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

What Criminal Investigation Does
Some people bend the tax law -- others break it. Criminal Investigation's job is to pursue the lawbreakers.

Criminal Investigation Statistical Data
Enforcement statistics show trends in areas of fraud. This data assists Criminal Investigation in determining where to focus our resources.

IRS Criminal Investigation Press Releases - Calendar Year 2014
Here you will find links to IRS Criminal Investigation press releases issued by the IRS Special Agents in Charge

How to Make an Offshore Voluntary Disclosure
Taxpayers wanting to report undisclosed income or assets should come in through the IRS Voluntary Disclosure Program.

Criminal Investigation Special Agent Careers
A Career In Action! As an IRS Criminal Investigation (CI) Special Agent, you will pull together your accounting and law enforcement skills. CI special agents are duly sworn law enforcement officers who investigate complex financial crimes associated with tax evasion, money laundering, narcotics, public corruption, and much more. Are You Ready For The Challenge?

Information for Retired IRS Criminal Investigation Special Agents
Information for retired IRS Criminal Investigation special agents to apply to "Retired Law Special Agent" credentials under the Law Enforcement Officers Safety Act of 2004.

Page Last Reviewed or Updated: 28-Mar-2014

The 1040nr Ez Software

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