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2011 Tax Calculator

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2011 Tax Calculator

2011 tax calculator Publication 596 - Introductory Material Table of Contents Future Developments What is the EIC? Can I Claim the EIC? Do I Need This Publication? Do I Have To Have A Child To Qualify For The EIC? How Do I Figure the Amount of EIC? How Can I Quickly Locate Specific information? Is There Help Online? What's New for 2013 Reminders Future Developments For the latest information about developments related to Publication 596, such as legislation enacted after it was published, go to www. 2011 tax calculator irs. 2011 tax calculator gov/pub596. 2011 tax calculator What is the EIC? The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $51,567. 2011 tax calculator A tax credit usually means more money in your pocket. 2011 tax calculator It reduces the amount of tax you owe. 2011 tax calculator The EIC may also give you a refund. 2011 tax calculator Can I Claim the EIC? To claim the EIC, you must meet certain rules. 2011 tax calculator These rules are summarized in Table 1. 2011 tax calculator Table 1. 2011 tax calculator Earned Income Credit in a Nutshell First, you must meet all the rules in this column. 2011 tax calculator Second, you must meet all the rules in one of these columns, whichever applies. 2011 tax calculator Third, you must meet the rule in this column. 2011 tax calculator Chapter 1. 2011 tax calculator  Rules for Everyone Chapter 2. 2011 tax calculator  Rules If You Have a Qualifying Child Chapter 3. 2011 tax calculator  Rules If You Do Not Have a Qualifying Child Chapter 4. 2011 tax calculator  Figuring and Claiming the EIC 1. 2011 tax calculator Your adjusted gross income (AGI) must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 tax calculator 2. 2011 tax calculator You must have a valid social security number. 2011 tax calculator   3. 2011 tax calculator Your filing status cannot be Married filing separately. 2011 tax calculator   4. 2011 tax calculator You must be a U. 2011 tax calculator S. 2011 tax calculator citizen or resident alien all year. 2011 tax calculator   5. 2011 tax calculator You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). 2011 tax calculator   6. 2011 tax calculator Your investment income must be $3,300 or less. 2011 tax calculator    7. 2011 tax calculator You must have earned income. 2011 tax calculator 8. 2011 tax calculator Your child must meet the relationship, age, residency, and joint return tests. 2011 tax calculator   9. 2011 tax calculator Your qualifying child cannot be used by more than one person to claim the EIC. 2011 tax calculator   10. 2011 tax calculator You cannot be a qualifying child of another person. 2011 tax calculator 11. 2011 tax calculator You must be at least age 25 but under age 65. 2011 tax calculator    12. 2011 tax calculator You cannot be the dependent of another person. 2011 tax calculator   13. 2011 tax calculator You cannot be a qualifying child of another person. 2011 tax calculator   14. 2011 tax calculator You must have lived in the United States more than half of the year. 2011 tax calculator 15. 2011 tax calculator Your earned income must be less than:  • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or  • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. 2011 tax calculator Do I Need This Publication? Certain people who file Form 1040 must use Worksheet 1 in this publication, instead of Step 2 in their Form 1040 instructions, when they are checking whether they can take the EIC. 2011 tax calculator You are one of those people if any of the following statements are true for 2013. 2011 tax calculator You are filing Schedule E (Form 1040). 2011 tax calculator You are reporting income from the rental of personal property not used in a trade or business. 2011 tax calculator You are reporting income on Form 1040, line 21, from Form 8814 (relating to election to report child's interest and dividends). 2011 tax calculator You are reporting an amount on Form 1040, line 13, that includes an amount from Form 4797. 2011 tax calculator If none of the statements above apply to you, your tax form instructions have all the information you need to find out if you can claim the EIC and to figure the amount of your EIC. 2011 tax calculator You do not need this publication. 2011 tax calculator But you can read it to find out whether you can take the EIC and to learn more about the EIC. 2011 tax calculator Do I Have To Have A Child To Qualify For The EIC? No, you can qualify for the EIC without a qualifying child if you are at least age 25 but under age 65 and your earned income is less than $14,340 ($19,680 if married filing jointly). 2011 tax calculator See chapter 3. 2011 tax calculator How Do I Figure the Amount of EIC? If you can claim the EIC, you can either have the IRS figure the amount of your credit, or you can figure it yourself. 2011 tax calculator To figure it yourself, you can complete a worksheet in the instructions for the form you file. 2011 tax calculator To find out how to have the IRS figure it for you, see chapter 4. 2011 tax calculator How Can I Quickly Locate Specific information? You can use the index to look up specific information. 2011 tax calculator In most cases, index entries will point you to headings, tables, or a worksheet. 2011 tax calculator Is There Help Online? Yes. 2011 tax calculator You can use the EITC Assistant at www. 2011 tax calculator irs. 2011 tax calculator gov/eitc to find out if you may be eligible for the credit. 2011 tax calculator The EITC Assistant is available in English and Spanish. 2011 tax calculator What's New for 2013 Earned income amount is more. 2011 tax calculator The maximum amount of income you can earn and still get the credit has increased. 2011 tax calculator You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). 2011 tax calculator Your adjusted gross income also must be less than the amount in the above list that applies to you. 2011 tax calculator For details, see Rules 1 and 15. 2011 tax calculator Investment income amount is more. 2011 tax calculator The maximum amount of investment income you can have and still get the credit has increased to $3,300. 2011 tax calculator See Rule 6—Your Investment Income Must Be $3,300 or Less . 2011 tax calculator Reminders Increased EIC on certain joint returns. 2011 tax calculator . 2011 tax calculator  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. 2011 tax calculator As a result, the EIC table has different columns for married persons filing jointly than for everyone else. 2011 tax calculator When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. 2011 tax calculator Earned income credit has no effect on certain welfare benefits. 2011 tax calculator  Any refund you receive because of the EIC cannot be counted as income when determining whether you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. 2011 tax calculator These programs include the following. 2011 tax calculator Temporary Assistance for Needy Families (TANF). 2011 tax calculator Medicaid. 2011 tax calculator Supplemental security income (SSI). 2011 tax calculator Supplemental Nutrition Assistance Program (food stamps). 2011 tax calculator Low-income housing. 2011 tax calculator In addition, when determining eligibility, the refund cannot be counted as a resource for at least 12 months after you receive it. 2011 tax calculator Check with your local benefit coordinator to find out if your refund will affect your benefits. 2011 tax calculator Do not overlook your state credit. 2011 tax calculator  If you can claim the EIC on your federal income tax return, you may be able to take a similar credit on your state or local income tax return. 2011 tax calculator For a list of states that offer a state EIC, go to www. 2011 tax calculator irs. 2011 tax calculator gov/eitc. 2011 tax calculator EIC questioned by IRS. 2011 tax calculator  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. 2011 tax calculator We will tell you what documents to send us. 2011 tax calculator These may include: birth certificates, school records, etc. 2011 tax calculator The process of establishing your eligibility will delay your refund. 2011 tax calculator Spanish version of Publication 596. 2011 tax calculator  You can order Publicación 596SP, Crédito por Ingreso del Trabajo, from the IRS. 2011 tax calculator It is a Spanish translation of Publication 596. 2011 tax calculator See How To Get Tax Help to find out how to order this and other IRS forms and publications. 2011 tax calculator Photographs of missing children. 2011 tax calculator  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2011 tax calculator Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2011 tax calculator 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. 2011 tax calculator Comments and suggestions. 2011 tax calculator  We welcome your comments about this publication and your suggestions for future editions. 2011 tax calculator You can write to us at the following address:  Internal Revenue Service Individual Forms and Publications Branch 1111 Constitution Ave. 2011 tax calculator NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 2011 tax calculator Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2011 tax calculator You can send your comments from www. 2011 tax calculator irs. 2011 tax calculator gov/formspubs/. 2011 tax calculator Click on “More Information” and then on “Comment on Tax Forms and Publications. 2011 tax calculator ” 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. 2011 tax calculator Ordering forms and publications. 2011 tax calculator  Visit www. 2011 tax calculator irs. 2011 tax calculator 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. 2011 tax calculator  Internal Revenue Service 1201 N. 2011 tax calculator Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2011 tax calculator  If you have a tax question, check the information available on IRS. 2011 tax calculator gov or call 1-800-829-1040. 2011 tax calculator We cannot answer tax questions sent to either of the above addresses. 2011 tax calculator Prev  Up  Next   Home   More Online Publications
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Understanding your CP130 Notice

Your tax return filing requirements may have changed: You may no longer need to pay the Alternative Minimum Tax.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully. It may also suggest additional steps for you to take depending on whether you qualify for the exemption for the Alternative Minimum Tax.

You may want to...


Answers to Common Questions

I completed an amended tax return (Form 1120-X). Do I need to mail it to a specific address?
Write "AMT-EXEMPT" on the top of your Form 1120-X and send it to the same IRS address where you mailed your original tax return.

We are an estate/trust, but the notice only mentions corporations. Are we eligible for the exemption for the Alternative Minimum Tax?
No. Estates/trusts are not corporations and as such are not exempt from the AMT.

How does the Recovery and Reinvestment Tax Act of 2009 affect the Alternative Minimum Tax rules for corporations/trusts/estates?
The Act did not have any affect on the AMT rules for corporations/trust/estates.

I don’t handle tax issues for my corporation. How can I request that you send all future tax notices directly to our accountant?
Complete a Form 8822, Change of Address, and send it to the address shown on the form.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 26-Mar-2014

The 2011 Tax Calculator

2011 tax calculator 5. 2011 tax calculator   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. 2011 tax calculator Short-term lease. 2011 tax calculator Retail space. 2011 tax calculator Qualified long-term real property. 2011 tax calculator Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. 2011 tax calculator If there is a connection between any income you receive and your business, the income is business income. 2011 tax calculator A connection exists if it is clear that the payment of income would not have been made if you did not have the business. 2011 tax calculator You can have business income even if you are not involved in the activity on a regular full-time basis. 2011 tax calculator Income from work you do on the side in addition to your regular job can be business income. 2011 tax calculator You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. 2011 tax calculator But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. 2011 tax calculator For information on selling business assets, see chapter 3. 2011 tax calculator Nonemployee compensation. 2011 tax calculator Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. 2011 tax calculator This includes amounts reported as nonemployee compensation in box 7 of the form. 2011 tax calculator You can find more information in the instructions on the back of the Form 1099-MISC you received. 2011 tax calculator Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. 2011 tax calculator In most cases, your business income will be in the form of cash, checks, and credit card charges. 2011 tax calculator But business income can be in other forms, such as property or services. 2011 tax calculator These and other types of income are explained next. 2011 tax calculator If you are a U. 2011 tax calculator S. 2011 tax calculator citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. 2011 tax calculator S. 2011 tax calculator law. 2011 tax calculator If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. 2011 tax calculator For details, see Publication 54, Tax Guide for U. 2011 tax calculator S. 2011 tax calculator Citizens and Resident Aliens Abroad. 2011 tax calculator Bartering for Property or Services Bartering is an exchange of property or services. 2011 tax calculator You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. 2011 tax calculator If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. 2011 tax calculator Example 1. 2011 tax calculator You are a self-employed lawyer. 2011 tax calculator You perform legal services for a client, a small corporation. 2011 tax calculator In payment for your services, you receive shares of stock in the corporation. 2011 tax calculator You must include the fair market value of the shares in income. 2011 tax calculator Example 2. 2011 tax calculator You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. 2011 tax calculator You must include the fair rental value of the apartment in your gross receipts. 2011 tax calculator Your landlord must include the fair market value of the work of art in his or her rental income. 2011 tax calculator Example 3. 2011 tax calculator You are a self-employed accountant. 2011 tax calculator Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. 2011 tax calculator Members get in touch with other members directly and bargain for the value of the services to be performed. 2011 tax calculator In return for accounting services you provided for the house painter's business, the house painter painted your home. 2011 tax calculator You must include in gross receipts the fair market value of the services you received from the house painter. 2011 tax calculator The house painter must include the fair market value of your accounting services in his or her gross receipts. 2011 tax calculator Example 4. 2011 tax calculator You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. 2011 tax calculator As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. 2011 tax calculator You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. 2011 tax calculator The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. 2011 tax calculator It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. 2011 tax calculator See Publication 15 (Circular E), Employer's Tax Guide. 2011 tax calculator Example 5. 2011 tax calculator You operate a plumbing business and use the cash method of accounting. 2011 tax calculator You join a barter club and agree to provide plumbing services to any member for a specified number of hours. 2011 tax calculator Each member has access to a directory that lists the members of the club and the services available. 2011 tax calculator Members contact each other directly and request services to be performed. 2011 tax calculator You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. 2011 tax calculator You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. 2011 tax calculator Information returns. 2011 tax calculator   If you are involved in a bartering transaction, you may have to file either of the following forms. 2011 tax calculator Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. 2011 tax calculator Form 1099-MISC, Miscellaneous Income. 2011 tax calculator For information about these forms, see the General Instructions for Certain Information Returns. 2011 tax calculator Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. 2011 tax calculator , who provides services (maid services, etc. 2011 tax calculator ) for guests, report the rental income and expenses on Schedule C or C-EZ. 2011 tax calculator If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. 2011 tax calculator For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). 2011 tax calculator Real estate dealer. 2011 tax calculator   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. 2011 tax calculator Rent you receive from real estate held for sale to customers is subject to SE tax. 2011 tax calculator However, rent you receive from real estate held for speculation or investment is not subject to SE tax. 2011 tax calculator Trailer park owner. 2011 tax calculator   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. 2011 tax calculator    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. 2011 tax calculator Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. 2011 tax calculator   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. 2011 tax calculator   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. 2011 tax calculator Hotels, boarding houses, and apartments. 2011 tax calculator   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. 2011 tax calculator   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. 2011 tax calculator An example of a service that is not normally provided for the convenience of the occupants is maid service. 2011 tax calculator However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. 2011 tax calculator Prepaid rent. 2011 tax calculator   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. 2011 tax calculator This is true no matter what accounting method or period you use. 2011 tax calculator Lease bonus. 2011 tax calculator   A bonus you receive from a lessee for granting a lease is an addition to the rent. 2011 tax calculator Include it in your gross receipts in the year received. 2011 tax calculator Lease cancellation payments. 2011 tax calculator   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. 2011 tax calculator Payments to third parties. 2011 tax calculator   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. 2011 tax calculator A common example of this kind of income is a lessee's payment of your property taxes on leased real property. 2011 tax calculator Settlement payments. 2011 tax calculator   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. 2011 tax calculator Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. 2011 tax calculator ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. 2011 tax calculator Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. 2011 tax calculator If you receive any of those payments, include them in your gross receipts as explained in that discussion. 2011 tax calculator Interest and Dividend Income Interest and dividends may be considered business income. 2011 tax calculator Interest. 2011 tax calculator   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. 2011 tax calculator Interest received on loans is business income if you are in the business of lending money. 2011 tax calculator Uncollectible loans. 2011 tax calculator   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. 2011 tax calculator If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. 2011 tax calculator See Bad Debts in chapter 8. 2011 tax calculator Unstated interest. 2011 tax calculator   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. 2011 tax calculator See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. 2011 tax calculator Dividends. 2011 tax calculator   Generally, dividends are business income to dealers in securities. 2011 tax calculator For most sole proprietors and statutory employees, however, dividends are nonbusiness income. 2011 tax calculator If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. 2011 tax calculator   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. 2011 tax calculator To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. 2011 tax calculator Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. 2011 tax calculator General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. 2011 tax calculator Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. 2011 tax calculator If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. 2011 tax calculator Exceptions The following discussion covers some exceptions to the general rule for canceled debt. 2011 tax calculator Price reduced after purchase. 2011 tax calculator   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. 2011 tax calculator Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. 2011 tax calculator Deductible debt. 2011 tax calculator   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. 2011 tax calculator Example. 2011 tax calculator You get accounting services for your business on credit. 2011 tax calculator Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. 2011 tax calculator Your accountant forgives part of the amount you owe for the accounting services. 2011 tax calculator How you treat the canceled debt depends on your method of accounting. 2011 tax calculator Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. 2011 tax calculator Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. 2011 tax calculator   For information on the cash and accrual methods of accounting, see chapter 2. 2011 tax calculator Exclusions Do not include canceled debt in income in the following situations. 2011 tax calculator However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. 2011 tax calculator For more information, see Form 982. 2011 tax calculator The cancellation takes place in a bankruptcy case under title 11 of the U. 2011 tax calculator S. 2011 tax calculator Code (relating to bankruptcy). 2011 tax calculator See Publication 908, Bankruptcy Tax Guide. 2011 tax calculator The cancellation takes place when you are insolvent. 2011 tax calculator You can exclude the canceled debt to the extent you are insolvent. 2011 tax calculator See Publication 908. 2011 tax calculator The canceled debt is a qualified farm debt owed to a qualified person. 2011 tax calculator See chapter 3 in Publication 225, Farmer's Tax Guide. 2011 tax calculator The canceled debt is a qualified real property business debt. 2011 tax calculator This situation is explained later. 2011 tax calculator The canceled debt is qualified principal residence indebtedness which is discharged after 2006. 2011 tax calculator See Form 982. 2011 tax calculator If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. 2011 tax calculator If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. 2011 tax calculator Debt. 2011 tax calculator   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. 2011 tax calculator Qualified real property business debt. 2011 tax calculator   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. 2011 tax calculator If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. 2011 tax calculator Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. 2011 tax calculator However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. 2011 tax calculator Cancellation of qualified real property business debt. 2011 tax calculator   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. 2011 tax calculator It was incurred or assumed in connection with real property used in a trade or business. 2011 tax calculator It was secured by such real property. 2011 tax calculator It was incurred or assumed at either of the following times. 2011 tax calculator Before January 1, 1993. 2011 tax calculator After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. 2011 tax calculator It is debt to which you choose to apply these rules. 2011 tax calculator   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. 2011 tax calculator   You cannot exclude more than either of the following amounts. 2011 tax calculator The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. 2011 tax calculator The total adjusted bases of depreciable real property held by you immediately before the cancellation. 2011 tax calculator These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. 2011 tax calculator Do not take into account depreciable real property acquired in contemplation of the cancellation. 2011 tax calculator Election. 2011 tax calculator   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. 2011 tax calculator You must file your return by the due date (including extensions). 2011 tax calculator If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2011 tax calculator For more information, see When To File in the form instructions. 2011 tax calculator Other Income The following discussion explains how to treat other types of business income you may receive. 2011 tax calculator Restricted property. 2011 tax calculator   Restricted property is property that has certain restrictions that affect its value. 2011 tax calculator If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. 2011 tax calculator However, you can choose to be taxed in the year you receive the property. 2011 tax calculator For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. 2011 tax calculator Gains and losses. 2011 tax calculator   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. 2011 tax calculator Instead, you must report these gains and losses on other forms. 2011 tax calculator For more information, see chapter 3. 2011 tax calculator Promissory notes. 2011 tax calculator   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. 2011 tax calculator In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. 2011 tax calculator Lost income payments. 2011 tax calculator   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. 2011 tax calculator Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. 2011 tax calculator Damages. 2011 tax calculator   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. 2011 tax calculator Patent infringement. 2011 tax calculator Breach of contract or fiduciary duty. 2011 tax calculator Antitrust injury. 2011 tax calculator Economic injury. 2011 tax calculator   You may be entitled to a deduction against the income if it compensates you for actual economic injury. 2011 tax calculator Your deduction is the smaller of the following amounts. 2011 tax calculator The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. 2011 tax calculator Your loss from the injury that you have not yet deducted. 2011 tax calculator Punitive damages. 2011 tax calculator   You must also include punitive damages in income. 2011 tax calculator Kickbacks. 2011 tax calculator   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. 2011 tax calculator However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. 2011 tax calculator Recovery of items previously deducted. 2011 tax calculator   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. 2011 tax calculator However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. 2011 tax calculator If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. 2011 tax calculator Example. 2011 tax calculator Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. 2011 tax calculator He also had 2 personal exemptions for a total of $7,800. 2011 tax calculator He would not pay income tax even if he did not deduct the bad debt. 2011 tax calculator Therefore, he will not report as income any part of the $300 he may recover in any future year. 2011 tax calculator Exception for depreciation. 2011 tax calculator   This rule does not apply to depreciation. 2011 tax calculator You recover depreciation using the rules explained next. 2011 tax calculator Recapture of depreciation. 2011 tax calculator   In the following situations, you have to recapture the depreciation deduction. 2011 tax calculator This means you include in income part or all of the depreciation you deducted in previous years. 2011 tax calculator Listed property. 2011 tax calculator   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. 2011 tax calculator You do this by including in income on Schedule C part of the depreciation you deducted in previous years. 2011 tax calculator Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. 2011 tax calculator For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. 2011 tax calculator That chapter explains how to determine whether property is used more than 50% in your business. 2011 tax calculator Section 179 property. 2011 tax calculator   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. 2011 tax calculator You do this by including in income on Schedule C part of the deduction you took. 2011 tax calculator Use Part IV of Form 4797 to figure the amount to include on Schedule C. 2011 tax calculator See chapter 2 in Publication 946 to find out when you recapture the deduction. 2011 tax calculator Sale or exchange of depreciable property. 2011 tax calculator   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. 2011 tax calculator You figure the income due to depreciation recapture in Part III of Form 4797. 2011 tax calculator For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. 2011 tax calculator Items That Are Not Income In some cases the property or money you receive is not income. 2011 tax calculator Appreciation. 2011 tax calculator   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. 2011 tax calculator Consignments. 2011 tax calculator   Consignments of merchandise to others to sell for you are not sales. 2011 tax calculator The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. 2011 tax calculator Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. 2011 tax calculator Merchandise you have shipped out on consignment is included in your inventory until it is sold. 2011 tax calculator   Do not include merchandise you receive on consignment in your inventory. 2011 tax calculator Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. 2011 tax calculator Construction allowances. 2011 tax calculator   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. 2011 tax calculator Under a short-term lease of retail space. 2011 tax calculator For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. 2011 tax calculator Amount you can exclude. 2011 tax calculator   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. 2011 tax calculator Short-term lease. 2011 tax calculator   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. 2011 tax calculator The following rules apply in determining whether the lease is for 15 years or less. 2011 tax calculator Take into account options to renew when figuring whether the lease is for 15 years or less. 2011 tax calculator But do not take into account any option to renew at fair market value determined at the time of renewal. 2011 tax calculator Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. 2011 tax calculator Retail space. 2011 tax calculator   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. 2011 tax calculator Qualified long-term real property. 2011 tax calculator   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. 2011 tax calculator Exchange of like-kind property. 2011 tax calculator   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. 2011 tax calculator This means that the gain is not taxable and the loss is not deductible. 2011 tax calculator A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. 2011 tax calculator For more information, see Form 8824. 2011 tax calculator Leasehold improvements. 2011 tax calculator   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. 2011 tax calculator However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. 2011 tax calculator Loans. 2011 tax calculator   Money borrowed through a bona fide loan is not income. 2011 tax calculator Sales tax. 2011 tax calculator   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. 2011 tax calculator Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). 2011 tax calculator Direct seller. 2011 tax calculator   You must report all income you receive as a direct seller on Schedule C or C-EZ. 2011 tax calculator This includes any of the following. 2011 tax calculator Income from sales—payments you receive from customers for products they buy from you. 2011 tax calculator Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. 2011 tax calculator Prizes, awards, and gifts you receive from your selling business. 2011 tax calculator You must report this income regardless of whether it is reported to you on an information return. 2011 tax calculator   You are a direct seller if you meet all the following conditions. 2011 tax calculator You are engaged in one of the following trades or businesses. 2011 tax calculator Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. 2011 tax calculator Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). 2011 tax calculator Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. 2011 tax calculator Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. 2011 tax calculator Executor or administrator. 2011 tax calculator   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. 2011 tax calculator A nonprofessional fiduciary (personal representative) and both of the following apply. 2011 tax calculator The estate includes an active trade or business in which you actively participate. 2011 tax calculator Your fees are related to the operation of that trade or business. 2011 tax calculator A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. 2011 tax calculator    If the fees do not meet the above requirements, report them on line 21 of Form 1040. 2011 tax calculator Fishing crew member. 2011 tax calculator    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . 2011 tax calculator Insurance agent, former. 2011 tax calculator   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. 2011 tax calculator You received payments after your agreement to perform services for the company ended. 2011 tax calculator You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. 2011 tax calculator You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. 2011 tax calculator The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. 2011 tax calculator The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). 2011 tax calculator Insurance agent, retired. 2011 tax calculator   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. 2011 tax calculator Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. 2011 tax calculator   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. 2011 tax calculator Newspaper carrier or distributor. 2011 tax calculator   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. 2011 tax calculator You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). 2011 tax calculator Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. 2011 tax calculator You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. 2011 tax calculator   This rule applies whether or not you hire others to help you make deliveries. 2011 tax calculator It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. 2011 tax calculator Newspaper or magazine vendor. 2011 tax calculator   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. 2011 tax calculator You sell newspapers or magazines to ultimate consumers. 2011 tax calculator You sell them at a fixed price. 2011 tax calculator Your earnings are based on the difference between the sales price and your cost of goods sold. 2011 tax calculator   This rule applies whether or not you are guaranteed a minimum amount of earnings. 2011 tax calculator It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. 2011 tax calculator Notary public. 2011 tax calculator   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. 2011 tax calculator These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). 2011 tax calculator Public official. 2011 tax calculator   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. 2011 tax calculator This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. 2011 tax calculator Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. 2011 tax calculator   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. 2011 tax calculator Real estate agent or direct seller. 2011 tax calculator   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. 2011 tax calculator Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. 2011 tax calculator You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. 2011 tax calculator Securities dealer. 2011 tax calculator   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. 2011 tax calculator For more information, see sections 1256 and 1402(i). 2011 tax calculator Securities trader. 2011 tax calculator   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. 2011 tax calculator As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. 2011 tax calculator However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. 2011 tax calculator For more information about securities traders, see Publication 550, Investment Income and Expenses. 2011 tax calculator Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. 2011 tax calculator This section discusses some of the more common differences that may affect business transactions. 2011 tax calculator Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). 2011 tax calculator If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. 2011 tax calculator Dealers in real estate are not allowed to use inventories. 2011 tax calculator For more information on inventories, see chapter 2. 2011 tax calculator Income paid to a third party. 2011 tax calculator   All income you earn is taxable to you. 2011 tax calculator You cannot avoid tax by having the income paid to a third party. 2011 tax calculator Example. 2011 tax calculator You rent out your property and the rental agreement directs the lessee to pay the rent to your son. 2011 tax calculator The amount paid to your son is gross income to you. 2011 tax calculator Cash discounts. 2011 tax calculator   These are amounts the seller permits you to deduct from the invoice price for prompt payment. 2011 tax calculator For income tax purposes, you can use either of the following two methods to account for cash discounts. 2011 tax calculator Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). 2011 tax calculator Credit the cash discount to a discount income account. 2011 tax calculator You must use the chosen method every year for all your purchase discounts. 2011 tax calculator   If you use the second method, the credit balance in the account at the end of your tax year is business income. 2011 tax calculator Under this method, you do not reduce the cost of goods sold by the cash discounts you received. 2011 tax calculator When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. 2011 tax calculator Trade discounts. 2011 tax calculator   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. 2011 tax calculator Do not enter these discounts on your books of account. 2011 tax calculator Instead, use only the net amount as the cost of the merchandise purchased. 2011 tax calculator For more information, see Trade discounts in chapter 6. 2011 tax calculator Payment placed in escrow. 2011 tax calculator   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. 2011 tax calculator However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. 2011 tax calculator Sales returns and allowances. 2011 tax calculator   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. 2011 tax calculator Advance payments. 2011 tax calculator   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. 2011 tax calculator Insurance proceeds. 2011 tax calculator   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. 2011 tax calculator You cannot deduct the reimbursed part of a casualty or theft loss. 2011 tax calculator   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. 2011 tax calculator Prev  Up  Next   Home   More Online Publications