File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Form 1040ez Instructions

Turbotax Military FreeCan I File My 2010 Taxes In 2013Turbotax Deluxe Federal Efile State 2009Free Income Tax Return2011 Tax ReturnsHr Block EfileFree 2011 TaxHow To File Federal And State Taxes For FreeH&r Block At Home Deluxe State 2012 DownloadAmend My Taxes Free OnlineWhere To File Federal Tax Return 20111040 Ez 2011Filing Tax Amendment1040ez WorksheetTurbotax 2011 TaxesWww Irs Gov 2011 Tax FormsFile Free Tax ReturnE File 1040nrCan You File 1040ez Online1040ex Form 2014Tax Planning Us 1040xIrs Ez Form 2013H&r Block Military Free FileTax FormsFiling Amended Tax Return OnlineWhere Can I File My State And Federal Taxes Online For FreeHow Do I File A Tax ExtensionHow To File Taxes For Self Employment IncomeIrs Gov FormsState Income Tax Forms 201110 40 Ez Tax FormTaxcut ComAmended Income Tax ReturnOnline 1040nrCan Ie File 2011 TaxesIrs ComAmend A Tax Return OnlineIrs Form 1040x 2014Irs 2012 Tax Forms 1040 InstructionsFile Federal Taxes Online Free

Form 1040ez Instructions

Form 1040ez instructions Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Form 1040ez instructions Hybrid method. Form 1040ez instructions Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Form 1040ez instructions Accounting Periods You must use a tax year to figure your taxable income. Form 1040ez instructions A tax year is an annual accounting period for keeping records and reporting income and expenses. Form 1040ez instructions An annual accounting period does not include a short tax year (discussed later). Form 1040ez instructions You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Form 1040ez instructions Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Form 1040ez instructions A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Form 1040ez instructions You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Form 1040ez instructions This section discusses: A calendar year. Form 1040ez instructions A fiscal year (including a period of 52 or 53 weeks). Form 1040ez instructions A short tax year. Form 1040ez instructions An improper tax year. Form 1040ez instructions A change in tax year. Form 1040ez instructions Special situations that apply to individuals. Form 1040ez instructions Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Form 1040ez instructions Special situations that apply to corporations. Form 1040ez instructions Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Form 1040ez instructions If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Form 1040ez instructions If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Form 1040ez instructions See Change in Tax Year, later. Form 1040ez instructions Generally, anyone can adopt the calendar year. Form 1040ez instructions However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Form 1040ez instructions Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Form 1040ez instructions If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Form 1040ez instructions 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Form 1040ez instructions If you make this election, your 52-53-week tax year must always end on the same day of the week. Form 1040ez instructions Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Form 1040ez instructions For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Form 1040ez instructions Election. Form 1040ez instructions   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Form 1040ez instructions The month in which the new 52-53-week tax year ends. Form 1040ez instructions The day of the week on which the tax year always ends. Form 1040ez instructions The date the tax year ends. Form 1040ez instructions It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Form 1040ez instructions   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Form 1040ez instructions   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Form 1040ez instructions Example. Form 1040ez instructions Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Form 1040ez instructions For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Form 1040ez instructions Short Tax Year A short tax year is a tax year of less than 12 months. Form 1040ez instructions A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Form 1040ez instructions Tax on a short period tax return is figured differently for each situation. Form 1040ez instructions Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Form 1040ez instructions Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Form 1040ez instructions Example 1. Form 1040ez instructions XYZ Corporation was organized on July 1, 2012. Form 1040ez instructions It elected the calendar year as its tax year. Form 1040ez instructions Therefore, its first tax return was due March 15, 2013. Form 1040ez instructions This short period return will cover the period from July 1, 2012, through December 31, 2012. Form 1040ez instructions Example 2. Form 1040ez instructions A calendar year corporation dissolved on July 23, 2012. Form 1040ez instructions Its final return is due by October 15, 2012. Form 1040ez instructions It will cover the short period from January 1, 2012, through July 23, 2012. Form 1040ez instructions Death of individual. Form 1040ez instructions   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Form 1040ez instructions The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Form 1040ez instructions In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Form 1040ez instructions Example. Form 1040ez instructions   Agnes Green was a single, calendar year taxpayer. Form 1040ez instructions She died on March 6, 2012. Form 1040ez instructions Her final income tax return must be filed by April 15, 2013. Form 1040ez instructions It will cover the short period from January 1, 2012, to March 6, 2012. Form 1040ez instructions Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Form 1040ez instructions The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Form 1040ez instructions Figure tax for a short year under the general rule, explained below. Form 1040ez instructions You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Form 1040ez instructions General rule. Form 1040ez instructions   Income tax for a short tax year must be annualized. Form 1040ez instructions However, self-employment tax is figured on the actual self-employment income for the short period. Form 1040ez instructions Individuals. Form 1040ez instructions   An individual must figure income tax for the short tax year as follows. Form 1040ez instructions Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Form 1040ez instructions You must itemize deductions when you file a short period tax return. Form 1040ez instructions Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Form 1040ez instructions Subtract the amount in (2) from the amount in (1). Form 1040ez instructions The result is your modified taxable income. Form 1040ez instructions Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Form 1040ez instructions The result is your annualized income. Form 1040ez instructions Figure the total tax on your annualized income using the appropriate tax rate schedule. Form 1040ez instructions Multiply the total tax by the number of months in the short tax year and divide the result by 12. Form 1040ez instructions The result is your tax for the short tax year. Form 1040ez instructions Relief procedure. Form 1040ez instructions   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Form 1040ez instructions It may result in less tax. Form 1040ez instructions Under this procedure, the tax is figured by two separate methods. Form 1040ez instructions If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Form 1040ez instructions For more information, see section 443(b)(2) of the Internal Revenue Code. Form 1040ez instructions Alternative minimum tax. Form 1040ez instructions   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Form 1040ez instructions Multiply the AMTI by 12. Form 1040ez instructions Divide the result by the number of months in the short tax year. Form 1040ez instructions Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Form 1040ez instructions The result is the annualized AMT. Form 1040ez instructions Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Form 1040ez instructions   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Form 1040ez instructions For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Form 1040ez instructions Tax withheld from wages. Form 1040ez instructions   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Form 1040ez instructions Federal income tax is withheld on a calendar year basis. Form 1040ez instructions The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Form 1040ez instructions Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Form 1040ez instructions For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Form 1040ez instructions See Accounting Periods, earlier, for a description of permissible tax years. Form 1040ez instructions To change to a proper tax year, you must do one of the following. Form 1040ez instructions If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Form 1040ez instructions Attach a completed Form 1128 to the amended tax return. Form 1040ez instructions Write “FILED UNDER REV. Form 1040ez instructions PROC. Form 1040ez instructions 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Form 1040ez instructions If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Form 1040ez instructions Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Form 1040ez instructions See the Instructions for Form 1128 for exceptions. Form 1040ez instructions If you qualify for an automatic approval request, a user fee is not required. Form 1040ez instructions Individuals Generally, individuals must adopt the calendar year as their tax year. Form 1040ez instructions An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Form 1040ez instructions Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Form 1040ez instructions A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Form 1040ez instructions The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Form 1040ez instructions The following discussions provide the rules for partnerships, S corporations, and PSCs. Form 1040ez instructions Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Form 1040ez instructions The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Form 1040ez instructions The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Form 1040ez instructions The partnership can establish a business purpose for a different tax year. Form 1040ez instructions The rules for the required tax year for partnerships are as follows. Form 1040ez instructions If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Form 1040ez instructions If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Form 1040ez instructions A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Form 1040ez instructions If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Form 1040ez instructions If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Form 1040ez instructions Least aggregate deferral of income. Form 1040ez instructions   The tax year that results in the least aggregate deferral of income is determined as follows. Form 1040ez instructions Figure the number of months of deferral for each partner using one partner's tax year. Form 1040ez instructions Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Form 1040ez instructions Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Form 1040ez instructions Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Form 1040ez instructions Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Form 1040ez instructions   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Form 1040ez instructions If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Form 1040ez instructions However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Form 1040ez instructions Example. Form 1040ez instructions A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Form 1040ez instructions A uses the calendar year and B uses a fiscal year ending November 30. Form 1040ez instructions P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Form 1040ez instructions Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Form 1040ez instructions 5 -0- -0- B 11/30 0. Form 1040ez instructions 5 11 5. Form 1040ez instructions 5 Total Deferral 5. Form 1040ez instructions 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Form 1040ez instructions 5 1 0. Form 1040ez instructions 5 B 11/30 0. Form 1040ez instructions 5 -0- -0- Total Deferral 0. Form 1040ez instructions 5 When determination is made. Form 1040ez instructions   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Form 1040ez instructions However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Form 1040ez instructions This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Form 1040ez instructions Short period return. Form 1040ez instructions   When a partnership changes its tax year, a short period return must be filed. Form 1040ez instructions The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Form 1040ez instructions   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Form 1040ez instructions The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Form 1040ez instructions 706-1. Form 1040ez instructions ” More information. Form 1040ez instructions   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Form 1040ez instructions S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Form 1040ez instructions A permitted tax year is any of the following. Form 1040ez instructions The calendar year. Form 1040ez instructions A tax year elected under section 444 of the Internal Revenue Code. Form 1040ez instructions See Section 444 Election, below for details. Form 1040ez instructions A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Form 1040ez instructions Any other tax year for which the corporation establishes a business purpose. Form 1040ez instructions If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Form 1040ez instructions For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Form 1040ez instructions Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Form 1040ez instructions The corporation makes an election under section 444 of the Internal Revenue Code. Form 1040ez instructions See Section 444 Election, below for details. Form 1040ez instructions The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Form 1040ez instructions The corporation establishes a business purpose for a fiscal year. Form 1040ez instructions See the Instructions for Form 1120 for general information about PSCs. Form 1040ez instructions For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Form 1040ez instructions Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Form 1040ez instructions Certain restrictions apply to the election. Form 1040ez instructions A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Form 1040ez instructions The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Form 1040ez instructions A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Form 1040ez instructions It is not a member of a tiered structure (defined in section 1. Form 1040ez instructions 444-2T of the regulations). Form 1040ez instructions It has not previously had a section 444 election in effect. Form 1040ez instructions It elects a year that meets the deferral period requirement. Form 1040ez instructions Deferral period. Form 1040ez instructions   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Form 1040ez instructions Retaining tax year. Form 1040ez instructions   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Form 1040ez instructions This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Form 1040ez instructions Adopting or changing tax year. Form 1040ez instructions   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Form 1040ez instructions The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Form 1040ez instructions This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Form 1040ez instructions If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Form 1040ez instructions Example 1. Form 1040ez instructions BD Partnership uses a calendar year, which is also its required tax year. Form 1040ez instructions BD cannot make a section 444 election because the deferral period is zero. Form 1040ez instructions Example 2. Form 1040ez instructions E, a newly formed partnership, began operations on December 1. Form 1040ez instructions E is owned by calendar year partners. Form 1040ez instructions E wants to make a section 444 election to adopt a September 30 tax year. Form 1040ez instructions E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Form 1040ez instructions Making the election. Form 1040ez instructions   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Form 1040ez instructions Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Form 1040ez instructions For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Form 1040ez instructions Note. Form 1040ez instructions If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Form 1040ez instructions   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Form 1040ez instructions Example 1. Form 1040ez instructions AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Form 1040ez instructions AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Form 1040ez instructions Example 2. Form 1040ez instructions The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Form 1040ez instructions AB must file Form 8716 by March 17, 2013. Form 1040ez instructions Example 3. Form 1040ez instructions B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Form 1040ez instructions B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Form 1040ez instructions B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Form 1040ez instructions Note. Form 1040ez instructions The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Form 1040ez instructions Extension of time for filing. Form 1040ez instructions   There is an automatic extension of 12 months to make this election. Form 1040ez instructions See the Form 8716 instructions for more information. Form 1040ez instructions Terminating the election. Form 1040ez instructions   The section 444 election remains in effect until it is terminated. Form 1040ez instructions If the election is terminated, another section 444 election cannot be made for any tax year. Form 1040ez instructions   The election ends when any of the following applies to the partnership, S corporation, or PSC. Form 1040ez instructions The entity changes to its required tax year. Form 1040ez instructions The entity liquidates. Form 1040ez instructions The entity becomes a member of a tiered structure. Form 1040ez instructions The IRS determines that the entity willfully failed to comply with the required payments or distributions. Form 1040ez instructions   The election will also end if either of the following events occur. Form 1040ez instructions An S corporation's S election is terminated. Form 1040ez instructions However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Form 1040ez instructions A PSC ceases to be a PSC. Form 1040ez instructions If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Form 1040ez instructions Required payment for partnership or S corporation. Form 1040ez instructions   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Form 1040ez instructions The required payment for that year (or any preceding tax year) is more than $500. Form 1040ez instructions    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Form 1040ez instructions   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Form 1040ez instructions If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Form 1040ez instructions If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Form 1040ez instructions Applicable election year. Form 1040ez instructions   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Form 1040ez instructions Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Form 1040ez instructions Required distribution for PSC. Form 1040ez instructions   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Form 1040ez instructions If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Form 1040ez instructions The amount deferred is treated as paid or incurred in the following tax year. Form 1040ez instructions   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Form 1040ez instructions Back-up election. Form 1040ez instructions   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Form 1040ez instructions If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Form 1040ez instructions Making back-up election. Form 1040ez instructions   The general rules for making a section 444 election, as discussed earlier, apply. Form 1040ez instructions When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Form 1040ez instructions However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Form 1040ez instructions Activating election. Form 1040ez instructions   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Form 1040ez instructions The due date for filing Form 8752 and making the payment is the later of the following dates. Form 1040ez instructions May 15 of the calendar year following the calendar year in which the applicable election year begins. Form 1040ez instructions 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Form 1040ez instructions   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Form 1040ez instructions ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Form 1040ez instructions A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Form 1040ez instructions However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Form 1040ez instructions Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Form 1040ez instructions See the Instructions for Form 1128 for details. Form 1040ez instructions Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Form 1040ez instructions A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Form 1040ez instructions An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Form 1040ez instructions Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Form 1040ez instructions See the Instructions for Form 1128 for details. Form 1040ez instructions Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Form 1040ez instructions Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Form 1040ez instructions You choose an accounting method when you file your first tax return. Form 1040ez instructions If you later want to change your accounting method, you must get IRS approval. Form 1040ez instructions See Change in Accounting Method, later. Form 1040ez instructions No single accounting method is required of all taxpayers. Form 1040ez instructions You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Form 1040ez instructions In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Form 1040ez instructions You must use the same accounting method from year to year. Form 1040ez instructions An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Form 1040ez instructions If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Form 1040ez instructions Methods you can use. Form 1040ez instructions   In general, you can compute your taxable income under any of the following accounting methods. Form 1040ez instructions Cash method. Form 1040ez instructions Accrual method. Form 1040ez instructions Special methods of accounting for certain items of income and expenses. Form 1040ez instructions A hybrid method which combines elements of two or more of the above accounting methods. Form 1040ez instructions The cash and accrual methods of accounting are explained later. Form 1040ez instructions Special methods. Form 1040ez instructions   This publication does not discuss special methods of accounting for certain items of income or expenses. Form 1040ez instructions For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Form 1040ez instructions The following publications also discuss special methods of reporting income or expenses. Form 1040ez instructions Publication 225, Farmer's Tax Guide. Form 1040ez instructions Publication 535, Business Expenses. Form 1040ez instructions Publication 537, Installment Sales. Form 1040ez instructions Publication 946, How To Depreciate Property. Form 1040ez instructions Hybrid method. Form 1040ez instructions   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Form 1040ez instructions However, the following restrictions apply. Form 1040ez instructions If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Form 1040ez instructions See Exceptions under Inventories, later. Form 1040ez instructions Generally, you can use the cash method for all other items of income and expenses. Form 1040ez instructions See Inventories, later. Form 1040ez instructions If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Form 1040ez instructions If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Form 1040ez instructions Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Form 1040ez instructions Business and personal items. Form 1040ez instructions   You can account for business and personal items using different accounting methods. Form 1040ez instructions For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Form 1040ez instructions Two or more businesses. Form 1040ez instructions   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Form 1040ez instructions No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Form 1040ez instructions Note. Form 1040ez instructions If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Form 1040ez instructions Cash Method Most individuals and many small businesses use the cash method of accounting. Form 1040ez instructions Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Form 1040ez instructions See Inventories, later, for exceptions to this rule. Form 1040ez instructions Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Form 1040ez instructions If you receive property and services, you must include their fair market value (FMV) in income. Form 1040ez instructions Constructive receipt. Form 1040ez instructions   Income is constructively received when an amount is credited to your account or made available to you without restriction. Form 1040ez instructions You need not have possession of it. Form 1040ez instructions If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Form 1040ez instructions Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Form 1040ez instructions Example. Form 1040ez instructions You are a calendar year taxpayer. Form 1040ez instructions Your bank credited, and made available, interest to your bank account in December 2012. Form 1040ez instructions You did not withdraw it or enter it into your books until 2013. Form 1040ez instructions You must include the amount in gross income for 2012, the year you constructively received it. Form 1040ez instructions You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Form 1040ez instructions You must report the income in the year the property is received or made available to you without restriction. Form 1040ez instructions Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Form 1040ez instructions This includes business expenses for which you contest liability. Form 1040ez instructions However, you may not be able to deduct an expense paid in advance. Form 1040ez instructions Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Form 1040ez instructions Expense paid in advance. Form 1040ez instructions   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Form 1040ez instructions   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Form 1040ez instructions 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Form 1040ez instructions   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Form 1040ez instructions See Change in Accounting Method, later. Form 1040ez instructions Example 1. Form 1040ez instructions You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Form 1040ez instructions The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Form 1040ez instructions Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Form 1040ez instructions Example 2. Form 1040ez instructions You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Form 1040ez instructions The 12-month rule applies. Form 1040ez instructions Therefore, the full $10,000 is deductible in 2012. Form 1040ez instructions Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Form 1040ez instructions (See Special rules for farming businesses, later. Form 1040ez instructions ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Form 1040ez instructions See Gross receipts test, below. Form 1040ez instructions A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Form 1040ez instructions See Gross receipts test, below. Form 1040ez instructions A tax shelter. Form 1040ez instructions Exceptions The following entities are not prohibited from using the cash method of accounting. Form 1040ez instructions Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Form 1040ez instructions A qualified personal service corporation (PSC). Form 1040ez instructions Gross receipts test. Form 1040ez instructions   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Form 1040ez instructions A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Form 1040ez instructions    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Form 1040ez instructions See Gross receipts test for qualifying taxpayers, for more information. Form 1040ez instructions Generally, a partnership applies the test at the partnership level. Form 1040ez instructions Gross receipts for a short tax year are annualized. Form 1040ez instructions Aggregation rules. Form 1040ez instructions   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Form 1040ez instructions Change to accrual method. Form 1040ez instructions   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Form 1040ez instructions Special rules for farming businesses. Form 1040ez instructions   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Form 1040ez instructions However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Form 1040ez instructions For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Form 1040ez instructions   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Form 1040ez instructions For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Form 1040ez instructions See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Form 1040ez instructions Qualified PSC. Form 1040ez instructions   A PSC that meets the following function and ownership tests can use the cash method. Form 1040ez instructions Function test. Form 1040ez instructions   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Form 1040ez instructions Ownership test. Form 1040ez instructions   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Form 1040ez instructions Employees performing services for the corporation in a field qualifying under the function test. Form 1040ez instructions Retired employees who had performed services in those fields. Form 1040ez instructions The estate of an employee described in (1) or (2). Form 1040ez instructions Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Form 1040ez instructions   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Form 1040ez instructions Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Form 1040ez instructions Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Form 1040ez instructions   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Form 1040ez instructions Change to accrual method. Form 1040ez instructions   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Form 1040ez instructions A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Form 1040ez instructions Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Form 1040ez instructions The purpose of an accrual method of accounting is to match income and expenses in the correct year. Form 1040ez instructions Income Generally, you include an amount in 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. Form 1040ez instructions Under this rule, you report an amount in your gross income on the earliest of the following dates. Form 1040ez instructions When you receive payment. Form 1040ez instructions When the income amount is due to you. Form 1040ez instructions When you earn the income. Form 1040ez instructions When title has passed. Form 1040ez instructions Estimated income. Form 1040ez instructions   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 you make that determination. Form 1040ez instructions Change in payment schedule. Form 1040ez instructions   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 reduced rate. Form 1040ez instructions Continue this procedure until you complete the services, then account for the difference. Form 1040ez instructions Advance Payment for Services 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. Form 1040ez instructions 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. Form 1040ez instructions However, you cannot postpone including any payment beyond that tax year. Form 1040ez instructions Service agreement. Form 1040ez instructions   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Form 1040ez instructions This includes an agreement providing for incidental replacement of parts or materials. Form 1040ez instructions However, this applies only if you offer the property without a service agreement in the normal course of business. Form 1040ez instructions Postponement not allowed. Form 1040ez instructions   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Form 1040ez instructions You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Form 1040ez instructions You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Form 1040ez instructions Examples. Form 1040ez instructions   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Form 1040ez instructions Example 1. Form 1040ez instructions You manufacture, sell, and service computers. Form 1040ez instructions You received payment in 2012 for a one-year contingent service contract on a computer you sold. Form 1040ez instructions You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Form 1040ez instructions Example 2. Form 1040ez instructions You are in the television repair business. Form 1040ez instructions You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Form 1040ez instructions You include the payments in gross income as you earn them. Form 1040ez instructions Example 3. Form 1040ez instructions You own a dance studio. Form 1040ez instructions On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Form 1040ez instructions You give eight lessons in 2012. Form 1040ez instructions Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Form 1040ez instructions Example 4. Form 1040ez instructions Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Form 1040ez instructions You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Form 1040ez instructions Guarantee or warranty. Form 1040ez instructions   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Form 1040ez instructions Prepaid rent. Form 1040ez instructions   You cannot postpone reporting income from prepaid rent. Form 1040ez instructions Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Form 1040ez instructions You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Form 1040ez instructions Books and records. Form 1040ez instructions   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Form 1040ez instructions Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Form 1040ez instructions IRS approval. Form 1040ez instructions   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Form 1040ez instructions Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Form 1040ez instructions However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Form 1040ez instructions An agreement includes a gift certificate that can be redeemed for goods. Form 1040ez instructions Amounts due and payable are considered received. Form 1040ez instructions How to report payments. Form 1040ez instructions   Generally, include an advance payment in income in the year in which you receive it. Form 1040ez instructions However, you can use the alternative method, discussed next. Form 1040ez instructions Alternative method of reporting. Form 1040ez instructions   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Form 1040ez instructions Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Form 1040ez instructions Example 1. Form 1040ez instructions You are a retailer. Form 1040ez instructions You use an accrual method of accounting and account for the sale of goods when you ship the goods. Form 1040ez instructions You use this method for both tax and financial reporting purposes. Form 1040ez instructions You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Form 1040ez instructions However, see Exception for inventory goods, later. Form 1040ez instructions Example 2. Form 1040ez instructions You are a calendar year taxpayer. Form 1040ez instructions You manufacture household furniture and use an accrual method of accounting. Form 1040ez instructions Under this method, you accrue income for your financial reports when you ship the furniture. Form 1040ez instructions For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Form 1040ez instructions In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Form 1040ez instructions You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Form 1040ez instructions For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Form 1040ez instructions Information schedule. Form 1040ez instructions   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Form 1040ez instructions Total advance payments received in the current tax year. Form 1040ez instructions Total advance payments received in earlier tax years and not included in income before the current tax year. Form 1040ez instructions Total payments received in earlier tax years included in income for the current tax year. Form 1040ez instructions Exception for inventory goods. Form 1040ez instructions   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Form 1040ez instructions You account for the advance payment under the alternative method (discussed earlier). Form 1040ez instructions You have received a substantial advance payment on the agreement (discussed next). Form 1040ez instructions You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Form 1040ez instructions These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Form 1040ez instructions   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Form 1040ez instructions You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Form 1040ez instructions If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Form 1040ez instructions Note. Form 1040ez instructions You must report any advance payments you receive after the second year in the year received. Form 1040ez instructions No further deferral is allowed. Form 1040ez instructions Substantial advance payments. Form 1040ez instructions   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Form 1040ez instructions Example. Form 1040ez instructions You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Form 1040ez instructions In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Form 1040ez instructions The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Form 1040ez instructions You receive the following advance payments under the contract. Form 1040ez instructions 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Form 1040ez instructions In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Form 1040ez instructions Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Form 1040ez instructions   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Form 1040ez instructions You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Form 1040ez instructions If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Form 1040ez instructions   No further deferral is allowed. Form 1040ez instructions You must include in gross income the advance payment you receive each remaining year of the contract. Form 1040ez instructions Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Form 1040ez instructions IRS approval. Form 1040ez instructions   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Form 1040ez instructions Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Form 1040ez instructions The all-events test has been met. Form 1040ez instructions The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Form 1040ez instructions Economic performance has occurred. Form 1040ez instructions Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Form 1040ez instructions 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 the property is used. Form 1040ez instructions If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Form 1040ez instructions Example. Form 1040ez instructions You are a calendar year taxpayer. Form 1040ez instructions You buy office supplies in December 2012. Form 1040ez instructions You receive the supplies and the bill in December, but you pay the bill in January 2013. Form 1040ez instructions You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Form 1040ez instructions Your office supplies may qualify as a recurring item, discussed later. Form 1040ez instructions If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Form 1040ez instructions Workers' compensation and tort liability. Form 1040ez instructions   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Form 1040ez instructions If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Form 1040ez instructions Taxes. Form 1040ez instructions   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Form 1040ez instructions are paid. Form 1040ez instructions However, you can elect to treat taxes as a recurring item, discussed later. Form 1040ez instructions You can also elect to ratably accrue real estate taxes. Form 1040ez instructions See chapter 5 of Publication 535 for information about real estate taxes. Form 1040ez instructions Other liabilities. Form 1040ez instructions   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Form 1040ez instructions Interest. Form 1040ez instructions   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Form 1040ez instructions Compensation for services. Form 1040ez instructions   Generally, economic performance occurs as an employee renders service to the employer. Form 1040ez instructions However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Form 1040ez instructions For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Form 1040ez instructions Vacation pay. Form 1040ez instructions   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Form 1040ez instructions If you pay it later than this, you must deduct it in the year actually paid. Form 1040ez instructions An amount is vested if your right to it cannot be nullified or cancelled. Form 1040ez instructions Exception for recurring items. Form 1040ez instructions   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Form 1040ez instructions The exception applies if all the following requirements are met. Form 1040ez instructions The all-events test, discussed earlier, is met. Form 1040ez instructions Economic performance occurs by the earlier of the following dates. Form 1040ez instructions 8½ months after the close of the year. Form 1040ez instructions The date you file a timely return (including extensions) for the year. Form 1040ez instructions The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Form 1040ez instructions Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Form 1040ez instructions This exception does not apply to workers' compensation or tort liabilities. Form 1040ez instructions Amended return. Form 1040ez instructions   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Form 1040ez instructions You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Form 1040ez instructions Recurrence and consistency. Form 1040ez instructions   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Form 1040ez instructions A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Form 1040ez instructions Materiality. Form 1040ez instructions   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Form 1040ez instructions   An item considered material for financial statement purposes is also considered material for tax purposes. Form 1040ez instructions However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Form 1040ez instructions Matching expenses with income. Form 1040ez instructions   Costs directly associated with the revenue of a period are properly allocable to that period. Form 1040ez instructions To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Form 1040ez instructions fasab. Form 1040ez instructions gov/accepted. Form 1040ez instructions html) are an important factor. Form 1040ez instructions   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Form 1040ez instructions Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Form 1040ez instructions However, the matching requirement is considered met for certain types of expenses. Form 1040ez instructions These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Form 1040ez instructions Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Form 1040ez instructions Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Form 1040ez instructions 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Form 1040ez instructions If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Form 1040ez instructions See Change in Accounting Method, later, for information on how to get IRS approval. Form 1040ez instructions See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Form 1040ez instructions Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Form 1040ez instructions Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Form 1040ez instructions See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Form 1040ez instructions Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Form 1040ez instructions If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Form 1040ez instructions However, see Exceptions, next. Form 1040ez instructions See also Accrual Method, earlier. Form 1040ez instructions To figure taxable income, you must value your inventory at the beginning and end of each tax year. Form 1040ez instructions To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Form 1040ez instructions See Identifying Cost and Valuing Inventory, later. Form 1040ez instructions The rules for valuing inventory are not the same for all businesses. Form 1040ez instructions The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Form 1040ez instructions Your inventory practices must be consistent from year to year. Form 1040ez instructions The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Form 1040ez instructions Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Form 1040ez instructions These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Form 1040ez instructions A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Form 1040ez instructions irs. Form 1040ez instructions gov/pub/irs-irbs/irb01–02. Form 1040ez instructions pdf. Form 1040ez instructions A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Form 1040ez instructions irs. Form 1040ez instructions gov/pub/irs-irbs/irb02–18. Form 1040ez instructions pdf. Form 1040ez instructions In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Form 1040ez instructions Qualifying taxpayer. Form 1040ez instructions   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Form 1040ez instructions Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Form 1040ez instructions You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Form 1040ez instructions Gross receipts test for qualifying taxpayers. Form 1040ez instructions   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Form 1040ez instructions List each of the test years. Form 1040ez instructions For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Form 1040ez instructions Step 2. Form 1040ez instructions Determine your average annual gross receipts for each test year listed in Step 1. Form 1040ez instructions Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Form 1040ez instructions Step 3. Form 1040ez instructions You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Form 1040ez instructions Qualifying small business taxpayer. Form 1040ez instructions   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Form 1040ez instructions Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Form 1040ez instructions You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Form 1040ez instructions Your principle business activity is an eligible business. Form 1040ez instructions See Eligible business, later. Form 1040ez instructions You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Form 1040ez instructions Note. Form 1040ez instructions Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Form 1040ez instructions A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Form 1040ez instructions See Special rules for farming businesses under Cash Method, earlier. Form 1040ez instructions Gross receipts test for qualifying small business taxpayers. Form 1040ez instructions   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Form 1040ez instructions List each of the test years. Form 1040ez instructions For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Form 1040ez instructions Step 2. Form 1040ez instructions Determine your average annual gross receipts for each test year listed in Step 1. Form 1040ez instructions Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Form 1040ez instructions Step 3. Form 1040ez instructions You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Form 1040ez instructions Eligible business. Form 1040ez instructions   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Form 1040ez instructions You have an eligible business if you meet any of the following requirements. Form 1040ez instructions Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Form 1040ez instructions NAICS codes 31-33 (manufacturing). Form 1040ez instructions NAICS code 42 (wholesale trade). Form 1040ez instructions NAICS codes 44-45 (retail trade). Form 1040ez instructions NAICS codes 5111 and 5122 (information industries). Form 1040ez instructions Your principal business activity is the provision of services, including the provision of property incident to those services. Form 1040ez instructions Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Form 1040ez instructions   Information about the NAICS codes can be found at http://www. Form 1040ez instructions census. Form 1040ez instructions gov/naics or in the instructions for your federal income tax return. Form 1040ez instructions Gross receipts. Form 1040ez instructions   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Form 1040ez instructions See the definit
 
Print - Click this link to Print this page

IRS.gov Accessibility

What is Accessibility?
Accessibility refers to ensuring that access to information is available to the widest possible audience.

Accessible Forms & Publications
Select from a list of accessible tax forms, publications, large print, and "talking" tax forms.

American Sign Language (ASL) videos
Select from a list of ASL videos hosted on the IRS YouTube channel.

Accessibility Features of the Website
IRS has implemented numerous accessibility features in compliance with federal regulations.

User Comments
We invite you to comment on our web site accessibility policies.

Change Text Size
Hints for increasing or decreasing the font size on IRS.gov.

Page Last Reviewed or Updated: 19-Mar-2014

The Form 1040ez Instructions

Form 1040ez instructions Publication 595 - Introductory Material Table of Contents Introduction Important Reminder Introduction This publication discusses the Capital Construction Fund (CCF). Form 1040ez instructions The CCF is a special investment program administered by the National Marine Fisheries Service (NMFS) and the Internal Revenue Service (IRS). Form 1040ez instructions This program allows fishermen to defer paying income tax on certain income they invest in a CCF account and later use to acquire, build, or rebuild fishing vessels. Form 1040ez instructions This publication does not discuss all the tax rules that may apply to your fishing trade or business. Form 1040ez instructions For general information about the federal tax laws that apply to individuals, including commercial fishermen, who file Schedule C or C-EZ, see Publication 334, Tax Guide for Small Business. Form 1040ez instructions If your trade or business is a partnership or corporation, see Publication 541, Partnerships, or Publication 542, Corporations. Form 1040ez instructions Comments and suggestions. Form 1040ez instructions   We welcome your comments about this publication and your suggestions for future editions. Form 1040ez instructions   You can email us at *taxforms@irs. Form 1040ez instructions gov. Form 1040ez instructions Please put “Publications Comment” on the subject line. Form 1040ez instructions   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. Form 1040ez instructions NW, IR-6406 Washington, DC 20224   We respond to many letters by telephone. Form 1040ez instructions Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Form 1040ez instructions Important Reminder Photographs of missing children. Form 1040ez instructions  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Form 1040ez instructions Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Form 1040ez instructions You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Form 1040ez instructions Prev  Up  Next   Home   More Online Publications