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Hr Block Free File

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Hr Block Free File

Hr block free file Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Hr block free file More information. Hr block free file Exception—Community Income. Hr block free file Exception—Qualified joint venture. Hr block free file More information. Hr block free file More information. Hr block free file Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Hr block free file Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Hr block free file Table 1 can help you learn what those responsibilities are. Hr block free file Ask yourself each question listed in the table, then see the related discussion to find the answer. Hr block free file In addition to knowing about federal taxes, you need to make some basic business decisions. Hr block free file Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Hr block free file For information on how to contact the SBA, see How to Get More Information, later. Hr block free file Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Hr block free file When beginning a business, you must decide which form of business to use. Hr block free file Legal and tax considerations enter into this decision. Hr block free file Only tax considerations are discussed in this publication. Hr block free file Your form of business determines which income tax return form you have to file. Hr block free file See Table 2 to find out which form you have to file. Hr block free file Sole proprietorships. Hr block free file   A sole proprietorship is an unincorporated business that is owned by one individual. Hr block free file It is the simplest form of business organization to start and maintain. Hr block free file The business has no existence apart from you, the owner. Hr block free file Its liabilities are your personal liabilities. Hr block free file You undertake the risks of the business for all assets owned, whether or not used in the business. Hr block free file You include the income and expenses of the business on your personal tax return. Hr block free file More information. Hr block free file   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Hr block free file If you are a farmer, see Publication 225, Farmer's Tax Guide. Hr block free file Partnerships. Hr block free file   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Hr block free file Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Hr block free file   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Hr block free file , from its operations, but it does not pay income tax. Hr block free file Instead, it “passes through” any profits or losses to its partners. Hr block free file Each partner includes his or her share of the partnership's items on his or her tax return. Hr block free file More information. Hr block free file   For more information on partnerships, see Publication 541, Partnerships. Hr block free file Husband and wife business. Hr block free file   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Hr block free file Do not use Schedule C or C-EZ. Hr block free file Instead, file Form 1065, U. Hr block free file S. Hr block free file Return of Partnership Income. Hr block free file For more information, see Publication 541, Partnerships. Hr block free file Exception—Community Income. Hr block free file   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Hr block free file S. Hr block free file possession, you can treat the business either as a sole proprietorship or a partnership. Hr block free file The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Hr block free file A change in your reporting position will be treated as a conversion of the entity. Hr block free file Exception—Qualified joint venture. Hr block free file   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Hr block free file Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Hr block free file For an explanation of "material participation," see the Instructions for Schedule C, line G. Hr block free file   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Hr block free file Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Hr block free file For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Hr block free file Corporations. Hr block free file   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Hr block free file A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Hr block free file A corporation can also take special deductions. Hr block free file   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Hr block free file However, shareholders cannot deduct any loss of the corporation. Hr block free file More information. Hr block free file   For more information on corporations, see Publication 542, Corporations. Hr block free file S corporations. Hr block free file   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Hr block free file Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Hr block free file On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Hr block free file More information. Hr block free file   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Hr block free file S. Hr block free file Income Tax Return for an S Corporation. Hr block free file Limited liability company. Hr block free file   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Hr block free file The members of an LLC are not personally liable for its debts. Hr block free file An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Hr block free file 7701-3. Hr block free file For more information, see the instructions for Form 8832, Entity Classification Election. Hr block free file Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Hr block free file The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Hr block free file An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Hr block free file An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Hr block free file You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Hr block free file You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Hr block free file This includes returns or documents filed to report the following information. Hr block free file Interest, dividends, royalties, etc. Hr block free file , paid to you. Hr block free file Any amount paid to you as a dependent care provider. Hr block free file Certain other amounts paid to you that total $600 or more for the year. Hr block free file If you do not furnish your identification number as required, you may be subject to penalties. Hr block free file See Penalties, later. Hr block free file Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Hr block free file If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Hr block free file Applying for an EIN. Hr block free file   You may apply for an EIN: Online—Click on the EIN link at www. Hr block free file irs. Hr block free file gov/businesses/small. Hr block free file The EIN is issued immediately once the application information is validated. Hr block free file By telephone at 1-800-829-4933. Hr block free file By mailing or faxing Form SS-4, Application for Employer Identification Number. Hr block free file When to apply. Hr block free file   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Hr block free file If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Hr block free file If you apply by telephone or through the IRS website, you can get an EIN immediately. Hr block free file If you apply by fax, you can get an EIN within 4 business days. Hr block free file   If you do not receive your EIN by the time a return is due, file your return anyway. Hr block free file Write “Applied for” and the date you applied for the number in the space for the EIN. Hr block free file Do not use your social security number as a substitute for an EIN on your tax returns. Hr block free file More than one EIN. Hr block free file   You should have only one EIN. Hr block free file If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Hr block free file Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Hr block free file The IRS will tell you which number to use. Hr block free file More information. Hr block free file   For more information about EINs, see Publication 1635, Understanding Your EIN. Hr block free file Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Hr block free file The forms used to report these payments must include the payee's identification number. Hr block free file Employee. Hr block free file   If you have employees, you must get an SSN from each of them. Hr block free file Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Hr block free file If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Hr block free file This may occur, for example, if the employee's name has changed due to marriage or divorce. Hr block free file   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Hr block free file This form is available at SSA offices or by calling 1-800-772-1213. Hr block free file It is also available from the SSA website at www. Hr block free file ssa. Hr block free file gov. Hr block free file Other payee. Hr block free file   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Hr block free file If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Hr block free file   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Hr block free file This form is available from IRS offices or by calling 1-800-829-3676. Hr block free file It is also available from the IRS website at IRS. Hr block free file gov. Hr block free file    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Hr block free file For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Hr block free file Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Hr block free file A tax year is usually 12 consecutive months. Hr block free file There are two kinds of tax years. Hr block free file Calendar tax year. Hr block free file A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Hr block free file Fiscal tax year. Hr block free file A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Hr block free file A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Hr block free file If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Hr block free file You must use a calendar tax year if: You keep no books. Hr block free file You have no annual accounting period. Hr block free file Your present tax year does not qualify as a fiscal year. Hr block free file You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Hr block free file For more information, see Publication 538, Accounting Periods and Methods. Hr block free file First-time filer. Hr block free file   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Hr block free file You adopt a tax year by filing your first income tax return using that tax year. Hr block free file You have not adopted a tax year if you merely did any of the following. Hr block free file Filed an application for an extension of time to file an income tax return. Hr block free file Filed an application for an employer identification number. Hr block free file Paid estimated taxes for that tax year. Hr block free file Changing your tax year. Hr block free file   Once you have adopted your tax year, you may have to get IRS approval to change it. Hr block free file To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Hr block free file You may have to pay a fee. Hr block free file For more information, see Publication 538. Hr block free file Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Hr block free file You choose an accounting method for your business when you file your first income tax return. Hr block free file There are two basic accounting methods. Hr block free file Cash method. Hr block free file Under the cash method, you report income in the tax year you receive it. Hr block free file You usually deduct or capitalize expenses in the tax year you pay them. Hr block free file Accrual method. Hr block free file Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Hr block free file You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Hr block free file For other methods, see Publication 538. Hr block free file If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Hr block free file Inventories include goods held for sale in the normal course of business. Hr block free file They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Hr block free file Inventories are explained in Publication 538. Hr block free file Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Hr block free file For more information, see Publication 538. Hr block free file You must use the same accounting method to figure your taxable income and to keep your books. Hr block free file Also, you must use an accounting method that clearly shows your income. Hr block free file In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Hr block free file An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Hr block free file More than one business. Hr block free file   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Hr block free file You must keep a complete and separate set of books and records for each business. Hr block free file Changing your method of accounting. Hr block free file   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Hr block free file A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Hr block free file For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Hr block free file Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Hr block free file The following are the four general kinds of business taxes. Hr block free file Income tax. Hr block free file Self-employment tax. Hr block free file Employment taxes. Hr block free file Excise taxes. Hr block free file See Table 2 for the forms you file to report these taxes. Hr block free file You may want to get Publication 509. Hr block free file It has tax calendars that tell you when to file returns and make tax payments. Hr block free file Income Tax All businesses except partnerships must file an annual income tax return. Hr block free file Partnerships file an information return. Hr block free file Which form you use depends on how your business is organized. Hr block free file See Table 2 to find out which return you have to file. Hr block free file The federal income tax is a pay-as-you-go tax. Hr block free file You must pay the tax as you earn or receive income during the year. Hr block free file An employee usually has income tax withheld from his or her pay. Hr block free file If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Hr block free file If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Hr block free file Table 2. Hr block free file Which Forms Must I File? IF you are a. Hr block free file . Hr block free file . Hr block free file   THEN you may be liable for. Hr block free file . Hr block free file . Hr block free file   Use Form. Hr block free file . Hr block free file . Hr block free file Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Hr block free file 2 Various other schedules may be needed. Hr block free file Estimated tax. Hr block free file   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Hr block free file Sole proprietors, partners, and S corporation shareholders. Hr block free file   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Hr block free file Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Hr block free file For more information, see Publication 505, Tax Withholding and Estimated Tax. Hr block free file Corporations. Hr block free file   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Hr block free file Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Hr block free file You must deposit the payments as explained later under Depositing Taxes. Hr block free file For more information, see Publication 542. Hr block free file Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Hr block free file Your payments of SE tax contribute to your coverage under the social security system. Hr block free file Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Hr block free file You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Hr block free file Your net earnings from self-employment were $400 or more. Hr block free file You had church employee income of $108. Hr block free file 28 or more. Hr block free file Use Schedule SE (Form 1040) to figure your SE tax. Hr block free file For more information, see Publication 334, Tax Guide for Small Business. Hr block free file You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Hr block free file The Social Security Administration (SSA) time limit for posting self-employment income. Hr block free file   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Hr block free file If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Hr block free file The SSA will not change its records to increase your self-employment income. Hr block free file Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Hr block free file Employment taxes include the following. Hr block free file Social security and Medicare taxes. Hr block free file Federal income tax withholding. Hr block free file Federal unemployment (FUTA) tax. Hr block free file If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Hr block free file If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Hr block free file These publications explain your tax responsibilities as an employer. Hr block free file If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Hr block free file That publication has information to help you determine whether an individual is an employee or an independent contractor. Hr block free file If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Hr block free file An independent contractor is someone who is self-employed. Hr block free file Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Hr block free file Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Hr block free file To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Hr block free file Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Hr block free file Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Hr block free file Medicare tax pays for benefits under the hospital insurance part of FICA. Hr block free file You withhold part of these taxes from your employee's wages and you pay a part yourself. Hr block free file To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Hr block free file Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Hr block free file (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Hr block free file ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Hr block free file You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Hr block free file You pay FUTA tax only from your own funds. Hr block free file Employees do not pay this tax or have it withheld from their pay. Hr block free file Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Hr block free file See Publication 15 to find out if you can use this form. Hr block free file Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Hr block free file Form I-9. Hr block free file   You must verify that each new employee is legally eligible to work in the United States. Hr block free file Both you and the employee must complete the U. Hr block free file S. Hr block free file Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Hr block free file You can get the form from USCIS offices or from the USCIS website at www. Hr block free file uscis. Hr block free file gov. Hr block free file Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Hr block free file Form W-4. Hr block free file   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Hr block free file You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Hr block free file For more information, see Publication 15. Hr block free file Employees claiming more than 10 withholding allowances. Hr block free file   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Hr block free file See section 16 of Publication 15. Hr block free file Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Hr block free file You must also send copies to the Social Security Administration. Hr block free file See Information Returns, later, for more information on Form W-2. Hr block free file Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Hr block free file Manufacture or sell certain products. Hr block free file Operate certain kinds of businesses. Hr block free file Use various kinds of equipment, facilities, or products. Hr block free file Receive payment for certain services. Hr block free file For more information on excise taxes, see Publication 510, Excise Taxes. Hr block free file Form 720. Hr block free file   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Hr block free file Environmental taxes. Hr block free file Communications and air transportation taxes. Hr block free file Fuel taxes. Hr block free file Tax on the first retail sale of heavy trucks, trailers, and tractors. Hr block free file Manufacturers taxes on the sale or use of a variety of different articles. Hr block free file Form 2290. Hr block free file   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Hr block free file The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Hr block free file Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Hr block free file For more information, see the instructions for Form 2290. Hr block free file Form 730. Hr block free file   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Hr block free file Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Hr block free file Form 11-C. Hr block free file   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Hr block free file Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Hr block free file Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Hr block free file Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Hr block free file Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Hr block free file Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Hr block free file The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Hr block free file You must give a copy of each information return you are required to file to the recipient or payer. Hr block free file In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Hr block free file For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Hr block free file Form 1099-MISC. Hr block free file   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Hr block free file These payments include the following items. Hr block free file Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Hr block free file Rent payments of $600 or more, other than rents paid to real estate agents. Hr block free file Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Hr block free file Royalty payments of $10 or more. Hr block free file Payments to certain crew members by operators of fishing boats. Hr block free file You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Hr block free file Form W-2. Hr block free file   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Hr block free file For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Hr block free file Form 8300. Hr block free file   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Hr block free file Cash includes U. Hr block free file S. Hr block free file and foreign coin and currency. Hr block free file It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Hr block free file For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Hr block free file Penalties The law provides penalties for not filing returns or paying taxes as required. Hr block free file Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Hr block free file Failure to file tax returns. Hr block free file   If you do not file your tax return by the due date, you may have to pay a penalty. Hr block free file The penalty is based on the tax not paid by the due date. Hr block free file See your tax return instructions for more information about this penalty. Hr block free file Failure to pay tax. Hr block free file   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Hr block free file For more information, see your tax return instructions. Hr block free file Failure to withhold, deposit, or pay taxes. Hr block free file   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Hr block free file You may also be subject to penalties if you deposit the taxes late. Hr block free file For more information, see Publication 15. Hr block free file Failure to follow information reporting requirements. Hr block free file   The following penalties apply if you are required to file information returns. Hr block free file For more information, see the General Instructions for Certain Information Returns. Hr block free file Failure to file information returns. Hr block free file A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Hr block free file Failure to furnish correct payee statements. Hr block free file A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Hr block free file Waiver of penalty. Hr block free file   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Hr block free file   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Hr block free file (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Hr block free file ) Failure to supply taxpayer identification number. Hr block free file   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Hr block free file You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Hr block free file Business Expenses You can deduct business expenses on your income tax return. Hr block free file These are the current operating costs of running your business. Hr block free file To be deductible, a business expense must be both ordinary and necessary. Hr block free file An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Hr block free file A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Hr block free file An expense does not have to be indispensable to be considered necessary. Hr block free file The following are brief explanations of some expenses that are of interest to people starting a business. Hr block free file There are many other expenses that you may be able to deduct. Hr block free file See your form instructions and Publication 535, Business Expenses. Hr block free file Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Hr block free file Your business start-up costs will depend on the type of business you are starting. Hr block free file They may include costs for advertising, travel, surveys, and training. Hr block free file These costs are generally capital expenses. Hr block free file You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Hr block free file You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Hr block free file The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Hr block free file Any remaining cost must be amortized. Hr block free file For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Hr block free file Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Hr block free file You must spread the cost over more than one tax year and deduct part of it each year. Hr block free file This method of deducting the cost of business property is called depreciation. Hr block free file Business property you must depreciate includes the following items. Hr block free file Office furniture. Hr block free file Buildings. Hr block free file Machinery and equipment. Hr block free file You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Hr block free file This deduction is known as the “section 179 deduction. Hr block free file ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Hr block free file Depreciation must be taken in the year it is allowable. Hr block free file Allowable depreciation not taken in a prior year cannot be taken in the current year. Hr block free file If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Hr block free file S. Hr block free file Individual Income Tax Return, or by changing your accounting method. Hr block free file For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Hr block free file Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Hr block free file Even then, your deduction may be limited. Hr block free file To qualify to claim expenses for business use of your home, you must meet both the following tests. Hr block free file Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Hr block free file Exclusive use. Hr block free file   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Hr block free file The area used for business can be a room or other separately identifiable space. Hr block free file The space does not need to be marked off by a permanent partition. Hr block free file   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Hr block free file Exceptions to exclusive use. Hr block free file   You do not have to meet the exclusive use test if either of the following applies. Hr block free file You use part of your home for the storage of inventory or product samples. Hr block free file You use part of your home as a daycare facility. Hr block free file For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Hr block free file Principal place of business. Hr block free file   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Hr block free file You use it exclusively and regularly for administrative or management activities of your trade or business. Hr block free file You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Hr block free file   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Hr block free file The relative importance of the activities performed at each location. Hr block free file If the relative importance factor does not determine your principal place of business, the time spent at each location. Hr block free file    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Hr block free file However, for other ways to qualify to deduct home office expenses, see Publication 587. Hr block free file Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Hr block free file If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Hr block free file More information. Hr block free file   For more information about business use of your home, see Publication 587. Hr block free file Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Hr block free file You generally can deduct either your actual expenses or the standard mileage rate. Hr block free file Actual expenses. Hr block free file   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Hr block free file You can divide your expenses based on the miles driven for each purpose. Hr block free file Example. Hr block free file You are the sole proprietor of a flower shop. Hr block free file You drove your van 20,000 miles during the year. Hr block free file 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Hr block free file You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Hr block free file Standard mileage rate. Hr block free file   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Hr block free file You can use the standard mileage rate for a vehicle you own or lease. Hr block free file The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Hr block free file It is announced annually by the IRS. Hr block free file To figure your deduction, multiply your business miles by the standard mileage rate for the year. Hr block free file    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Hr block free file However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Hr block free file Choosing the standard mileage rate. Hr block free file   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Hr block free file In later years, you can choose to use either the standard mileage rate or actual expenses. Hr block free file   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Hr block free file Additional information. Hr block free file   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Hr block free file Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Hr block free file It also explains how long you must keep your records for federal tax purposes. Hr block free file A sample recordkeeping system is illustrated at the end of this part. Hr block free file Why Keep Records? Everyone in business must keep records. Hr block free file Good records will help you do the following. Hr block free file Monitor the progress of your business. Hr block free file   You need good records to monitor the progress of your business. Hr block free file Records can show whether your business is improving, which items are selling, or what changes you need to make. Hr block free file Good records can increase the likelihood of business success. Hr block free file Prepare your financial statements. Hr block free file   You need good records to prepare accurate financial statements. Hr block free file These include income (profit and loss) statements and balance sheets. Hr block free file These statements can help you in dealing with your bank or creditors and help you manage your business. Hr block free file An income statement shows the income and expenses of the business for a given period of time. Hr block free file A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Hr block free file Identify source of receipts. Hr block free file   You will receive money or property from many sources. Hr block free file Your records can identify the source of your receipts. Hr block free file You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Hr block free file Keep track of deductible expenses. Hr block free file   You may forget expenses when you prepare your tax return unless you record them when they occur. Hr block free file Prepare your tax returns. Hr block free file   You need good records to prepare your tax returns. Hr block free file These records must support the income, expenses, and credits you report. Hr block free file Generally, these are the same records you use to monitor your business and prepare your financial statements. Hr block free file Support items reported on tax returns. Hr block free file   You must keep your business records available at all times for inspection by the IRS. Hr block free file If the IRS examines any of your tax returns, you may be asked to explain the items reported. Hr block free file A complete set of records will speed up the examination. Hr block free file Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Hr block free file You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Hr block free file The business you are in affects the type of records you need to keep for federal tax purposes. Hr block free file You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Hr block free file See Accounting Method, earlier. Hr block free file If you are in more than one business, you should keep a complete and separate set of records for each business. Hr block free file A corporation should keep minutes of board of directors' meetings. Hr block free file Your recordkeeping system should include a summary of your business transactions. Hr block free file This summary is ordinarily made in your books (for example, accounting journals and ledgers). Hr block free file Your books must show your gross income, as well as your deductions and credits. Hr block free file For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Hr block free file In addition, you must keep supporting documents, explained later. Hr block free file Electronic records. Hr block free file   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Hr block free file When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Hr block free file An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Hr block free file The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Hr block free file All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Hr block free file Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Hr block free file   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Hr block free file You still have the responsibility of retaining any other books and records that are required to be retained. Hr block free file   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Hr block free file This test is not considered an examination and the results must be shared with you. Hr block free file If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Hr block free file If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Hr block free file For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Hr block free file Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Hr block free file Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Hr block free file These documents contain information you need to record in your books. Hr block free file It is important to keep these documents because they support the entries in your books and on your tax return. Hr block free file Keep them in an orderly fashion and in a safe place. Hr block free file For instance, organize them by year and type of income or expense. Hr block free file Gross receipts. Hr block free file   Gross receipts are the income you receive from your business. Hr block free file You should keep supporting documents that show the amounts and sources of your gross receipts. Hr block free file Documents that show gross receipts include the following. Hr block free file Cash register tapes. Hr block free file Bank deposit slips. Hr block free file Receipt books. Hr block free file Invoices. Hr block free file Credit card charge slips. Hr block free file Forms 1099-MISC. Hr block free file Purchases. Hr block free file   Purchases are the items you buy and resell to customers. Hr block free file If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Hr block free file Your supporting documents should show the amount paid and that the amount was for purchases. Hr block free file Documents for purchases include the following. Hr block free file Canceled checks. Hr block free file Cash register tape receipts. Hr block free file Credit card sales slips. Hr block free file Invoices. Hr block free file These records will help you determine the value of your inventory at the end of the year. Hr block free file See Publication 538 for information on methods for valuing inventory. Hr block free file Expenses. Hr block free file   Expenses are the costs you incur (other than purchases) to carry on your business. Hr block free file Your supporting documents should show the amount paid and that the amount was for a business expense. Hr block free file Documents for expenses include the following. Hr block free file Canceled checks. Hr block free file Cash register tapes. Hr block free file Account statements. Hr block free file Credit card sales slips. Hr block free file Invoices. Hr block free file Petty cash slips for small cash payments. Hr block free file    A petty cash fund allows you to make small payments without having to write checks for small amounts. Hr block free file Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Hr block free file Travel, transportation, entertainment, and gift expenses. Hr block free file   Specific recordkeeping rules apply to these expenses. Hr block free file For more information, see Publication 463. Hr block free file Employment taxes. Hr block free file   There are specific employment tax records you must keep. Hr block free file For a list, see Publication 15. Hr block free file Assets. Hr block free file   Assets are the property, such as machinery and furniture you own and use in your business. Hr block free file You must keep records to verify certain information about your business assets. Hr block free file You need records to figure the annual depreciation and the gain or loss when you sell the assets. Hr block free file Your records should show the following information. Hr block free file When and how you acquired the asset. Hr block free file Purchase price. Hr block free file Cost of any improvements. Hr block free file Section 179 deduction taken. Hr block free file Deductions taken for depreciation. Hr block free file Deductions taken for casualty losses, such as losses resulting from fires or storms. Hr block free file How you used the asset. Hr block free file When and how you disposed of the asset. Hr block free file Selling price. Hr block free file Expenses of sale. Hr block free file   The following documents may show this information. Hr block free file Purchase and sales invoices. Hr block free file Real estate closing statements. Hr block free file Canceled checks. Hr block free file What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Hr block free file These include account statements prepared for the financial institution by a third party. Hr block free file These account statements must be highly legible. Hr block free file The following table lists acceptable account statements. Hr block free file  IF payment is by. Hr block free file . Hr block free file . Hr block free file THEN the statement must show the. Hr block free file . Hr block free file . Hr block free file Check Check number. Hr block free file Amount. Hr block free file Payee's name. Hr block free file Date the check amount was posted to the account by the financial institution. Hr block free file Electronic funds transfer Amount transferred. Hr block free file Payee's name. Hr block free file Date the transfer was posted to the account by the financial institution. Hr block free file Credit card Amount charged. Hr block free file Payee's name. Hr block free file Transaction date. Hr block free file    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Hr block free file You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Hr block free file Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Hr block free file (Your business transactions are shown on the supporting documents just discussed. Hr block free file ) Business transactions are ordinarily summarized in books called journals and ledgers. Hr block free file You can buy them at your local stationery or office supply store. Hr block free file A journal is a book where you record each business transaction shown on your supporting documents. Hr block free file You may have to keep separate journals for transactions that occur frequently. Hr block free file A ledger is a book that contains the totals from all of your journals. Hr block free file It is organized into different accounts. Hr block free file Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Hr block free file For example, a recordkeeping system for a small business might include the following items. Hr block free file Business checkbook. Hr block free file Daily summary of cash receipts. Hr block free file Monthly summary of cash receipts. Hr block free file Check disbursements journal. Hr block free file Depreciation worksheet. Hr block free file Employee compensation record. Hr block free file The business checkbook is explained next. Hr block free file The other items are illustrated later under Sample Record System. Hr block free file The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Hr block free file For example, record expenses when they occur, and identify the source of recorded receipts. Hr block free file Generally, it is best to record transactions on a daily basis. Hr block free file Business checkbook. Hr block free file   One of the first things you should do when you start a business is open a business checking account. Hr block free file You should keep your business account separate from your personal checking account. Hr block free file   The business checkbook is your basic source of information for recording your business expenses. Hr block free file You should deposit all daily receipts in your business checking account. Hr block free file You should check your account for errors by reconciling it. Hr block free file See Reconciling the checking account, later. Hr block free file   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Hr block free file You should also note on the deposit slip the source of the deposit and keep copies of all slips. Hr block free file   You should make all payments by check to document business expenses. Hr block free file Write checks payable to yourself only when making withdrawals from your business for personal use. Hr block free file Avoid writing checks payable to cash. Hr block free file If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Hr block free file If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Hr block free file    Use the business account for business purposes only. Hr block free file Indicate the source of deposits and the type of expense in the checkbook. Hr block free file Reconciling the checking account. Hr block free file   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Hr block free file The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Hr block free file   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Hr block free file    You should reconcile your checking account each month. Hr block free file     Before you reconcile your monthly bank statement, check your own figures. Hr block free file Begin with the balance shown in your checkbook at the end of the previous month. Hr block free file To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Hr block free file   After checking your figures, the result should agree with your checkbook balance at the end of the month. Hr block free file If the result does not agree, you may have made an error in recording a check or deposit. Hr block free file You can find the error by doing the following. Hr block free file Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Hr block free file If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Hr block free file Adding the deposit amounts in your checkbook. Hr block free file Compare that total with the monthly total in your cash receipt book, if you have one. Hr block free file If the totals do not agree, check the individual amounts to find any errors. Hr block free file   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Hr block free file   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Hr block free file Many banks print a reconciliation worksheet on the back of the statement. Hr block free file   To reconcile your account, follow these steps. Hr block free file Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Hr block free file Note all differences in the dollar amounts. Hr block free file Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Hr block free file Note all differences in the dollar amounts. Hr block free file Mark the check number in the checkbook as having cleared the bank. Hr block free file After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Hr block free file Prepare a bank reconciliation. Hr block free file One is illustrated later under Sample Record System. Hr block free file Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Hr block free file At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Hr block free file If you still have differences, check the previous steps to find the errors. Hr block free file   Table 3. Hr block free file Period of Limitations IF you. Hr block free file . Hr block free file . Hr block free file   THEN the period is. Hr block free file . Hr block free file . Hr block free file 1. Hr block free file Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Hr block free file Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Hr block free file File a fraudulent return   Not limited 4. Hr block free file Do not file a return   Not limited 5. Hr block free file File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Hr block free file File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Hr block free file The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Hr block free file You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Hr block free file Single-entry. Hr block free file   A single-entry system is based on the income statement (profit or loss statement). Hr block free file It can be a simple and practical system if you are starting a small business. Hr block free file The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Hr block free file Double-entry. Hr block free file   A double-entry bookkeeping system uses journals and ledgers. Hr block free file Transactions are first entered in a journal and then posted to ledger accounts. Hr block free file These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Hr block free file You close income and expense accounts at the end of each tax year. Hr block free file You keep asset, liability, and net worth accounts open on a permanent basis. Hr block free file   In the double-entry system, each account has a left side for debits and a right side for credits. Hr block free file It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Hr block free file   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Hr block free file If the amounts do not balance, you have made an error and you must find and correct it. Hr block free file   An example of a journal entry exhibiting a payment of rent in October is shown next. Hr block free file General Journal Date Description of Entry Debit  Credit Oct. Hr block free file 5 Rent expense 780. Hr block free file 00     Cash   780. Hr block free file 00                 Computerized System There are computer software packages you can use for recordkeeping. Hr block free file They can be purchased in many retail stores. Hr block free file These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Hr block free file If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Hr block free file To meet this qualification, the machine-sensible records must reconcile with your books and return. Hr block free file These records must provide enough detail to identify the underlying source documents. Hr block free file You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Hr block free file This documentation must be sufficiently detailed to show all of the following items. Hr block free file Functions being performed as the data flows through the system. Hr block free file Controls used to ensure accurate and reliable processing. Hr block free file Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Hr block free file Charts of accounts and detailed account descriptions. Hr block free file See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Hr block free file How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Hr block free file Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Hr block free file The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Hr block free file Table 3 contains the periods of limitations that apply to income tax returns. Hr block free file Unless otherwise stated, the years refer to the period after the return was filed. Hr block free file Returns filed before the due date are treated as filed on the due date. Hr block free file Keep copies of your filed tax returns. Hr block free file They help in preparing future tax returns and making computations if you file an amended return. Hr block free file Employment taxes. Hr block free file   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Hr block free file For more information about recordkeeping for employment taxes, see Publication 15. Hr block free file Assets. Hr block free file   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Hr block free file You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Hr block free file   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Hr block free file You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Hr block free file Records for nontax purposes. Hr block free file   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Hr block free file For example, your insurance company or creditors may require you to keep them longer than the IRS does. Hr block free file Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Hr block free file Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Hr block free file These sample records should not be viewed as a recommendation of how to keep your records. Hr block free file They are intended only to show how one business keeps its records. Hr block free file 1. Hr block free file Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Hr block free file It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Hr block free file Henry takes the cash sales entry from his cash register tape. Hr block free file If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Hr block free file He carries the total receipts shown in this summary for January 3 ($267. Hr block free file 80), including cash sales ($263. Hr block free file 60) and sales tax ($4. Hr block free file 20), to the Monthly Summary of Cash Receipts. Hr block free file Petty cash fund. Hr block free file   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Hr block free file Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Hr block free file He sets up a fixed amount ($50) in his petty cash fund. Hr block free file The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Hr block free file When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Hr block free file (See the Check Disbursements Journal entry for check number 92. Hr block free file ) This restores the fund to its fixed amount of $50. Hr block free file He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Hr block free file 2. Hr block free file Monthly Summary of Cash Receipts This shows the income activity for the month. Hr block free file Henry carries the total monthly net sales shown in this summary for January ($4,865. Hr block free file 05) to his Annual Summary. Hr block free file To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Hr block free file He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Hr block free file He does not include the tax in his income. Hr block free file 3. Hr block free file Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Hr block free file All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Hr block free file Frequent expenses have their own headings across the sheet. Hr block free file He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Hr block free file Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Hr block free file Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Hr block free file If he did, he would record them in the journal, even though he could not deduct them as business expenses. Hr block free file Henry carries the January total of expenses for materials ($1,083. Hr block free file 50) to the Annual Summary. Hr block free file Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Hr block free file , in the appropriate columns of that summary. Hr block free file 4. Hr block free file Employee Compensation Record This record shows the following information. Hr block free file The number of hours Henry's employee worked in a pay period. Hr block free file The employee's total pay for the period. Hr block free file The deductions Henry withheld in figuring the employee's net pay. Hr block free file The monthly gross payroll. Hr block free file Henry carries the January gross payroll ($520) to the Annual Summary. Hr block free file 5. Hr block free file Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Hr block free file He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Hr block free file He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Hr block free file As in the journal, he keeps each major expense in a separate column. Hr block free file Henry carries the cash receipts total shown in the annual summary ($47,440. Hr block free file 9
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The Hr Block Free File

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