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Filing Previous Years Taxes

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Filing Previous Years Taxes

Filing previous years taxes Index A Accounting methods, Accounting Methods Accrual method, Accrual method. Filing previous years taxes Change in accounting method Section 481(a) adjustment. Filing previous years taxes , Change in accounting method. Filing previous years taxes Mark-to-market accounting method, Mark-to-market accounting method. Filing previous years taxes Nonaccrual experience method, Nonaccrual experience method. Filing previous years taxes Percentage of completion method, Percentage of completion method. Filing previous years taxes Accounting periods, Accounting Periods Accumulated earnings tax, Accumulated Earnings Tax Alternative minimum tax (AMT), Alternative Minimum Tax (AMT) At-risk limits, At-Risk Limits B Backup withholding, Backup withholding. Filing previous years taxes Below-market loans, Below-Market Loans C Capital contributions, Capital Contributions Capital losses, Capital Losses Charitable contributions, Charitable Contributions Closely held corporation: At-risk limits, Closely held corporation. Filing previous years taxes Closely held corporations:, Closely held corporations. Filing previous years taxes Comments, Comments and suggestions. Filing previous years taxes Corporate preference items, Corporate Preference Items Corporations, businesses taxed as, Businesses Taxed as Corporations Credits, Credits Credits: Foreign tax, Credits General business credit, Credits Prior year minimum tax, Credits D Distributions: Money or property. Filing previous years taxes , Money or Property Distributions Other, Constructive Distributions Reporting, Reporting Dividends and Other Distributions Stock or stock rights, Distributions of Stock or Stock Rights To shareholders, Distributions to Shareholders Dividends-received deduction, Dividends-Received Deduction E EFTPS, Electronic Federal Tax Payment System, Electronic Federal Tax Payment System (EFTPS). Filing previous years taxes Electronic filing, Electronic filing. Filing previous years taxes Energy-efficient commercial building property deduction, Energy-Efficient Commercial Building Property Deduction Estimated tax, Estimated Tax Extraordinary dividends, Extraordinary Dividends F Figuring: NOL carryovers, Figuring the NOL Carryover Tax, Figuring Tax Foreign tax credit, Credits Form: 1096, Form 1099-DIV. Filing previous years taxes 1099–DIV, Form 1099-DIV. Filing previous years taxes 1118, Credits 1120, Which form to file. Filing previous years taxes 1120-W, How to figure each required installment. Filing previous years taxes 1120X, Refunds. Filing previous years taxes , NOL carryback. Filing previous years taxes 1138, Carryback expected. Filing previous years taxes 1139, Refunds. Filing previous years taxes , NOL carryback. Filing previous years taxes 2220, Form 2220. Filing previous years taxes 3800, Credits, Recapture Taxes 4255, Recapture Taxes 4626, Form 4626. Filing previous years taxes 5452, Form 5452. Filing previous years taxes 7004, Extension of time to file. Filing previous years taxes 8611, Recapture Taxes 8827, Credits 8832, Business formed after 1996. Filing previous years taxes 8834, Recapture Taxes 8845, Recapture Taxes 8874, Recapture Taxes 8882, Recapture Taxes 8912, Credits G Going into business, Costs of Going Into Business I Income tax returns, Income Tax Return L Loans, below-market, Below-Market Loans M Minimum tax credit, Credits N Net operating losses, Net Operating Losses Nontaxable exchange of property for stock, Property Exchanged for Stock P Paid-in capital, Paid-in capital. Filing previous years taxes Passive activity limits, Passive Activity Limits Paying estimated tax, How to pay estimated tax. Filing previous years taxes Penalties Other, Other penalties. Filing previous years taxes Trust fund recovery, Trust fund recovery penalty. Filing previous years taxes Penalties: Estimated tax, Underpayment penalty. Filing previous years taxes Late filing of return, Late filing of return. Filing previous years taxes Late payment of tax, Late payment of tax. Filing previous years taxes Personal service corporation: Figuring tax, Qualified personal service corporation. Filing previous years taxes Personal service corporations:, Personal service corporations. Filing previous years taxes Preference items, Corporate Preference Items Q Qualified refinery property, election to expense, Election to Expense Qualified Refinery Property Qualifying shipping activities, income from, Income From Qualifying Shipping Activities R Recapture taxes: Childcare facilities and services credit , Recapture Taxes Indian employment credit, Recapture Taxes Investment credit, Recapture Taxes Low-income housing credit, Recapture Taxes New markets credit, Recapture Taxes Qualified plug-in electric and electric vehicle credit, Recapture Taxes Recordkeeping, Recordkeeping Related persons, Related Persons Retained earnings, Accumulated Earnings Tax S Suggestions, Comments and suggestions. Filing previous years taxes T Tax help, How To Get Tax Help Tax rate schedule, Tax Rate Schedule Tax, figuring, Figuring Tax Taxpayer Advocate, Contacting your Taxpayer Advocate. Filing previous years taxes TTY/TDD information, How To Get Tax Help Prev  Up     Home   More Online Publications
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The Filing Previous Years Taxes

Filing previous years taxes 5. Filing previous years taxes   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. Filing previous years taxes Short-term lease. Filing previous years taxes Retail space. Filing previous years taxes Qualified long-term real property. Filing previous years taxes 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. Filing previous years taxes If there is a connection between any income you receive and your business, the income is business income. Filing previous years taxes A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Filing previous years taxes You can have business income even if you are not involved in the activity on a regular full-time basis. Filing previous years taxes Income from work you do on the side in addition to your regular job can be business income. Filing previous years taxes You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Filing previous years taxes 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. Filing previous years taxes For information on selling business assets, see chapter 3. Filing previous years taxes Nonemployee compensation. Filing previous years taxes Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Filing previous years taxes This includes amounts reported as nonemployee compensation in box 7 of the form. Filing previous years taxes You can find more information in the instructions on the back of the Form 1099-MISC you received. Filing previous years taxes Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Filing previous years taxes In most cases, your business income will be in the form of cash, checks, and credit card charges. Filing previous years taxes But business income can be in other forms, such as property or services. Filing previous years taxes These and other types of income are explained next. Filing previous years taxes If you are a U. Filing previous years taxes S. Filing previous years taxes 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. Filing previous years taxes S. Filing previous years taxes law. Filing previous years taxes If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Filing previous years taxes For details, see Publication 54, Tax Guide for U. Filing previous years taxes S. Filing previous years taxes Citizens and Resident Aliens Abroad. Filing previous years taxes Bartering for Property or Services Bartering is an exchange of property or services. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes Example 1. Filing previous years taxes You are a self-employed lawyer. Filing previous years taxes You perform legal services for a client, a small corporation. Filing previous years taxes In payment for your services, you receive shares of stock in the corporation. Filing previous years taxes You must include the fair market value of the shares in income. Filing previous years taxes Example 2. Filing previous years taxes You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Filing previous years taxes You must include the fair rental value of the apartment in your gross receipts. Filing previous years taxes Your landlord must include the fair market value of the work of art in his or her rental income. Filing previous years taxes Example 3. Filing previous years taxes You are a self-employed accountant. Filing previous years taxes 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. Filing previous years taxes Members get in touch with other members directly and bargain for the value of the services to be performed. Filing previous years taxes In return for accounting services you provided for the house painter's business, the house painter painted your home. Filing previous years taxes You must include in gross receipts the fair market value of the services you received from the house painter. Filing previous years taxes The house painter must include the fair market value of your accounting services in his or her gross receipts. Filing previous years taxes Example 4. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Filing previous years taxes See Publication 15 (Circular E), Employer's Tax Guide. Filing previous years taxes Example 5. Filing previous years taxes You operate a plumbing business and use the cash method of accounting. Filing previous years taxes You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Filing previous years taxes Each member has access to a directory that lists the members of the club and the services available. Filing previous years taxes Members contact each other directly and request services to be performed. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes Information returns. Filing previous years taxes   If you are involved in a bartering transaction, you may have to file either of the following forms. Filing previous years taxes Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Filing previous years taxes Form 1099-MISC, Miscellaneous Income. Filing previous years taxes For information about these forms, see the General Instructions for Certain Information Returns. Filing previous years taxes 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. Filing previous years taxes , who provides services (maid services, etc. Filing previous years taxes ) for guests, report the rental income and expenses on Schedule C or C-EZ. Filing previous years taxes 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. Filing previous years taxes For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Filing previous years taxes Real estate dealer. Filing previous years taxes   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. Filing previous years taxes Rent you receive from real estate held for sale to customers is subject to SE tax. Filing previous years taxes However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Filing previous years taxes Trailer park owner. Filing previous years taxes   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. Filing previous years taxes    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. Filing previous years taxes Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Filing previous years taxes   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. Filing previous years taxes   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Filing previous years taxes Hotels, boarding houses, and apartments. Filing previous years taxes   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. Filing previous years taxes   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. Filing previous years taxes An example of a service that is not normally provided for the convenience of the occupants is maid service. Filing previous years taxes However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Filing previous years taxes Prepaid rent. Filing previous years taxes   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. Filing previous years taxes This is true no matter what accounting method or period you use. Filing previous years taxes Lease bonus. Filing previous years taxes   A bonus you receive from a lessee for granting a lease is an addition to the rent. Filing previous years taxes Include it in your gross receipts in the year received. Filing previous years taxes Lease cancellation payments. Filing previous years taxes   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Filing previous years taxes Payments to third parties. Filing previous years taxes   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. Filing previous years taxes A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Filing previous years taxes Settlement payments. Filing previous years taxes   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. Filing previous years taxes Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Filing previous years taxes ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Filing previous years taxes Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Filing previous years taxes If you receive any of those payments, include them in your gross receipts as explained in that discussion. Filing previous years taxes Interest and Dividend Income Interest and dividends may be considered business income. Filing previous years taxes Interest. Filing previous years taxes   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Filing previous years taxes Interest received on loans is business income if you are in the business of lending money. Filing previous years taxes Uncollectible loans. Filing previous years taxes   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. Filing previous years taxes If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Filing previous years taxes See Bad Debts in chapter 8. Filing previous years taxes Unstated interest. Filing previous years taxes   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Filing previous years taxes See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Filing previous years taxes Dividends. Filing previous years taxes   Generally, dividends are business income to dealers in securities. Filing previous years taxes For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Filing previous years taxes If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Filing previous years taxes   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. Filing previous years taxes To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Filing previous years taxes Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Filing previous years taxes 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. Filing previous years taxes Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Filing previous years taxes If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Filing previous years taxes Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Filing previous years taxes Price reduced after purchase. Filing previous years taxes   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. Filing previous years taxes Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Filing previous years taxes Deductible debt. Filing previous years taxes   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Filing previous years taxes Example. Filing previous years taxes You get accounting services for your business on credit. Filing previous years taxes Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Filing previous years taxes Your accountant forgives part of the amount you owe for the accounting services. Filing previous years taxes How you treat the canceled debt depends on your method of accounting. Filing previous years taxes Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Filing previous years taxes Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Filing previous years taxes   For information on the cash and accrual methods of accounting, see chapter 2. Filing previous years taxes Exclusions Do not include canceled debt in income in the following situations. Filing previous years taxes However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Filing previous years taxes For more information, see Form 982. Filing previous years taxes The cancellation takes place in a bankruptcy case under title 11 of the U. Filing previous years taxes S. Filing previous years taxes Code (relating to bankruptcy). Filing previous years taxes See Publication 908, Bankruptcy Tax Guide. Filing previous years taxes The cancellation takes place when you are insolvent. Filing previous years taxes You can exclude the canceled debt to the extent you are insolvent. Filing previous years taxes See Publication 908. Filing previous years taxes The canceled debt is a qualified farm debt owed to a qualified person. Filing previous years taxes See chapter 3 in Publication 225, Farmer's Tax Guide. Filing previous years taxes The canceled debt is a qualified real property business debt. Filing previous years taxes This situation is explained later. Filing previous years taxes The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Filing previous years taxes See Form 982. Filing previous years taxes 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. Filing previous years taxes If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Filing previous years taxes Debt. Filing previous years taxes   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Filing previous years taxes Qualified real property business debt. Filing previous years taxes   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Filing previous years taxes If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Filing previous years taxes Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Filing previous years taxes However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Filing previous years taxes Cancellation of qualified real property business debt. Filing previous years taxes   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Filing previous years taxes It was incurred or assumed in connection with real property used in a trade or business. Filing previous years taxes It was secured by such real property. Filing previous years taxes It was incurred or assumed at either of the following times. Filing previous years taxes Before January 1, 1993. Filing previous years taxes After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Filing previous years taxes It is debt to which you choose to apply these rules. Filing previous years taxes   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. Filing previous years taxes   You cannot exclude more than either of the following amounts. Filing previous years taxes 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. Filing previous years taxes The total adjusted bases of depreciable real property held by you immediately before the cancellation. Filing previous years taxes These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Filing previous years taxes Do not take into account depreciable real property acquired in contemplation of the cancellation. Filing previous years taxes Election. Filing previous years taxes   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Filing previous years taxes You must file your return by the due date (including extensions). Filing previous years taxes 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). Filing previous years taxes For more information, see When To File in the form instructions. Filing previous years taxes Other Income The following discussion explains how to treat other types of business income you may receive. Filing previous years taxes Restricted property. Filing previous years taxes   Restricted property is property that has certain restrictions that affect its value. Filing previous years taxes 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. Filing previous years taxes However, you can choose to be taxed in the year you receive the property. Filing previous years taxes For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Filing previous years taxes Gains and losses. Filing previous years taxes   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. Filing previous years taxes Instead, you must report these gains and losses on other forms. Filing previous years taxes For more information, see chapter 3. Filing previous years taxes Promissory notes. Filing previous years taxes   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. Filing previous years taxes In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Filing previous years taxes Lost income payments. Filing previous years taxes   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. Filing previous years taxes Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Filing previous years taxes Damages. Filing previous years taxes   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. Filing previous years taxes Patent infringement. Filing previous years taxes Breach of contract or fiduciary duty. Filing previous years taxes Antitrust injury. Filing previous years taxes Economic injury. Filing previous years taxes   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Filing previous years taxes Your deduction is the smaller of the following amounts. Filing previous years taxes 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. Filing previous years taxes Your loss from the injury that you have not yet deducted. Filing previous years taxes Punitive damages. Filing previous years taxes   You must also include punitive damages in income. Filing previous years taxes Kickbacks. Filing previous years taxes   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Filing previous years taxes 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. Filing previous years taxes Recovery of items previously deducted. Filing previous years taxes   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. Filing previous years taxes 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. Filing previous years taxes If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Filing previous years taxes Example. Filing previous years taxes Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Filing previous years taxes He also had 2 personal exemptions for a total of $7,800. Filing previous years taxes He would not pay income tax even if he did not deduct the bad debt. Filing previous years taxes Therefore, he will not report as income any part of the $300 he may recover in any future year. Filing previous years taxes Exception for depreciation. Filing previous years taxes   This rule does not apply to depreciation. Filing previous years taxes You recover depreciation using the rules explained next. Filing previous years taxes Recapture of depreciation. Filing previous years taxes   In the following situations, you have to recapture the depreciation deduction. Filing previous years taxes This means you include in income part or all of the depreciation you deducted in previous years. Filing previous years taxes Listed property. Filing previous years taxes   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. Filing previous years taxes You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Filing previous years taxes Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Filing previous years taxes For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Filing previous years taxes That chapter explains how to determine whether property is used more than 50% in your business. Filing previous years taxes Section 179 property. Filing previous years taxes   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. Filing previous years taxes You do this by including in income on Schedule C part of the deduction you took. Filing previous years taxes Use Part IV of Form 4797 to figure the amount to include on Schedule C. Filing previous years taxes See chapter 2 in Publication 946 to find out when you recapture the deduction. Filing previous years taxes Sale or exchange of depreciable property. Filing previous years taxes   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. Filing previous years taxes You figure the income due to depreciation recapture in Part III of Form 4797. Filing previous years taxes For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Filing previous years taxes Items That Are Not Income In some cases the property or money you receive is not income. Filing previous years taxes Appreciation. Filing previous years taxes   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Filing previous years taxes Consignments. Filing previous years taxes   Consignments of merchandise to others to sell for you are not sales. Filing previous years taxes The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Filing previous years taxes Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Filing previous years taxes Merchandise you have shipped out on consignment is included in your inventory until it is sold. Filing previous years taxes   Do not include merchandise you receive on consignment in your inventory. Filing previous years taxes 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. Filing previous years taxes Construction allowances. Filing previous years taxes   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. Filing previous years taxes Under a short-term lease of retail space. Filing previous years taxes For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Filing previous years taxes Amount you can exclude. Filing previous years taxes   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Filing previous years taxes Short-term lease. Filing previous years taxes   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Filing previous years taxes The following rules apply in determining whether the lease is for 15 years or less. Filing previous years taxes Take into account options to renew when figuring whether the lease is for 15 years or less. Filing previous years taxes But do not take into account any option to renew at fair market value determined at the time of renewal. Filing previous years taxes 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. Filing previous years taxes Retail space. Filing previous years taxes   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. Filing previous years taxes Qualified long-term real property. Filing previous years taxes   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. Filing previous years taxes Exchange of like-kind property. Filing previous years taxes   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. Filing previous years taxes This means that the gain is not taxable and the loss is not deductible. Filing previous years taxes A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Filing previous years taxes For more information, see Form 8824. Filing previous years taxes Leasehold improvements. Filing previous years taxes   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. Filing previous years taxes However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Filing previous years taxes Loans. Filing previous years taxes   Money borrowed through a bona fide loan is not income. Filing previous years taxes Sales tax. Filing previous years taxes   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. Filing previous years taxes 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). Filing previous years taxes Direct seller. Filing previous years taxes   You must report all income you receive as a direct seller on Schedule C or C-EZ. Filing previous years taxes This includes any of the following. Filing previous years taxes Income from sales—payments you receive from customers for products they buy from you. Filing previous years taxes Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Filing previous years taxes Prizes, awards, and gifts you receive from your selling business. Filing previous years taxes You must report this income regardless of whether it is reported to you on an information return. Filing previous years taxes   You are a direct seller if you meet all the following conditions. Filing previous years taxes You are engaged in one of the following trades or businesses. Filing previous years taxes 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. Filing previous years taxes Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes Executor or administrator. Filing previous years taxes   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. Filing previous years taxes A nonprofessional fiduciary (personal representative) and both of the following apply. Filing previous years taxes The estate includes an active trade or business in which you actively participate. Filing previous years taxes Your fees are related to the operation of that trade or business. Filing previous years taxes 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. Filing previous years taxes    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Filing previous years taxes Fishing crew member. Filing previous years taxes    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 . Filing previous years taxes Insurance agent, former. Filing previous years taxes   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. Filing previous years taxes You received payments after your agreement to perform services for the company ended. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes 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). Filing previous years taxes Insurance agent, retired. Filing previous years taxes   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. Filing previous years taxes Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Filing previous years taxes   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Filing previous years taxes Newspaper carrier or distributor. Filing previous years taxes   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Filing previous years taxes You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Filing previous years taxes Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Filing previous years taxes You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Filing previous years taxes   This rule applies whether or not you hire others to help you make deliveries. Filing previous years taxes It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Filing previous years taxes Newspaper or magazine vendor. Filing previous years taxes   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. Filing previous years taxes You sell newspapers or magazines to ultimate consumers. Filing previous years taxes You sell them at a fixed price. Filing previous years taxes Your earnings are based on the difference between the sales price and your cost of goods sold. Filing previous years taxes   This rule applies whether or not you are guaranteed a minimum amount of earnings. Filing previous years taxes It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Filing previous years taxes Notary public. Filing previous years taxes   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Filing previous years taxes These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Filing previous years taxes Public official. Filing previous years taxes   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Filing previous years taxes 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. Filing previous years taxes 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. Filing previous years taxes   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. Filing previous years taxes Real estate agent or direct seller. Filing previous years taxes   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. Filing previous years taxes 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. Filing previous years taxes You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Filing previous years taxes Securities dealer. Filing previous years taxes   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. Filing previous years taxes For more information, see sections 1256 and 1402(i). Filing previous years taxes Securities trader. Filing previous years taxes   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Filing previous years taxes As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Filing previous years taxes However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Filing previous years taxes For more information about securities traders, see Publication 550, Investment Income and Expenses. Filing previous years taxes Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Filing previous years taxes This section discusses some of the more common differences that may affect business transactions. Filing previous years taxes Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Filing previous years taxes 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. Filing previous years taxes Dealers in real estate are not allowed to use inventories. Filing previous years taxes For more information on inventories, see chapter 2. Filing previous years taxes Income paid to a third party. Filing previous years taxes   All income you earn is taxable to you. Filing previous years taxes You cannot avoid tax by having the income paid to a third party. Filing previous years taxes Example. Filing previous years taxes You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Filing previous years taxes The amount paid to your son is gross income to you. Filing previous years taxes Cash discounts. Filing previous years taxes   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Filing previous years taxes For income tax purposes, you can use either of the following two methods to account for cash discounts. Filing previous years taxes Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Filing previous years taxes Credit the cash discount to a discount income account. Filing previous years taxes You must use the chosen method every year for all your purchase discounts. Filing previous years taxes   If you use the second method, the credit balance in the account at the end of your tax year is business income. Filing previous years taxes Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Filing previous years taxes 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. Filing previous years taxes Trade discounts. Filing previous years taxes   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Filing previous years taxes Do not enter these discounts on your books of account. Filing previous years taxes Instead, use only the net amount as the cost of the merchandise purchased. Filing previous years taxes For more information, see Trade discounts in chapter 6. Filing previous years taxes Payment placed in escrow. Filing previous years taxes   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. Filing previous years taxes 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. Filing previous years taxes Sales returns and allowances. Filing previous years taxes   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Filing previous years taxes Advance payments. Filing previous years taxes   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Filing previous years taxes Insurance proceeds. Filing previous years taxes   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. Filing previous years taxes You cannot deduct the reimbursed part of a casualty or theft loss. Filing previous years taxes   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Filing previous years taxes Prev  Up  Next   Home   More Online Publications