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International Student Tax Return

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International Student Tax Return

International student tax return 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. International student tax return Hybrid method. International student tax return Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). International student tax return Accounting Periods You must use a tax year to figure your taxable income. International student tax return A tax year is an annual accounting period for keeping records and reporting income and expenses. International student tax return An annual accounting period does not include a short tax year (discussed later). International student tax return You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). International student tax return Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. International student tax return A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. International student tax return 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. International student tax return This section discusses: A calendar year. International student tax return A fiscal year (including a period of 52 or 53 weeks). International student tax return A short tax year. International student tax return An improper tax year. International student tax return A change in tax year. International student tax return Special situations that apply to individuals. International student tax return Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. International student tax return Special situations that apply to corporations. International student tax return Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. International student tax return 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. International student tax return 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. International student tax return See Change in Tax Year, later. International student tax return Generally, anyone can adopt the calendar year. International student tax return 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. International student tax return Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. International student tax return 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. International student tax return 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. International student tax return If you make this election, your 52-53-week tax year must always end on the same day of the week. International student tax return 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. International student tax return 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. International student tax return Election. International student tax return   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. International student tax return The month in which the new 52-53-week tax year ends. International student tax return The day of the week on which the tax year always ends. International student tax return The date the tax year ends. International student tax return 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. International student tax return   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. International student tax return   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. International student tax return Example. International student tax return Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. International student tax return 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. International student tax return Short Tax Year A short tax year is a tax year of less than 12 months. International student tax return 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. International student tax return Tax on a short period tax return is figured differently for each situation. International student tax return 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. International student tax return 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. International student tax return Example 1. International student tax return XYZ Corporation was organized on July 1, 2012. International student tax return It elected the calendar year as its tax year. International student tax return Therefore, its first tax return was due March 15, 2013. International student tax return This short period return will cover the period from July 1, 2012, through December 31, 2012. International student tax return Example 2. International student tax return A calendar year corporation dissolved on July 23, 2012. International student tax return Its final return is due by October 15, 2012. International student tax return It will cover the short period from January 1, 2012, through July 23, 2012. International student tax return Death of individual. International student tax return   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. International student tax return The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. International student tax return 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. International student tax return Example. International student tax return   Agnes Green was a single, calendar year taxpayer. International student tax return She died on March 6, 2012. International student tax return Her final income tax return must be filed by April 15, 2013. International student tax return It will cover the short period from January 1, 2012, to March 6, 2012. International student tax return 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. International student tax return 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. International student tax return Figure tax for a short year under the general rule, explained below. International student tax return You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. International student tax return General rule. International student tax return   Income tax for a short tax year must be annualized. International student tax return However, self-employment tax is figured on the actual self-employment income for the short period. International student tax return Individuals. International student tax return   An individual must figure income tax for the short tax year as follows. International student tax return Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. International student tax return You must itemize deductions when you file a short period tax return. International student tax return Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. International student tax return Subtract the amount in (2) from the amount in (1). International student tax return The result is your modified taxable income. International student tax return Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. International student tax return The result is your annualized income. International student tax return Figure the total tax on your annualized income using the appropriate tax rate schedule. International student tax return Multiply the total tax by the number of months in the short tax year and divide the result by 12. International student tax return The result is your tax for the short tax year. International student tax return Relief procedure. International student tax return   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. International student tax return It may result in less tax. International student tax return Under this procedure, the tax is figured by two separate methods. International student tax return 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. International student tax return For more information, see section 443(b)(2) of the Internal Revenue Code. International student tax return Alternative minimum tax. International student tax return   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. International student tax return Multiply the AMTI by 12. International student tax return Divide the result by the number of months in the short tax year. International student tax return Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. International student tax return The result is the annualized AMT. International student tax return Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. International student tax return   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. International student tax return For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. International student tax return Tax withheld from wages. International student tax return   You can claim a credit against your income tax liability for federal income tax withheld from your wages. International student tax return Federal income tax is withheld on a calendar year basis. International student tax return The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. International student tax return Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. International student tax return 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. International student tax return See Accounting Periods, earlier, for a description of permissible tax years. International student tax return To change to a proper tax year, you must do one of the following. International student tax return 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. International student tax return Attach a completed Form 1128 to the amended tax return. International student tax return Write “FILED UNDER REV. International student tax return PROC. International student tax return 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. International student tax return 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. International student tax return Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. International student tax return See the Instructions for Form 1128 for exceptions. International student tax return If you qualify for an automatic approval request, a user fee is not required. International student tax return Individuals Generally, individuals must adopt the calendar year as their tax year. International student tax return 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. International student tax return Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. International student tax return A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. International student tax return 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). International student tax return The following discussions provide the rules for partnerships, S corporations, and PSCs. International student tax return Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. International student tax return 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. International student tax return 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. International student tax return The partnership can establish a business purpose for a different tax year. International student tax return The rules for the required tax year for partnerships are as follows. International student tax return 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. International student tax return If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. International student tax return A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. International student tax return 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. International student tax return If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. International student tax return Least aggregate deferral of income. International student tax return   The tax year that results in the least aggregate deferral of income is determined as follows. International student tax return Figure the number of months of deferral for each partner using one partner's tax year. International student tax return 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. International student tax return 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). International student tax return Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). International student tax return Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. International student tax return   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. International student tax return 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. International student tax return However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. International student tax return Example. International student tax return A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. International student tax return A uses the calendar year and B uses a fiscal year ending November 30. International student tax return 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. International student tax return Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. International student tax return 5 -0- -0- B 11/30 0. International student tax return 5 11 5. International student tax return 5 Total Deferral 5. International student tax return 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. International student tax return 5 1 0. International student tax return 5 B 11/30 0. International student tax return 5 -0- -0- Total Deferral 0. International student tax return 5 When determination is made. International student tax return   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. International student tax return However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. International student tax return This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. International student tax return Short period return. International student tax return   When a partnership changes its tax year, a short period return must be filed. International student tax return 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. International student tax return   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. International student tax return The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. International student tax return 706-1. International student tax return ” More information. International student tax return   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. International student tax return S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. International student tax return A permitted tax year is any of the following. International student tax return The calendar year. International student tax return A tax year elected under section 444 of the Internal Revenue Code. International student tax return See Section 444 Election, below for details. International student tax return A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. International student tax return Any other tax year for which the corporation establishes a business purpose. International student tax return 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. International student tax return For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. International student tax return Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. International student tax return The corporation makes an election under section 444 of the Internal Revenue Code. International student tax return See Section 444 Election, below for details. International student tax return 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. International student tax return The corporation establishes a business purpose for a fiscal year. International student tax return See the Instructions for Form 1120 for general information about PSCs. International student tax return For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. International student tax return 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. International student tax return Certain restrictions apply to the election. International student tax return 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). International student tax return 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. International student tax return A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. International student tax return It is not a member of a tiered structure (defined in section 1. International student tax return 444-2T of the regulations). International student tax return It has not previously had a section 444 election in effect. International student tax return It elects a year that meets the deferral period requirement. International student tax return Deferral period. International student tax return   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. International student tax return Retaining tax year. International student tax return   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. International student tax return This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. International student tax return Adopting or changing tax year. International student tax return   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. International student tax return 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. International student tax return This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. International student tax return If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. International student tax return Example 1. International student tax return BD Partnership uses a calendar year, which is also its required tax year. International student tax return BD cannot make a section 444 election because the deferral period is zero. International student tax return Example 2. International student tax return E, a newly formed partnership, began operations on December 1. International student tax return E is owned by calendar year partners. International student tax return E wants to make a section 444 election to adopt a September 30 tax year. International student tax return E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. International student tax return Making the election. International student tax return   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. International student tax return 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. International student tax return For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. International student tax return Note. International student tax return If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. International student tax return   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. International student tax return Example 1. International student tax return 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. International student tax return 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. International student tax return Example 2. International student tax return The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. International student tax return AB must file Form 8716 by March 17, 2013. International student tax return Example 3. International student tax return B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. International student tax return B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. International student tax return 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. International student tax return Note. International student tax return The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. International student tax return Extension of time for filing. International student tax return   There is an automatic extension of 12 months to make this election. International student tax return See the Form 8716 instructions for more information. International student tax return Terminating the election. International student tax return   The section 444 election remains in effect until it is terminated. International student tax return If the election is terminated, another section 444 election cannot be made for any tax year. International student tax return   The election ends when any of the following applies to the partnership, S corporation, or PSC. International student tax return The entity changes to its required tax year. International student tax return The entity liquidates. International student tax return The entity becomes a member of a tiered structure. International student tax return The IRS determines that the entity willfully failed to comply with the required payments or distributions. International student tax return   The election will also end if either of the following events occur. International student tax return An S corporation's S election is terminated. International student tax return However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. International student tax return A PSC ceases to be a PSC. International student tax return If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. International student tax return Required payment for partnership or S corporation. International student tax return   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. International student tax return The required payment for that year (or any preceding tax year) is more than $500. International student tax return    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. International student tax return   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. International student tax return 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. International student tax return 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. International student tax return Applicable election year. International student tax return   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. International student tax return 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. International student tax return Required distribution for PSC. International student tax return   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. International student tax return If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. International student tax return The amount deferred is treated as paid or incurred in the following tax year. International student tax return   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). International student tax return Back-up election. International student tax return   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. International student tax return If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). International student tax return Making back-up election. International student tax return   The general rules for making a section 444 election, as discussed earlier, apply. International student tax return When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. International student tax return 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. International student tax return Activating election. International student tax return   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. International student tax return The due date for filing Form 8752 and making the payment is the later of the following dates. International student tax return May 15 of the calendar year following the calendar year in which the applicable election year begins. International student tax return 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. International student tax return   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. International student tax return ” 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). International student tax return 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. International student tax return 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. International student tax return Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. International student tax return See the Instructions for Form 1128 for details. International student tax return Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. International student tax return 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. International student tax return An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. International student tax return 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. International student tax return See the Instructions for Form 1128 for details. International student tax return Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. International student tax return Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. International student tax return You choose an accounting method when you file your first tax return. International student tax return If you later want to change your accounting method, you must get IRS approval. International student tax return See Change in Accounting Method, later. International student tax return No single accounting method is required of all taxpayers. International student tax return 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. International student tax return In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. International student tax return You must use the same accounting method from year to year. International student tax return An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. International student tax return 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. International student tax return Methods you can use. International student tax return   In general, you can compute your taxable income under any of the following accounting methods. International student tax return Cash method. International student tax return Accrual method. International student tax return Special methods of accounting for certain items of income and expenses. International student tax return A hybrid method which combines elements of two or more of the above accounting methods. International student tax return The cash and accrual methods of accounting are explained later. International student tax return Special methods. International student tax return   This publication does not discuss special methods of accounting for certain items of income or expenses. International student tax return 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. International student tax return The following publications also discuss special methods of reporting income or expenses. International student tax return Publication 225, Farmer's Tax Guide. International student tax return Publication 535, Business Expenses. International student tax return Publication 537, Installment Sales. International student tax return Publication 946, How To Depreciate Property. International student tax return Hybrid method. International student tax return   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. International student tax return However, the following restrictions apply. International student tax return If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. International student tax return See Exceptions under Inventories, later. International student tax return Generally, you can use the cash method for all other items of income and expenses. International student tax return See Inventories, later. International student tax return If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. International student tax return If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. International student tax return Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. International student tax return Business and personal items. International student tax return   You can account for business and personal items using different accounting methods. International student tax return 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. International student tax return Two or more businesses. International student tax return   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. International student tax return No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. International student tax return Note. International student tax return 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. International student tax return Cash Method Most individuals and many small businesses use the cash method of accounting. International student tax return Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. International student tax return See Inventories, later, for exceptions to this rule. International student tax return Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. International student tax return If you receive property and services, you must include their fair market value (FMV) in income. International student tax return Constructive receipt. International student tax return   Income is constructively received when an amount is credited to your account or made available to you without restriction. International student tax return You need not have possession of it. International student tax return 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. International student tax return Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. International student tax return Example. International student tax return You are a calendar year taxpayer. International student tax return Your bank credited, and made available, interest to your bank account in December 2012. International student tax return You did not withdraw it or enter it into your books until 2013. International student tax return You must include the amount in gross income for 2012, the year you constructively received it. International student tax return You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. International student tax return You must report the income in the year the property is received or made available to you without restriction. International student tax return Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. International student tax return This includes business expenses for which you contest liability. International student tax return However, you may not be able to deduct an expense paid in advance. International student tax return Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. International student tax return Expense paid in advance. International student tax return   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. International student tax return   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. International student tax return 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. International student tax return   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. International student tax return See Change in Accounting Method, later. International student tax return Example 1. International student tax return 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. International student tax return 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. International student tax return 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. International student tax return Example 2. International student tax return 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. International student tax return The 12-month rule applies. International student tax return Therefore, the full $10,000 is deductible in 2012. International student tax return Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. International student tax return (See Special rules for farming businesses, later. International student tax return ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. International student tax return See Gross receipts test, below. International student tax return 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. International student tax return See Gross receipts test, below. International student tax return A tax shelter. International student tax return Exceptions The following entities are not prohibited from using the cash method of accounting. International student tax return Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. International student tax return A qualified personal service corporation (PSC). International student tax return Gross receipts test. International student tax return   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. International student tax return 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. International student tax return    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. International student tax return See Gross receipts test for qualifying taxpayers, for more information. International student tax return Generally, a partnership applies the test at the partnership level. International student tax return Gross receipts for a short tax year are annualized. International student tax return Aggregation rules. International student tax return   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. International student tax return Change to accrual method. International student tax return   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. International student tax return Special rules for farming businesses. International student tax return   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. International student tax return 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. International student tax return 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). International student tax return   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. International student tax return For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. International student tax return See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. International student tax return Qualified PSC. International student tax return   A PSC that meets the following function and ownership tests can use the cash method. International student tax return Function test. International student tax return   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. International student tax return Ownership test. International student tax return   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. International student tax return Employees performing services for the corporation in a field qualifying under the function test. International student tax return Retired employees who had performed services in those fields. International student tax return The estate of an employee described in (1) or (2). International student tax return 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. International student tax return   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. International student tax return Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. International student tax return 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. International student tax return   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. International student tax return Change to accrual method. International student tax return   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. International student tax return 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. International student tax return 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. International student tax return The purpose of an accrual method of accounting is to match income and expenses in the correct year. International student tax return 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. International student tax return Under this rule, you report an amount in your gross income on the earliest of the following dates. International student tax return When you receive payment. International student tax return When the income amount is due to you. International student tax return When you earn the income. International student tax return When title has passed. International student tax return Estimated income. International student tax return   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. International student tax return Change in payment schedule. International student tax return   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. International student tax return Continue this procedure until you complete the services, then account for the difference. International student tax return 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. International student tax return 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. International student tax return However, you cannot postpone including any payment beyond that tax year. International student tax return Service agreement. International student tax return   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. International student tax return This includes an agreement providing for incidental replacement of parts or materials. International student tax return However, this applies only if you offer the property without a service agreement in the normal course of business. International student tax return Postponement not allowed. International student tax return   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. International student tax return 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. International student tax return 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. International student tax return Examples. International student tax return   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. International student tax return Example 1. International student tax return You manufacture, sell, and service computers. International student tax return You received payment in 2012 for a one-year contingent service contract on a computer you sold. International student tax return 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. International student tax return Example 2. International student tax return You are in the television repair business. International student tax return 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. International student tax return You include the payments in gross income as you earn them. International student tax return Example 3. International student tax return You own a dance studio. International student tax return On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. International student tax return You give eight lessons in 2012. International student tax return 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. International student tax return Example 4. International student tax return Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. International student tax return You must include the entire payment in income in 2012 since part of the services may be performed after the following year. International student tax return Guarantee or warranty. International student tax return   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. International student tax return Prepaid rent. International student tax return   You cannot postpone reporting income from prepaid rent. International student tax return Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. International student tax return 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. International student tax return Books and records. International student tax return   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. International student tax return Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. International student tax return IRS approval. International student tax return   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. International student tax return 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. International student tax return 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. International student tax return An agreement includes a gift certificate that can be redeemed for goods. International student tax return Amounts due and payable are considered received. International student tax return How to report payments. International student tax return   Generally, include an advance payment in income in the year in which you receive it. International student tax return However, you can use the alternative method, discussed next. International student tax return Alternative method of reporting. International student tax return   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. International student tax return Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. International student tax return Example 1. International student tax return You are a retailer. International student tax return You use an accrual method of accounting and account for the sale of goods when you ship the goods. International student tax return You use this method for both tax and financial reporting purposes. International student tax return 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. International student tax return However, see Exception for inventory goods, later. International student tax return Example 2. International student tax return You are a calendar year taxpayer. International student tax return You manufacture household furniture and use an accrual method of accounting. International student tax return Under this method, you accrue income for your financial reports when you ship the furniture. International student tax return For tax purposes, you do not accrue income until the furniture has been delivered and accepted. International student tax return 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. International student tax return You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. International student tax return 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. International student tax return Information schedule. International student tax return   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. International student tax return Total advance payments received in the current tax year. International student tax return Total advance payments received in earlier tax years and not included in income before the current tax year. International student tax return Total payments received in earlier tax years included in income for the current tax year. International student tax return Exception for inventory goods. International student tax return   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. International student tax return You account for the advance payment under the alternative method (discussed earlier). International student tax return You have received a substantial advance payment on the agreement (discussed next). International student tax return You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. International student tax return 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. International student tax return   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. International student tax return You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. International student tax return If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. International student tax return Note. International student tax return You must report any advance payments you receive after the second year in the year received. International student tax return No further deferral is allowed. International student tax return Substantial advance payments. International student tax return   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. International student tax return Example. International student tax return You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. International student tax return In 2008, you entered into a contract for the sale of goods properly includible in your inventory. International student tax return The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. International student tax return You receive the following advance payments under the contract. International student tax return 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. International student tax return In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. International student tax return 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. International student tax return   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. International student tax return 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. International student tax return If no such goods are on hand, then estimate the cost necessary to satisfy the contract. International student tax return   No further deferral is allowed. International student tax return You must include in gross income the advance payment you receive each remaining year of the contract. International student tax return Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. International student tax return IRS approval. International student tax return   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. International student tax return Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. International student tax return The all-events test has been met. International student tax return The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. International student tax return Economic performance has occurred. International student tax return Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. International student tax return 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. International student tax return If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. International student tax return Example. International student tax return You are a calendar year taxpayer. International student tax return You buy office supplies in December 2012. International student tax return You receive the supplies and the bill in December, but you pay the bill in January 2013. International student tax return 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. International student tax return Your office supplies may qualify as a recurring item, discussed later. International student tax return If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). International student tax return Workers' compensation and tort liability. International student tax return   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. International student tax return 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. International student tax return Taxes. International student tax return   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. International student tax return are paid. International student tax return However, you can elect to treat taxes as a recurring item, discussed later. International student tax return You can also elect to ratably accrue real estate taxes. International student tax return See chapter 5 of Publication 535 for information about real estate taxes. International student tax return Other liabilities. International student tax return   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. International student tax return Interest. International student tax return   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. International student tax return Compensation for services. International student tax return   Generally, economic performance occurs as an employee renders service to the employer. International student tax return 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. International student tax return For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. International student tax return Vacation pay. International student tax return   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. International student tax return If you pay it later than this, you must deduct it in the year actually paid. International student tax return An amount is vested if your right to it cannot be nullified or cancelled. International student tax return Exception for recurring items. International student tax return   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. International student tax return The exception applies if all the following requirements are met. International student tax return The all-events test, discussed earlier, is met. International student tax return Economic performance occurs by the earlier of the following dates. International student tax return 8½ months after the close of the year. International student tax return The date you file a timely return (including extensions) for the year. International student tax return 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. International student tax return 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. International student tax return This exception does not apply to workers' compensation or tort liabilities. International student tax return Amended return. International student tax return   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. International student tax return 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. International student tax return Recurrence and consistency. International student tax return   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. International student tax return 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. International student tax return Materiality. International student tax return   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. International student tax return   An item considered material for financial statement purposes is also considered material for tax purposes. International student tax return However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. International student tax return Matching expenses with income. International student tax return   Costs directly associated with the revenue of a period are properly allocable to that period. International student tax return 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. International student tax return fasab. International student tax return gov/accepted. International student tax return html) are an important factor. International student tax return   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. International student tax return 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. International student tax return However, the matching requirement is considered met for certain types of expenses. International student tax return These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. International student tax return 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. International student tax return 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. International student tax return 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. International student tax return 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. International student tax return See Change in Accounting Method, later, for information on how to get IRS approval. International student tax return See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. International student tax return 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. International student tax return Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. International student tax return See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. International student tax return Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. International student tax return If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. International student tax return However, see Exceptions, next. International student tax return See also Accrual Method, earlier. International student tax return To figure taxable income, you must value your inventory at the beginning and end of each tax year. International student tax return To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. International student tax return See Identifying Cost and Valuing Inventory, later. International student tax return The rules for valuing inventory are not the same for all businesses. International student tax return The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. International student tax return Your inventory practices must be consistent from year to year. International student tax return 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. International student tax return Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. International student tax return These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). International student tax return A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. International student tax return irs. International student tax return gov/pub/irs-irbs/irb01–02. International student tax return pdf. International student tax return A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. International student tax return irs. International student tax return gov/pub/irs-irbs/irb02–18. International student tax return pdf. International student tax return 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). International student tax return Qualifying taxpayer. International student tax return   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). International student tax return Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. International student tax return You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. International student tax return Gross receipts test for qualifying taxpayers. International student tax return   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. International student tax return List each of the test years. International student tax return For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. International student tax return Step 2. International student tax return Determine your average annual gross receipts for each test year listed in Step 1. International student tax return 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. International student tax return Step 3. International student tax return 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. International student tax return Qualifying small business taxpayer. International student tax return   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). International student tax return Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. International student tax return You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. International student tax return Your principle business activity is an eligible business. International student tax return See Eligible business, later. International student tax return 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. International student tax return Note. International student tax return Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. International student tax return A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. International student tax return See Special rules for farming businesses under Cash Method, earlier. International student tax return Gross receipts test for qualifying small business taxpayers. International student tax return   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. International student tax return List each of the test years. International student tax return 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. International student tax return Step 2. International student tax return Determine your average annual gross receipts for each test year listed in Step 1. International student tax return 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. International student tax return Step 3. International student tax return 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. International student tax return Eligible business. International student tax return   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. International student tax return You have an eligible business if you meet any of the following requirements. International student tax return 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). International student tax return NAICS codes 31-33 (manufacturing). International student tax return NAICS code 42 (wholesale trade). International student tax return NAICS codes 44-45 (retail trade). International student tax return NAICS codes 5111 and 5122 (information industries). International student tax return Your principal business activity is the provision of services, including the provision of property incident to those services. International student tax return Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. International student tax return   Information about the NAICS codes can be found at http://www. International student tax return census. International student tax return gov/naics or in the instructions for your federal income tax return. International student tax return Gross receipts. International student tax return   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. International student tax return See the definit
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The International Student Tax Return

International student tax return Publication 225 - Introductory Material Table of Contents IntroductionOrdering forms and publications. International student tax return Tax questions. International student tax return Future Developments What's New for 2013 What's New for 2014 Reminders Introduction You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. International student tax return A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. International student tax return It also includes plantations, ranches, ranges, and orchards. International student tax return This publication explains how the federal tax laws apply to farming. International student tax return Use this publication as a guide to figure your taxes and complete your farm tax return. International student tax return If you need more information on a subject, get the specific IRS tax publication covering that subject. International student tax return We refer to many of these free publications throughout this publication. International student tax return See chapter 16 for information on ordering these publications. International student tax return The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. International student tax return However, the information given does not cover every situation and is not intended to replace the law or change its meaning. International student tax return This publication covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. International student tax return Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will continue to present the interpretation of the Service. International student tax return The IRS Mission. International student tax return   Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. International student tax return Comments and suggestions. International student tax return   We welcome your comments about this publication and your suggestions for future editions. International student tax return   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. International student tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. International student tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. International student tax return   You can email us at taxforms@irs. International student tax return gov. International student tax return Please put “Publications Comment” on the subject line. International student tax return You can also send us comments from www. International student tax return irs. International student tax return gov/formspubs/, select “Comment on Tax Forms and Publications” under “More Information. International student tax return ”   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. International student tax return Ordering forms and publications. International student tax return   Visit www. International student tax return irs. International student tax return 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. International student tax return Internal Revenue Service 1201 N. International student tax return Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. International student tax return   If you have a tax question, check the information available on IRS. International student tax return gov or call 1-800-829-1040. International student tax return We cannot answer tax questions sent to either of the above addresses. International student tax return Comments on IRS enforcement actions. International student tax return   The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about federal agency enforcement actions. International student tax return The Ombudsman will annually evaluate the enforcement activities of each agency and rate its responsiveness to small business. International student tax return If you wish to comment on the enforcement actions of the IRS, you can: Call 1-888-734-3247, Fax your comments to 202-481-5719, Write to Office of the National Ombudsman U. International student tax return S. International student tax return Small Business Administration 409 3rd Street, S. International student tax return W. International student tax return  Washington, DC 20416 Send an email to ombudsman@sba. International student tax return gov, or Download the appraisal form at  www. International student tax return sba. International student tax return gov/ombudsman. International student tax return Treasury Inspector General for Tax Administration. International student tax return   If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). International student tax return You can remain anonymous. International student tax return Farm tax classes. International student tax return   Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. International student tax return Contact your county extension office for more information. International student tax return Rural tax education website. International student tax return   The Rural Tax Education website is a source for information concerning agriculturally related income and deductions and self-employment tax. International student tax return The website is available for farmers and ranchers, other agricultural producers, Extension educators, and any one interested in learning about the tax side of the agricultural community. International student tax return Members of the National Farm Income Tax Extension Committee are contributors for the website and the website is hosted by Utah State University Cooperative Extension. International student tax return You can visit the website at www. International student tax return ruraltax. International student tax return org. International student tax return Future Developments The IRS has created a page on IRS. International student tax return gov for information about Publication 225, at  www. International student tax return irs. International student tax return gov/pub225. International student tax return Information about recent developments affecting Publication 225 will be posted on that page. International student tax return What's New for 2013 The following items highlight a number of administrative and tax law changes for 2013. International student tax return They are discussed in more detail throughout the publication. International student tax return Standard mileage rate. International student tax return  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. International student tax return 5 cents. International student tax return See chapter 4. International student tax return Simplified method for business use of home deduction. International student tax return  The IRS now provides a simplified method to determine your expenses for business use of your home. International student tax return For more information, see Schedule C (Form 1040), Part II, and its instructions. International student tax return See chapter 4. International student tax return Increased section 179 expense deduction dollar limits. International student tax return  The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. International student tax return This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. International student tax return See chapter 7. International student tax return Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. International student tax return  You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. International student tax return See chapter 7. International student tax return Expiration of the 3-year recovery period for certain race horses. International student tax return . International student tax return  The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. International student tax return See chapter 7. International student tax return Tax rates. International student tax return  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. International student tax return 4% to 12. International student tax return 4%. International student tax return As a result, the self-employment tax is increased from 13. International student tax return 3% to 15. International student tax return 3%. International student tax return See chapter 12. International student tax return Maximum net earnings. International student tax return  The maximum net self-employment earnings subject to the social security part (12. International student tax return 4%) of the self-employment tax increased to $113,700 for 2013. International student tax return There is no maximum limit on earnings subject to the Medicare part (2. International student tax return 9%). International student tax return See chapter 12. International student tax return Net investment income tax. International student tax return  For tax years beginning in 2013, individuals, estates, and trusts may be subject to the net investment income tax (NIIT). International student tax return If you are a trader in financial instruments and commodities and required to file Schedule C (Form 1040), your investment income (for purposes of the NIIT) may be reduced by your interest and other investment expenses to the extent those expenses are not used to reduce your self-employment income. International student tax return For information about NIIT and the special rule for traders in financial instruments and commodities, see the Instructions for Form 8960. International student tax return Social Security and Medicare Tax for 2013. International student tax return  The employee tax rate for social security is 6. International student tax return 2%. International student tax return The employer tax rate for social security remains unchanged at 6. International student tax return 2%. International student tax return The social security wage base limit is $113,700. International student tax return The Medicare tax rate is 1. International student tax return 45% each for the employee and employer, unchanged from 2012. International student tax return There is no wage base limit for Medicare tax. International student tax return See chapter 13. International student tax return Additional Medicare Tax. International student tax return  For tax years beginning in 2013, a 0. International student tax return 9% Additional Medicare Tax applies to your Medicare wages, Railroad Tax Act (RRTA) compensation, and self-employment income above a threshold amount. International student tax return Use Form 8959, Additional Medicare Tax, to figure this tax. International student tax return For more information, see the Instructions for Form 8959 and the Instructions for Schedule SE (Form 1040). International student tax return In addition to withholding Medicare tax at 1. International student tax return 45%, you must withhold a 0. International student tax return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. International student tax return You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. International student tax return Additional Medicare Tax is only imposed on the employee. International student tax return There is no employer share of Additional Medicare Tax. International student tax return All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. International student tax return For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. International student tax return For more information on Additional Medicare Tax, visit IRS. International student tax return gov and enter “Additional Medicare Tax” in the search box. International student tax return See chapter 13. International student tax return Leave-Based donation programs to aid victims of Hurricane Sandy. International student tax return  Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. International student tax return The donated leave will not be included in the income or wages of the employee. International student tax return The employer may deduct the cash payments as business expenses or charitable contributions. International student tax return See chapter 13. International student tax return Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. International student tax return  The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. International student tax return Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. International student tax return For more information, visit IRS. International student tax return gov and enter “work opportunity credit” in the search box. International student tax return See chapter 13. International student tax return Estimated tax. International student tax return  For tax years beginning in 2013, the Net Investment Income Tax (NIIT) may need to be included when calculating your estimated tax. International student tax return Also, when figuring your estimated tax, you may need to include the 0. International student tax return 9% Additional Medicare Tax applicable to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above the threshold amount based on your filing status. International student tax return For more information, see Publication 505. International student tax return What's New for 2014 Maximum net earnings. International student tax return  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. International student tax return See chapter 12. International student tax return Social security and Medicare tax for 2014. International student tax return  The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). International student tax return The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). International student tax return There is no limit on the amount of wages subject to Medicare tax. International student tax return See chapter 13. International student tax return Reminders The following reminders and other items may help you file your tax return. International student tax return   IRS e-file (Electronic Filing) You can file your tax returns electronically using an IRS e-file option. International student tax return The benefits of IRS e-file include faster refunds, increased accuracy, and acknowledgment of IRS receipt of your return. International student tax return You can use one of the following IRS e-file options. International student tax return Use an authorized IRS e-file provider. International student tax return Use a personal computer. International student tax return Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site. International student tax return For details on these fast filing methods, see your income tax package. International student tax return Principal agricultural activity codes. International student tax return  You must enter on line B of Schedule F (Form 1040) a code that identifies your principal agricultural activity. International student tax return It is important to use the correct code because this information will identify market segments of the public for IRS Taxpayer Education programs. International student tax return The U. International student tax return S. International student tax return Census Bureau also uses this information for its economic census. International student tax return See the list of Principal Agricultural Activity Codes on page 2 of Schedule F (Form 1040). International student tax return Publication on employer identification numbers (EIN). International student tax return  Publication 1635, Understanding Your Employer Identification Number, provides general information on employer identification numbers. International student tax return Topics include how to apply for an EIN and how to complete Form SS-4. International student tax return Change of address. International student tax return  If you change your home address, you should use Form 8822, Change of Addres, to notify the IRS. International student tax return If you change your business address, you should use Form 8822-B, Change of Address or Responsible Party — Business, to notify the IRS. International student tax return Be sure to include your suite, room, or other unit number. International student tax return Reportable transactions. International student tax return  You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. International student tax return You may have to pay a penalty if you are required to file Form 8886 but do not do so. International student tax return Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality and for which you paid an advisor a minimum fee, (3) transactions for which you have or a related party has a right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, (4) transactions that result in losses of at least $2 million in any single year or $4 million in any combination of years, and (5) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. International student tax return For more information, see the Instructions for Form 8886. International student tax return Form W-4 for 2014. International student tax return  You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2014. International student tax return Those employees who owed a large amount of tax or received a large refund for 2013 may need to submit a new Form W-4. International student tax return See Publication 919, How Do I Adjust My Tax Withholding. International student tax return Form 1099-MISC. International student tax return  Generally, file Form 1099-MISC if you pay at least $600 in rents, services, and other miscellaneous payments in your farming business to an individual (for example, an accountant, an attorney, or a veterinarian) who is not your employee. International student tax return Limited Liability Company (LLC). International student tax return  For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. International student tax return Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. International student tax return An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. International student tax return 7701-3. International student tax return See Publication 3402 for more details. International student tax return Photographs of missing children. International student tax return  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. International student tax return Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. International student tax return 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. International student tax return Prev  Up  Next   Home   More Online Publications