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E File Tax Return 2011

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E File Tax Return 2011

E file tax return 2011 Index A Abandonment of home, Abandonment. E file tax return 2011 Absence, temporary, Temporary absence. E file tax return 2011 Abstract fees, Settlement fees or closing costs. E file tax return 2011 Address, change of, Reminders Adjusted basis, Adjusted Basis, Adjusted Basis Definition of, Determining Basis Worksheet 1 to figure, Determining Basis, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. E file tax return 2011 Adjusted Basis of Home Sold Adoption Adjusted basis of home for credit claimed, Decreases to Basis Advertising fees, Selling expenses. E file tax return 2011 Amount realized, Amount Realized Appraisal fees, Settlement fees or closing costs. E file tax return 2011 Architect's fees, Construction. E file tax return 2011 Armed forces Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. E file tax return 2011 Assistance (see Tax help) B Back interest, Settlement fees or closing costs. E file tax return 2011 Basis Adjusted basis (see Adjusted basis) Determination of, Determining Basis, Adjusted Basis Other than cost, Basis Other Than Cost Building permit fees, Construction. E file tax return 2011 Business use of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). E file tax return 2011 C Casualties Amounts spent after to restore damaged property, Increases to Basis Deductible casualty losses, Decreases to Basis Disaster as cause of, Specific event safe harbors. E file tax return 2011 Insurance payments for casualty losses, Decreases to Basis Change of address, Reminders Closing costs, Settlement fees or closing costs. E file tax return 2011 Commissions, Selling expenses. E file tax return 2011 , Settlement fees or closing costs. E file tax return 2011 Community property Basis determination, Community property. E file tax return 2011 Condemnation Gain exclusion, Home destroyed or condemned. E file tax return 2011 Ownership and use test when previous home condemned, Previous home destroyed or condemned. E file tax return 2011 Condominiums As main home, Main Home Basis determination, Condominium. E file tax return 2011 Construction costs, Construction. E file tax return 2011 Built by you, Built by you. E file tax return 2011 Cooperative apartments As main home, Main Home Basis determination, Cooperative apartment. E file tax return 2011 Ownership and use tests, Cooperative apartment. E file tax return 2011 Cost as basis, Cost As Basis Credit reports Cost of obtaining, Settlement fees or closing costs. E file tax return 2011 D Date of sale, Date of sale. E file tax return 2011 Death Sale due to, Specific event safe harbors. E file tax return 2011 Spouse's death before sale, ownership and use tests, Sale of main home by surviving spouse. E file tax return 2011 Decreases to basis, Decreases to Basis Depreciation After May 6, 1997, Depreciation after May 6, 1997. E file tax return 2011 Home used for business or rental purposes, Decreases to Basis Destroyed homes Gain exclusion, Home destroyed or condemned. E file tax return 2011 Ownership and use test when previous home destroyed, Previous home destroyed or condemned. E file tax return 2011 Disabilities, individuals with Ownership and use test, Exception for individuals with a disability. E file tax return 2011 Disasters, Specific event safe harbors. E file tax return 2011 Discharge of qualified principal residence indebtedness, Adjusted Basis Divorce Home received from spouse, Home received from spouse. E file tax return 2011 Home transferred to spouse, Transfer to spouse. E file tax return 2011 Ownership and use tests, Home transferred from spouse. E file tax return 2011 Sale due to, Specific event safe harbors. E file tax return 2011 Transfers after July 18, 1984, Transfers after July 18, 1984. E file tax return 2011 Transfers before July 19, 1984, Transfers before July 19, 1984. E file tax return 2011 Use of home after divorce, Use of home after divorce. E file tax return 2011 Doctor's recommendation for sale, Doctor's recommendation safe harbor. E file tax return 2011 E Easements, Decreases to Basis Employee of the intelligence community, Employee of the intelligence community. E file tax return 2011 Employment Change in place of employment, Change in Place of Employment Payment by employer, when job transfer involved, Payment by employer. E file tax return 2011 Energy Conservation subsidies, Decreases to Basis Credit, Decreases to Basis Exclusion of gain, Excluding the Gain, Nonqualified Use Reduced maximum exclusion, Reduced Maximum Exclusion Expatriates, Expatriates. E file tax return 2011 F Federal mortgage subsidies Recapture of, Recapturing (Paying Back) a Federal Mortgage Subsidy Figuring gain or loss, Figuring Gain or Loss, More information. E file tax return 2011 Fire insurance premiums, Settlement fees or closing costs. E file tax return 2011 Foreclosure, Foreclosure or repossession. E file tax return 2011 Foreign Service, Foreign Service member. E file tax return 2011 Ownership and use tests, Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. E file tax return 2011 Form 1040 Reporting sale of home, Reporting the Sale Seller-financed mortgages, Seller-financed mortgage. E file tax return 2011 Form 1040, Schedule A Real estate taxes, Real estate taxes. E file tax return 2011 Form 1040, Schedule D Reporting sale of home, Reporting the Sale Form 1099-S Proceeds from real estate transactions, Date of sale. E file tax return 2011 , Form 1099-S. E file tax return 2011 , Form 1099-S. E file tax return 2011 Form 2119 Sale of home, Adjusted Basis Form 6252 Installment sale income, Installment sale. E file tax return 2011 Form 8828 Recapture tax, How to figure and report the recapture. E file tax return 2011 Form 8960 Net Investment Income Tax, Net Investment Income Tax (NIIT). E file tax return 2011 NIIT, Net Investment Income Tax (NIIT). E file tax return 2011 Form 982 Discharge of indebtedness, Adjusted Basis Free tax services, Free help with your tax return. E file tax return 2011 Future developments, Future Developments G Gain or loss Basis determination, Determining Basis, Adjusted Basis Exclusion of gain, Excluding the Gain Exclusion of gain, nonqualified use, Nonqualified Use Gain on sale, Gain on sale. E file tax return 2011 Loss on sale, Loss on sale. E file tax return 2011 Postponed from sale of previous home before May 7, 1997, Decreases to Basis Worksheet 2 to figure, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home Gifts Home received as, Home received as gift. E file tax return 2011 H Health Sale of home due to, Health Help (see Tax help) Homebuyer credit Recapture, Recapture of the post-2008 first-time homebuyer credit. E file tax return 2011 Houseboats As main home, Main Home I Important reminders Change of address, Reminders Home sold with undeducted points, Reminders Improvements Adjusted basis determination, Improvements. E file tax return 2011 Charges for, Settlement fees or closing costs. E file tax return 2011 Receipts and other records, Adjusted Basis Useful life of more than 1 year, Increases to Basis Increases to basis, Increases to Basis Individual taxpayer identification numbers (ITINs), Individual taxpayer identification number (ITIN). E file tax return 2011 Inheritance Home received as, Home acquired from a decedent who died before or after 2010. E file tax return 2011 Installment sales, Installment sale. E file tax return 2011 Involuntary conversion, Specific event safe harbors. E file tax return 2011 ITINs (Individual taxpayer identification numbers), Individual taxpayer identification number (ITIN). E file tax return 2011 J Joint owners not married, Joint owners not married. E file tax return 2011 Joint returns, Jointly owned home. E file tax return 2011 Ownership and use tests, Married Persons L Land Sale of land on which home located, Land. E file tax return 2011 Sale of vacant land, Vacant land. E file tax return 2011 Legal fees, Selling expenses. E file tax return 2011 , Settlement fees or closing costs. E file tax return 2011 , Construction. E file tax return 2011 Legal separation Sale due to, Specific event safe harbors. E file tax return 2011 Like-kind exchange, Sale of home acquired in a like-kind exchange. E file tax return 2011 Living expenses, Reasonable basic living expenses. E file tax return 2011 Loan assumption fees, Settlement fees or closing costs. E file tax return 2011 Loan placement fees, Selling expenses. E file tax return 2011 Loss (see Gain or loss) M Main home Defined, Main Home Factors used to determine, Factors used to determine main home. E file tax return 2011 Property used partly as, Property used partly as your main home. E file tax return 2011 , Property Used Partly for Business or Rental Married taxpayers (see Joint returns) Maximum exclusion, Maximum Exclusion Reduced, Reduced Maximum Exclusion Military (see Armed forces) Missing children, photographs of, Reminders Mobile homes As main home, Main Home More than one home, More than one home. E file tax return 2011 Mortgage fees, Settlement fees or closing costs. E file tax return 2011 Mortgage insurance premiums, Settlement fees or closing costs. E file tax return 2011 Mortgage subsidies Recapturing (paying back) federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Mortgages, seller-financed, Seller-financed mortgage. E file tax return 2011 Moving expense, Settlement fees or closing costs. E file tax return 2011 Multiple births Sale due to, Specific event safe harbors. E file tax return 2011 N Nonqualified use, Nonqualified Use Nonresident aliens Spouse as, transfer of home to, Exception. E file tax return 2011 O Option to buy home, Option to buy. E file tax return 2011 Ownership and use tests, Ownership and Use Tests, Ownership and use tests met at different times. E file tax return 2011 P Partly used for business, Property Used Partly for Business or Rental Personal property Selling price of home not to include, Personal property. E file tax return 2011 Points, Selling expenses. E file tax return 2011 Home sold with undeducted points, Reminders Seller-paid, Seller-paid points. E file tax return 2011 Publications (see Tax help) R Real estate taxes, Settlement fees or closing costs. E file tax return 2011 , Real estate taxes. E file tax return 2011 Deducting in year of sale, Deducting Taxes in the Year of Sale Recapture of federal mortgage subsidy, Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of first-time homebuyer credit, Recapture of First-Time Homebuyer Credit Recording fees, Settlement fees or closing costs. E file tax return 2011 Recordkeeping, Adjusted Basis Reduced maximum exclusion, Reduced Maximum Exclusion Worksheet 3, Worksheet 3. E file tax return 2011 Reduced Maximum Exclusion Refinancing, Settlement fees or closing costs. E file tax return 2011 Relatives Sale of home to, Exception for sales to related persons. E file tax return 2011 Remainder interest Sale of, Sale of remainder interest. E file tax return 2011 Remodeling, Improvements. E file tax return 2011 , Exception. E file tax return 2011 (see also Improvements) Rental of home, Business Use or Rental of Home, Use test met for business part (with no business use in year of sale). E file tax return 2011 Before closing, by buyer, Settlement fees or closing costs. E file tax return 2011 Partial use, Property Used Partly for Business or Rental Repairs, Settlement fees or closing costs. E file tax return 2011 , Improvements. E file tax return 2011 , Repairs. E file tax return 2011 (see also Improvements) Reporting the sale, Reporting the Sale, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White Repossession, Foreclosure or repossession. E file tax return 2011 Right-of-ways, Decreases to Basis S Safe harbors Distance safe harbor, Distance safe harbor. E file tax return 2011 Doctor's recommendation for sale, Doctor's recommendation safe harbor. E file tax return 2011 Unforeseeable events, Specific event safe harbors. E file tax return 2011 Sales commissions, Selling expenses. E file tax return 2011 , Settlement fees or closing costs. E file tax return 2011 Sales to related persons, Exception for sales to related persons. E file tax return 2011 Self-employed persons Change in status causing inability to pay basic expenses, Specific event safe harbors. E file tax return 2011 Seller-financed mortgages, Seller-financed mortgage. E file tax return 2011 Seller-paid points, Seller-paid points. E file tax return 2011 Selling expenses, Selling expenses. E file tax return 2011 Selling price, Selling Price Separate returns, Separate returns. E file tax return 2011 Settlement fees, Settlement fees or closing costs. E file tax return 2011 Spouse Death of (see Surviving spouse) Divorce, transfers subsequent to (see Divorce) Survey fees, Settlement fees or closing costs. E file tax return 2011 Surviving spouse Basis determination, Surviving spouse. E file tax return 2011 Ownership and use tests, Sale of main home by surviving spouse. E file tax return 2011 T Tax help, How To Get Tax Help Temporary absence, Temporary absence. E file tax return 2011 Temporary housing, Temporary housing. E file tax return 2011 Title insurance, Settlement fees or closing costs. E file tax return 2011 Title search fees, Settlement fees or closing costs. E file tax return 2011 Trading homes, Trading (exchanging) homes. E file tax return 2011 , Home received as trade. E file tax return 2011 Transfer taxes, Settlement fees or closing costs. E file tax return 2011 , Transfer taxes. E file tax return 2011 Transfer to spouse, Transfer to spouse. E file tax return 2011 After July 18, 1984, Transfers after July 18, 1984. E file tax return 2011 Before July 19, 1984, Transfers before July 19, 1984. E file tax return 2011 TTY/TDD information, How To Get Tax Help U Unemployment, Specific event safe harbors. E file tax return 2011 Unforeseen circumstances, Unforeseen Circumstances Uniformed services (see Armed forces) Use tests, Ownership and Use Tests, Ownership and use tests met at different times. E file tax return 2011 Utilities Charges for installing, Settlement fees or closing costs. E file tax return 2011 Charges related to occupancy of house before closing, Settlement fees or closing costs. E file tax return 2011 Energy conservation subsidy, Decreases to Basis Meter and connection charges for construction, Construction. E file tax return 2011 V Vacant land Sale of, Vacant land. E file tax return 2011 W Worksheets, Worksheets. E file tax return 2011 Adjusted basis (Worksheet 1), Determining Basis, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 3 for Emily White, Worksheet 1 Instructions. E file tax return 2011 Adjusted Basis of Home Sold Gain (or loss), exclusion, and taxable gain (Worksheet 2), Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Completed Example 1 for Amy, Worksheet 1. E file tax return 2011 Adjusted Basis of Home Sold—Illustrated Example 1 for Peter and Betty Clark, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Illustrated Example 2 for Peter and Betty Clark, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home—Illustrated Example 3 for Emily White, Worksheet 2. E file tax return 2011 Taxable Gain on Sale of Home Recordkeeping and, Adjusted Basis Reduced maximum exclusion (Worksheet 3), Worksheet 3. E file tax return 2011 Reduced Maximum Exclusion Prev  Up     Home   More Online Publications
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The E File Tax Return 2011

E file tax return 2011 2. E file tax return 2011   Accounting Periods and Methods Table of Contents Introduction Useful Items - You may want to see: Accounting Periods Accounting MethodsCash Method Accrual Method Combination Method Inventories Uniform Capitalization Rules Special Methods Change in Accounting Method Introduction You must figure your taxable income and file an income tax return for an annual accounting period called a tax year. E file tax return 2011 Also, you must consistently use an accounting method that clearly shows your income and expenses for the tax year. E file tax return 2011 Useful Items - You may want to see: Publication 538 Accounting Periods and Methods See chapter 12 for information about getting publications and forms. E file tax return 2011 Accounting Periods When preparing a statement of income and expenses (generally your income tax return), you must use your books and records for a specific interval of time called an accounting period. E file tax return 2011 The annual accounting period for your income tax return is called a tax year. E file tax return 2011 You can use one of the following tax years. E file tax return 2011 A calendar tax year. E file tax return 2011 A fiscal tax year. E file tax return 2011 Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. E file tax return 2011 A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. E file tax return 2011 Calendar tax year. E file tax return 2011   A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. E file tax return 2011   You must adopt the calendar tax year if any of the following apply. E file tax return 2011 You do not keep books. E file tax return 2011 You have no annual accounting period. E file tax return 2011 Your present tax year does not qualify as a fiscal year. E file tax return 2011 Your use of the calendar tax year is required under the Internal Revenue Code or the Income Tax Regulations. E file tax return 2011   If you filed your first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. E file tax return 2011 For more information, see Change in tax year, later. E file tax return 2011   If you adopt the calendar tax year, you must maintain your books and records and report your income and expenses for the period from January 1 through December 31 of each year. E file tax return 2011 Fiscal tax year. E file tax return 2011   A fiscal tax year is 12 consecutive months ending on the last day of any month except December. E file tax return 2011 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. E file tax return 2011   If you adopt a fiscal tax year, you must maintain your books and records and report your income and expenses using the same tax year. E file tax return 2011   For more information on a fiscal tax year, including a 52-53-week tax year, see Publication 538. E file tax return 2011 Change in tax year. E file tax return 2011   Generally, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year, to request IRS approval to change your tax year. E file tax return 2011 See the Instructions for Form 1128 for exceptions. E file tax return 2011 If you qualify for an automatic approval request, a user fee is not required. E file tax return 2011 If you do not qualify for automatic approval, a ruling must be requested. E file tax return 2011 See the instructions for Form 1128 for information about user fees if you are requesting a ruling. E file tax return 2011 Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. E file tax return 2011 Your accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item. E file tax return 2011 You choose an accounting method for your business when you file your first income tax return that includes a Schedule C for the business. E file tax return 2011 After that, if you want to change your accounting method, you must generally get IRS approval. E file tax return 2011 See Change in Accounting Method, later. E file tax return 2011 Kinds of methods. E file tax return 2011   Generally, you can use any of the following accounting methods. E file tax return 2011 Cash method. E file tax return 2011 An accrual method. E file tax return 2011 Special methods of accounting for certain items of income and expenses. E file tax return 2011 Combination method using elements of two or more of the above. E file tax return 2011 You must use the same accounting method to figure your taxable income and to keep your books. E file tax return 2011 Also, you must use an accounting method that clearly shows your income. E file tax return 2011 Business and personal items. E file tax return 2011   You can account for business and personal items under different accounting methods. E file tax return 2011 For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. E file tax return 2011 Two or more businesses. E file tax return 2011   If you have two or more separate and distinct businesses, you can use a different accounting method for each if the method clearly reflects the income of each business. E file tax return 2011 They are separate and distinct only if you maintain complete and separate books and records for each business. E file tax return 2011 Cash Method Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. E file tax return 2011 However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. E file tax return 2011 For more information, see Inventories, later. E file tax return 2011 Income Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year. E file tax return 2011 If you receive property or services, you must include their fair market value in income. E file tax return 2011 Example. E file tax return 2011 On December 30, 2012, Mrs. E file tax return 2011 Sycamore sent you a check for interior decorating services you provided to her. E file tax return 2011 You received the check on January 2, 2013. E file tax return 2011 You must include the amount of the check in income for 2013. E file tax return 2011 Constructive receipt. E file tax return 2011   You have constructive receipt of income when an amount is credited to your account or made available to you without restriction. E file tax return 2011 You do not need to have possession of it. E file tax return 2011 If you authorize someone to be your agent and receive income for you, you are treated as having received it when your agent received it. E file tax return 2011 Example. E file tax return 2011 Interest is credited to your bank account in December 2013. E file tax return 2011 You do not withdraw it or enter it into your passbook until 2014. E file tax return 2011 You must include it in your gross income for 2013. E file tax return 2011 Delaying receipt of income. E file tax return 2011   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. E file tax return 2011 You must report the income in the year the property is received or made available to you without restriction. E file tax return 2011 Example. E file tax return 2011 Frances Jones, a service contractor, was entitled to receive a $10,000 payment on a contract in December 2013. E file tax return 2011 She was told in December that her payment was available. E file tax return 2011 At her request, she was not paid until January 2014. E file tax return 2011 She must include this payment in her 2013 income because it was constructively received in 2013. E file tax return 2011 Checks. E file tax return 2011   Receipt of a valid check by the end of the tax year is constructive receipt of income in that year, even if you cannot cash or deposit the check until the following year. E file tax return 2011 Example. E file tax return 2011 Dr. E file tax return 2011 Redd received a check for $500 on December 31, 2013, from a patient. E file tax return 2011 She could not deposit the check in her business account until January 2, 2014. E file tax return 2011 She must include this fee in her income for 2013. E file tax return 2011 Debts paid by another person or canceled. E file tax return 2011   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. E file tax return 2011 If you receive income in this way, you constructively receive the income when the debt is canceled or paid. E file tax return 2011 For more information, see Canceled Debt under Kinds of Income in chapter 5. E file tax return 2011 Repayment of income. E file tax return 2011   If you include an amount in income and in a later year you have to repay all or part of it, you can usually deduct the repayment in the year in which you make it. E file tax return 2011 If the amount you repay is over $3,000, a special rule applies. E file tax return 2011 For details about the special rule, see Repayments in chapter 11 of Publication 535, Business Expenses. E file tax return 2011 Expenses Under the cash method, you generally deduct expenses in the tax year in which you actually pay them. E file tax return 2011 This includes business expenses for which you contest liability. E file tax return 2011 However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. E file tax return 2011 Expenses paid in advance. E file tax return 2011   You can deduct an expense you pay in advance only in the year to which it applies. E file tax return 2011 Example. E file tax return 2011 You are a calendar year taxpayer and you pay $1,000 in 2013 for a business insurance policy effective for one year, beginning July 1. E file tax return 2011 You can deduct $500 in 2013 and $500 in 2014. E file tax return 2011 Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. E file tax return 2011 The purpose of an accrual method of accounting is to match income and expenses in the correct year. E file tax return 2011 Income—General Rule Under an accrual method, you generally include an amount in your gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. E file tax return 2011 Example. E file tax return 2011 You are a calendar year accrual method taxpayer. E file tax return 2011 You sold a computer on December 28, 2013. E file tax return 2011 You billed the customer in the first week of January 2014, but you did not receive payment until February 2014. E file tax return 2011 You must include the amount received for the computer in your 2013 income. E file tax return 2011 Income—Special Rules The following are special rules that apply to advance payments, estimating income, and changing a payment schedule for services. E file tax return 2011 Estimated income. E file tax return 2011   If you include a reasonably estimated amount in gross income, and later determine the exact amount is different, take the difference into account in the tax year in which you make the determination. E file tax return 2011 Change in payment schedule for services. E file tax return 2011   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a lower rate until you complete the services and then receive the difference. E file tax return 2011 Advance payments for services. E file tax return 2011   Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. E file tax return 2011 However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. E file tax return 2011 However, you cannot postpone including any payment beyond that tax year. E file tax return 2011   For more information, see Advance Payment for Services under Accrual Method in Publication 538. E file tax return 2011 That publication also explains special rules for reporting the following types of income. E file tax return 2011 Advance payments for service agreements. E file tax return 2011 Prepaid rent. E file tax return 2011 Advance payments for sales. E file tax return 2011   Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods you hold primarily for sale to your customers in the ordinary course of your business. E file tax return 2011 If the advance payments are for contracts involving both the sale and service of goods, it may be necessary to treat them as two agreements. E file tax return 2011 An agreement includes a gift certificate that can be redeemed for goods. E file tax return 2011 Treat amounts that are due and payable as amounts you received. E file tax return 2011   You generally include an advance payment in income for the tax year in which you receive it. E file tax return 2011 However, you can use an alternative method. E file tax return 2011 For information about the alternative method, see Publication 538. E file tax return 2011 Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. E file tax return 2011 The all-events test has been met. E file tax return 2011 The test has been met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. E file tax return 2011 Economic performance has occurred. E file tax return 2011 Economic performance. E file tax return 2011   You generally cannot deduct or capitalize a business expense until economic performance occurs. E file tax return 2011 If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. E file tax return 2011 If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. E file tax return 2011 An exception allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. E file tax return 2011 For more information on economic performance, see Economic Performance under Accrual Method in Publication 538. E file tax return 2011 Example. E file tax return 2011 You are a calendar year taxpayer and use an accrual method of accounting. E file tax return 2011 You buy office supplies in December 2013. E file tax return 2011 You receive the supplies and the bill in December, but you pay the bill in January 2014. E file tax return 2011 You can deduct the expense in 2013 because all events that fix the fact of liability have occurred, the amount of the liability could be reasonably determined, and economic performance occurred in that year. E file tax return 2011 Your office supplies may qualify as a recurring expense. E file tax return 2011 In that case, you can deduct them in 2013 even if the supplies are not delivered until 2014 (when economic performance occurs). E file tax return 2011 Keeping inventories. E file tax return 2011   When the production, purchase, or sale of merchandise is an income-producing factor in your business, you must generally take inventories into account at the beginning and the end of your tax year. E file tax return 2011 If you must account for an inventory, you must generally use an accrual method of accounting for your purchases and sales. E file tax return 2011 For more information, see Inventories , later. E file tax return 2011 Special rule for related persons. E file tax return 2011   You cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until you make the payment and the corresponding amount is includible in the related person's gross income. E file tax return 2011 Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. E file tax return 2011 If a deduction is not allowed under this rule, the rule will continue to apply even if your relationship with the person ends before the expense or interest is includible in the gross income of that person. E file tax return 2011   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. E file tax return 2011 For a list of other related persons, see section 267 of the Internal Revenue Code. E file tax return 2011 Combination Method You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. E file tax return 2011 However, the following restrictions apply. E file tax return 2011 If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. E file tax return 2011 (See, however, Inventories, later. E file tax return 2011 ) You can use the cash method for all other items of income and expenses. E file tax return 2011 If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. E file tax return 2011 If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. E file tax return 2011 If you use a combination method that includes the cash method, treat that combination method as the cash method. E file tax return 2011 Inventories Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise. E file tax return 2011 However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. E file tax return 2011 These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). E file tax return 2011 A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. E file tax return 2011 A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. E file tax return 2011 Qualifying taxpayer. E file tax return 2011   You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. E file tax return 2011 (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3. E file tax return 2011 ) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code. E file tax return 2011 Qualifying small business taxpayer. E file tax return 2011   You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. E file tax return 2011 (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. E file tax return 2011 ) You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. E file tax return 2011 Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28). E file tax return 2011 Business not owned or not in existence for 3 years. E file tax return 2011   If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor. E file tax return 2011 If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts. E file tax return 2011 Materials and supplies that are not incidental. E file tax return 2011   If you account for inventoriable items as materials and supplies that are not incidental, you will deduct the cost of the items you would otherwise include in inventory in the year you sell the items, or the year you pay for them, whichever is later. E file tax return 2011 If you are a producer, you can use any reasonable method to estimate the raw material in your work in process and finished goods on hand at the end of the year to determine the raw material used to produce finished goods that were sold during the year. E file tax return 2011 Changing accounting method. E file tax return 2011   If you are a qualifying taxpayer or qualifying small business taxpayer and want to change to the cash method or to account for inventoriable items as non-incidental materials and supplies, you must file Form 3115, Application for Change in Accounting Method. E file tax return 2011 See Change in Accounting Method, later. E file tax return 2011 More information. E file tax return 2011    For more information about the qualifying taxpayer exception, see Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. E file tax return 2011 For more information about the qualifying small business taxpayer exception, see Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. E file tax return 2011 Items included in inventory. E file tax return 2011   If you are required to account for inventories, include the following items when accounting for your inventory. E file tax return 2011 Merchandise or stock in trade. E file tax return 2011 Raw materials. E file tax return 2011 Work in process. E file tax return 2011 Finished products. E file tax return 2011 Supplies that physically become a part of the item intended for sale. E file tax return 2011 Valuing inventory. E file tax return 2011   You must value your inventory at the beginning and end of each tax year to determine your cost of goods sold (Schedule C, line 42). E file tax return 2011 To determine the value of your inventory, you need a method for identifying the items in your inventory and a method for valuing these items. E file tax return 2011   Inventory valuation rules cannot be the same for all kinds of businesses. E file tax return 2011 The method you use to value your inventory must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. E file tax return 2011 Your inventory practices must be consistent from year to year. E file tax return 2011 More information. E file tax return 2011   For more information about inventories, see Publication 538. E file tax return 2011 Uniform Capitalization Rules Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for production or resale activities. E file tax return 2011 Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. E file tax return 2011 You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. E file tax return 2011 Activities subject to the uniform capitalization rules. E file tax return 2011   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. E file tax return 2011 Produce real or tangible personal property. E file tax return 2011 For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. E file tax return 2011 Acquire property for resale. E file tax return 2011 Exceptions. E file tax return 2011   These rules do not apply to the following property. E file tax return 2011 Personal property you acquire for resale if your average annual gross receipts are $10 million or less. E file tax return 2011 Property you produce if you meet either of the following conditions. E file tax return 2011 Your indirect costs of producing the property are $200,000 or less. E file tax return 2011 You use the cash method of accounting and do not account for inventories. E file tax return 2011 For more information, see Inventories, earlier. E file tax return 2011 Special Methods There are special methods of accounting for certain items of income or expense. E file tax return 2011 These include the following. E file tax return 2011 Amortization, discussed in chapter 8 of Publication 535, Business Expenses. E file tax return 2011 Bad debts, discussed in chapter 10 of Publication 535. E file tax return 2011 Depletion, discussed in chapter 9 of Publication 535. E file tax return 2011 Depreciation, discussed in Publication 946, How To Depreciate Property. E file tax return 2011 Installment sales, discussed in Publication 537, Installment Sales. E file tax return 2011 Change in Accounting Method Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. E file tax return 2011 A change in your accounting method includes a change in: Your overall method, such as from cash to an accrual method, and Your treatment of any material item. E file tax return 2011 To get approval, you must file Form 3115, Application for Change in Accounting Method. E file tax return 2011 You can get IRS approval to change an accounting method under either the automatic change procedures or the advance consent request procedures. E file tax return 2011 You may have to pay a user fee. E file tax return 2011 For more information, see the form instructions. E file tax return 2011 Automatic change procedures. E file tax return 2011   Certain taxpayers can presume to have IRS approval to change their method of accounting. E file tax return 2011 The approval is granted for the tax year for which the taxpayer requests a change (year of change), if the taxpayer complies with the provisions of the automatic change procedures. E file tax return 2011 No user fee is required for an application filed under an automatic change procedure generally covered in Revenue Procedure 2002-9. E file tax return 2011   Generally, you must use Form 3115 to request an automatic change. E file tax return 2011 For more information, see the Instructions for Form 3115. E file tax return 2011 Prev  Up  Next   Home   More Online Publications