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Tax Filing Deadline 2010

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Tax Filing Deadline 2010

Tax filing deadline 2010 3. Tax filing deadline 2010   Gifts Table of Contents If you give gifts in the course of your trade or business, you can deduct all or part of the cost. Tax filing deadline 2010 This chapter explains the limits and rules for deducting the costs of gifts. Tax filing deadline 2010 $25 limit. Tax filing deadline 2010   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Tax filing deadline 2010 A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. Tax filing deadline 2010   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. Tax filing deadline 2010 This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use. Tax filing deadline 2010   If you and your spouse both give gifts, both of you are treated as one taxpayer. Tax filing deadline 2010 It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. Tax filing deadline 2010 If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. Tax filing deadline 2010 Example. Tax filing deadline 2010 Bob Jones sells products to Local Company. Tax filing deadline 2010 He and his wife, Jan, gave Local Company three gourmet gift baskets to thank them for their business. Tax filing deadline 2010 They paid $80 for each gift basket, or $240 total. Tax filing deadline 2010 Three of Local Company's executives took the gift baskets home for their families' use. Tax filing deadline 2010 Bob and Jan have no independent business relationship with any of the executives' other family members. Tax filing deadline 2010 They can deduct a total of $75 ($25 limit × 3) for the gift baskets. Tax filing deadline 2010 Incidental costs. Tax filing deadline 2010   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. Tax filing deadline 2010   A cost is incidental only if it does not add substantial value to the gift. Tax filing deadline 2010 For example, the cost of gift wrapping is an incidental cost. Tax filing deadline 2010 However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. Tax filing deadline 2010 Exceptions. Tax filing deadline 2010   The following items are not considered gifts for purposes of the $25 limit. Tax filing deadline 2010 An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. Tax filing deadline 2010 Examples include pens, desk sets, and plastic bags and cases. Tax filing deadline 2010 Signs, display racks, or other promotional material to be used on the business premises of the recipient. Tax filing deadline 2010    Figure B. Tax filing deadline 2010 When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. Tax filing deadline 2010 (Do not use this chart if your home is your principal place of business. Tax filing deadline 2010 See Office in the home . Tax filing deadline 2010 ) Please click here for the text description of the image. Tax filing deadline 2010 Figure B. Tax filing deadline 2010 When Are Local Transportation Expenses Deductible?TAs for Figure B are: Reg 1. Tax filing deadline 2010 162-1(a); RR 55–109; RR 94–47 Gift or entertainment. Tax filing deadline 2010   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Tax filing deadline 2010 However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. Tax filing deadline 2010    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Tax filing deadline 2010 You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. Tax filing deadline 2010   You can change your treatment of the tickets at a later date by filing an amended return. Tax filing deadline 2010 Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Tax filing deadline 2010    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Tax filing deadline 2010 You cannot choose, in this case, to treat the cost of the tickets as a gift expense. Tax filing deadline 2010 Prev  Up  Next   Home   More Online Publications
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The Tax Filing Deadline 2010

Tax filing deadline 2010 5. Tax filing deadline 2010   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Tax filing deadline 2010 Short-term lease. Tax filing deadline 2010 Retail space. Tax filing deadline 2010 Qualified long-term real property. Tax filing deadline 2010 Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Tax filing deadline 2010 If there is a connection between any income you receive and your business, the income is business income. Tax filing deadline 2010 A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Tax filing deadline 2010 You can have business income even if you are not involved in the activity on a regular full-time basis. Tax filing deadline 2010 Income from work you do on the side in addition to your regular job can be business income. Tax filing deadline 2010 You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Tax filing deadline 2010 But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Tax filing deadline 2010 For information on selling business assets, see chapter 3. Tax filing deadline 2010 Nonemployee compensation. Tax filing deadline 2010 Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Tax filing deadline 2010 This includes amounts reported as nonemployee compensation in box 7 of the form. Tax filing deadline 2010 You can find more information in the instructions on the back of the Form 1099-MISC you received. Tax filing deadline 2010 Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Tax filing deadline 2010 In most cases, your business income will be in the form of cash, checks, and credit card charges. Tax filing deadline 2010 But business income can be in other forms, such as property or services. Tax filing deadline 2010 These and other types of income are explained next. Tax filing deadline 2010 If you are a U. Tax filing deadline 2010 S. Tax filing deadline 2010 citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Tax filing deadline 2010 S. Tax filing deadline 2010 law. Tax filing deadline 2010 If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Tax filing deadline 2010 For details, see Publication 54, Tax Guide for U. Tax filing deadline 2010 S. Tax filing deadline 2010 Citizens and Resident Aliens Abroad. Tax filing deadline 2010 Bartering for Property or Services Bartering is an exchange of property or services. Tax filing deadline 2010 You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Tax filing deadline 2010 If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Tax filing deadline 2010 Example 1. Tax filing deadline 2010 You are a self-employed lawyer. Tax filing deadline 2010 You perform legal services for a client, a small corporation. Tax filing deadline 2010 In payment for your services, you receive shares of stock in the corporation. Tax filing deadline 2010 You must include the fair market value of the shares in income. Tax filing deadline 2010 Example 2. Tax filing deadline 2010 You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Tax filing deadline 2010 You must include the fair rental value of the apartment in your gross receipts. Tax filing deadline 2010 Your landlord must include the fair market value of the work of art in his or her rental income. Tax filing deadline 2010 Example 3. Tax filing deadline 2010 You are a self-employed accountant. Tax filing deadline 2010 Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Tax filing deadline 2010 Members get in touch with other members directly and bargain for the value of the services to be performed. Tax filing deadline 2010 In return for accounting services you provided for the house painter's business, the house painter painted your home. Tax filing deadline 2010 You must include in gross receipts the fair market value of the services you received from the house painter. Tax filing deadline 2010 The house painter must include the fair market value of your accounting services in his or her gross receipts. Tax filing deadline 2010 Example 4. Tax filing deadline 2010 You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Tax filing deadline 2010 As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Tax filing deadline 2010 You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Tax filing deadline 2010 The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Tax filing deadline 2010 It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Tax filing deadline 2010 See Publication 15 (Circular E), Employer's Tax Guide. Tax filing deadline 2010 Example 5. Tax filing deadline 2010 You operate a plumbing business and use the cash method of accounting. Tax filing deadline 2010 You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Tax filing deadline 2010 Each member has access to a directory that lists the members of the club and the services available. Tax filing deadline 2010 Members contact each other directly and request services to be performed. Tax filing deadline 2010 You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Tax filing deadline 2010 You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Tax filing deadline 2010 Information returns. Tax filing deadline 2010   If you are involved in a bartering transaction, you may have to file either of the following forms. Tax filing deadline 2010 Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Tax filing deadline 2010 Form 1099-MISC, Miscellaneous Income. Tax filing deadline 2010 For information about these forms, see the General Instructions for Certain Information Returns. Tax filing deadline 2010 Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Tax filing deadline 2010 , who provides services (maid services, etc. Tax filing deadline 2010 ) for guests, report the rental income and expenses on Schedule C or C-EZ. Tax filing deadline 2010 If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Tax filing deadline 2010 For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Tax filing deadline 2010 Real estate dealer. Tax filing deadline 2010   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Tax filing deadline 2010 Rent you receive from real estate held for sale to customers is subject to SE tax. Tax filing deadline 2010 However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Tax filing deadline 2010 Trailer park owner. Tax filing deadline 2010   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Tax filing deadline 2010    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Tax filing deadline 2010 Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Tax filing deadline 2010   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Tax filing deadline 2010   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Tax filing deadline 2010 Hotels, boarding houses, and apartments. Tax filing deadline 2010   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Tax filing deadline 2010   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Tax filing deadline 2010 An example of a service that is not normally provided for the convenience of the occupants is maid service. Tax filing deadline 2010 However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Tax filing deadline 2010 Prepaid rent. Tax filing deadline 2010   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Tax filing deadline 2010 This is true no matter what accounting method or period you use. Tax filing deadline 2010 Lease bonus. Tax filing deadline 2010   A bonus you receive from a lessee for granting a lease is an addition to the rent. Tax filing deadline 2010 Include it in your gross receipts in the year received. Tax filing deadline 2010 Lease cancellation payments. Tax filing deadline 2010   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Tax filing deadline 2010 Payments to third parties. Tax filing deadline 2010   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Tax filing deadline 2010 A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Tax filing deadline 2010 Settlement payments. Tax filing deadline 2010   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Tax filing deadline 2010 Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Tax filing deadline 2010 ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Tax filing deadline 2010 Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Tax filing deadline 2010 If you receive any of those payments, include them in your gross receipts as explained in that discussion. Tax filing deadline 2010 Interest and Dividend Income Interest and dividends may be considered business income. Tax filing deadline 2010 Interest. Tax filing deadline 2010   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Tax filing deadline 2010 Interest received on loans is business income if you are in the business of lending money. Tax filing deadline 2010 Uncollectible loans. Tax filing deadline 2010   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Tax filing deadline 2010 If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Tax filing deadline 2010 See Bad Debts in chapter 8. Tax filing deadline 2010 Unstated interest. Tax filing deadline 2010   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Tax filing deadline 2010 See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Tax filing deadline 2010 Dividends. Tax filing deadline 2010   Generally, dividends are business income to dealers in securities. Tax filing deadline 2010 For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Tax filing deadline 2010 If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Tax filing deadline 2010   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Tax filing deadline 2010 To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Tax filing deadline 2010 Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Tax filing deadline 2010 General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Tax filing deadline 2010 Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Tax filing deadline 2010 If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Tax filing deadline 2010 Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Tax filing deadline 2010 Price reduced after purchase. Tax filing deadline 2010   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Tax filing deadline 2010 Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Tax filing deadline 2010 Deductible debt. Tax filing deadline 2010   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Tax filing deadline 2010 Example. Tax filing deadline 2010 You get accounting services for your business on credit. Tax filing deadline 2010 Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Tax filing deadline 2010 Your accountant forgives part of the amount you owe for the accounting services. Tax filing deadline 2010 How you treat the canceled debt depends on your method of accounting. Tax filing deadline 2010 Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Tax filing deadline 2010 Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Tax filing deadline 2010   For information on the cash and accrual methods of accounting, see chapter 2. Tax filing deadline 2010 Exclusions Do not include canceled debt in income in the following situations. Tax filing deadline 2010 However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Tax filing deadline 2010 For more information, see Form 982. Tax filing deadline 2010 The cancellation takes place in a bankruptcy case under title 11 of the U. Tax filing deadline 2010 S. Tax filing deadline 2010 Code (relating to bankruptcy). Tax filing deadline 2010 See Publication 908, Bankruptcy Tax Guide. Tax filing deadline 2010 The cancellation takes place when you are insolvent. Tax filing deadline 2010 You can exclude the canceled debt to the extent you are insolvent. Tax filing deadline 2010 See Publication 908. Tax filing deadline 2010 The canceled debt is a qualified farm debt owed to a qualified person. Tax filing deadline 2010 See chapter 3 in Publication 225, Farmer's Tax Guide. Tax filing deadline 2010 The canceled debt is a qualified real property business debt. Tax filing deadline 2010 This situation is explained later. Tax filing deadline 2010 The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Tax filing deadline 2010 See Form 982. Tax filing deadline 2010 If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Tax filing deadline 2010 If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Tax filing deadline 2010 Debt. Tax filing deadline 2010   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Tax filing deadline 2010 Qualified real property business debt. Tax filing deadline 2010   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Tax filing deadline 2010 If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Tax filing deadline 2010 Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Tax filing deadline 2010 However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Tax filing deadline 2010 Cancellation of qualified real property business debt. Tax filing deadline 2010   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Tax filing deadline 2010 It was incurred or assumed in connection with real property used in a trade or business. Tax filing deadline 2010 It was secured by such real property. Tax filing deadline 2010 It was incurred or assumed at either of the following times. Tax filing deadline 2010 Before January 1, 1993. Tax filing deadline 2010 After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Tax filing deadline 2010 It is debt to which you choose to apply these rules. Tax filing deadline 2010   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Tax filing deadline 2010   You cannot exclude more than either of the following amounts. Tax filing deadline 2010 The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Tax filing deadline 2010 The total adjusted bases of depreciable real property held by you immediately before the cancellation. Tax filing deadline 2010 These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Tax filing deadline 2010 Do not take into account depreciable real property acquired in contemplation of the cancellation. Tax filing deadline 2010 Election. Tax filing deadline 2010   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Tax filing deadline 2010 You must file your return by the due date (including extensions). Tax filing deadline 2010 If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax filing deadline 2010 For more information, see When To File in the form instructions. Tax filing deadline 2010 Other Income The following discussion explains how to treat other types of business income you may receive. Tax filing deadline 2010 Restricted property. Tax filing deadline 2010   Restricted property is property that has certain restrictions that affect its value. Tax filing deadline 2010 If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Tax filing deadline 2010 However, you can choose to be taxed in the year you receive the property. Tax filing deadline 2010 For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Tax filing deadline 2010 Gains and losses. Tax filing deadline 2010   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Tax filing deadline 2010 Instead, you must report these gains and losses on other forms. Tax filing deadline 2010 For more information, see chapter 3. Tax filing deadline 2010 Promissory notes. Tax filing deadline 2010   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Tax filing deadline 2010 In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Tax filing deadline 2010 Lost income payments. Tax filing deadline 2010   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Tax filing deadline 2010 Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Tax filing deadline 2010 Damages. Tax filing deadline 2010   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Tax filing deadline 2010 Patent infringement. Tax filing deadline 2010 Breach of contract or fiduciary duty. Tax filing deadline 2010 Antitrust injury. Tax filing deadline 2010 Economic injury. Tax filing deadline 2010   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Tax filing deadline 2010 Your deduction is the smaller of the following amounts. Tax filing deadline 2010 The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Tax filing deadline 2010 Your loss from the injury that you have not yet deducted. Tax filing deadline 2010 Punitive damages. Tax filing deadline 2010   You must also include punitive damages in income. Tax filing deadline 2010 Kickbacks. Tax filing deadline 2010   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Tax filing deadline 2010 However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Tax filing deadline 2010 Recovery of items previously deducted. Tax filing deadline 2010   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Tax filing deadline 2010 However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Tax filing deadline 2010 If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Tax filing deadline 2010 Example. Tax filing deadline 2010 Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Tax filing deadline 2010 He also had 2 personal exemptions for a total of $7,800. Tax filing deadline 2010 He would not pay income tax even if he did not deduct the bad debt. Tax filing deadline 2010 Therefore, he will not report as income any part of the $300 he may recover in any future year. Tax filing deadline 2010 Exception for depreciation. Tax filing deadline 2010   This rule does not apply to depreciation. Tax filing deadline 2010 You recover depreciation using the rules explained next. Tax filing deadline 2010 Recapture of depreciation. Tax filing deadline 2010   In the following situations, you have to recapture the depreciation deduction. Tax filing deadline 2010 This means you include in income part or all of the depreciation you deducted in previous years. Tax filing deadline 2010 Listed property. Tax filing deadline 2010   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Tax filing deadline 2010 You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Tax filing deadline 2010 Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Tax filing deadline 2010 For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Tax filing deadline 2010 That chapter explains how to determine whether property is used more than 50% in your business. Tax filing deadline 2010 Section 179 property. Tax filing deadline 2010   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Tax filing deadline 2010 You do this by including in income on Schedule C part of the deduction you took. Tax filing deadline 2010 Use Part IV of Form 4797 to figure the amount to include on Schedule C. Tax filing deadline 2010 See chapter 2 in Publication 946 to find out when you recapture the deduction. Tax filing deadline 2010 Sale or exchange of depreciable property. Tax filing deadline 2010   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Tax filing deadline 2010 You figure the income due to depreciation recapture in Part III of Form 4797. Tax filing deadline 2010 For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Tax filing deadline 2010 Items That Are Not Income In some cases the property or money you receive is not income. Tax filing deadline 2010 Appreciation. Tax filing deadline 2010   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Tax filing deadline 2010 Consignments. Tax filing deadline 2010   Consignments of merchandise to others to sell for you are not sales. Tax filing deadline 2010 The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Tax filing deadline 2010 Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Tax filing deadline 2010 Merchandise you have shipped out on consignment is included in your inventory until it is sold. Tax filing deadline 2010   Do not include merchandise you receive on consignment in your inventory. Tax filing deadline 2010 Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Tax filing deadline 2010 Construction allowances. Tax filing deadline 2010   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Tax filing deadline 2010 Under a short-term lease of retail space. Tax filing deadline 2010 For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Tax filing deadline 2010 Amount you can exclude. Tax filing deadline 2010   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Tax filing deadline 2010 Short-term lease. Tax filing deadline 2010   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Tax filing deadline 2010 The following rules apply in determining whether the lease is for 15 years or less. Tax filing deadline 2010 Take into account options to renew when figuring whether the lease is for 15 years or less. Tax filing deadline 2010 But do not take into account any option to renew at fair market value determined at the time of renewal. Tax filing deadline 2010 Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Tax filing deadline 2010 Retail space. Tax filing deadline 2010   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Tax filing deadline 2010 Qualified long-term real property. Tax filing deadline 2010   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Tax filing deadline 2010 Exchange of like-kind property. Tax filing deadline 2010   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Tax filing deadline 2010 This means that the gain is not taxable and the loss is not deductible. Tax filing deadline 2010 A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Tax filing deadline 2010 For more information, see Form 8824. Tax filing deadline 2010 Leasehold improvements. Tax filing deadline 2010   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Tax filing deadline 2010 However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Tax filing deadline 2010 Loans. Tax filing deadline 2010   Money borrowed through a bona fide loan is not income. Tax filing deadline 2010 Sales tax. Tax filing deadline 2010   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Tax filing deadline 2010 Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Tax filing deadline 2010 Direct seller. Tax filing deadline 2010   You must report all income you receive as a direct seller on Schedule C or C-EZ. Tax filing deadline 2010 This includes any of the following. Tax filing deadline 2010 Income from sales—payments you receive from customers for products they buy from you. Tax filing deadline 2010 Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Tax filing deadline 2010 Prizes, awards, and gifts you receive from your selling business. Tax filing deadline 2010 You must report this income regardless of whether it is reported to you on an information return. Tax filing deadline 2010   You are a direct seller if you meet all the following conditions. Tax filing deadline 2010 You are engaged in one of the following trades or businesses. Tax filing deadline 2010 Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Tax filing deadline 2010 Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Tax filing deadline 2010 Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Tax filing deadline 2010 Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Tax filing deadline 2010 Executor or administrator. Tax filing deadline 2010   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Tax filing deadline 2010 A nonprofessional fiduciary (personal representative) and both of the following apply. Tax filing deadline 2010 The estate includes an active trade or business in which you actively participate. Tax filing deadline 2010 Your fees are related to the operation of that trade or business. Tax filing deadline 2010 A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Tax filing deadline 2010    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Tax filing deadline 2010 Fishing crew member. Tax filing deadline 2010    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Tax filing deadline 2010 Insurance agent, former. Tax filing deadline 2010   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Tax filing deadline 2010 You received payments after your agreement to perform services for the company ended. Tax filing deadline 2010 You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Tax filing deadline 2010 You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Tax filing deadline 2010 The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Tax filing deadline 2010 The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Tax filing deadline 2010 Insurance agent, retired. Tax filing deadline 2010   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Tax filing deadline 2010 Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Tax filing deadline 2010   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Tax filing deadline 2010 Newspaper carrier or distributor. Tax filing deadline 2010   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Tax filing deadline 2010 You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Tax filing deadline 2010 Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Tax filing deadline 2010 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax filing deadline 2010   This rule applies whether or not you hire others to help you make deliveries. Tax filing deadline 2010 It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Tax filing deadline 2010 Newspaper or magazine vendor. Tax filing deadline 2010   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Tax filing deadline 2010 You sell newspapers or magazines to ultimate consumers. Tax filing deadline 2010 You sell them at a fixed price. Tax filing deadline 2010 Your earnings are based on the difference between the sales price and your cost of goods sold. Tax filing deadline 2010   This rule applies whether or not you are guaranteed a minimum amount of earnings. Tax filing deadline 2010 It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Tax filing deadline 2010 Notary public. Tax filing deadline 2010   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Tax filing deadline 2010 These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Tax filing deadline 2010 Public official. Tax filing deadline 2010   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Tax filing deadline 2010 This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Tax filing deadline 2010 Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Tax filing deadline 2010   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Tax filing deadline 2010 Real estate agent or direct seller. Tax filing deadline 2010   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Tax filing deadline 2010 Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Tax filing deadline 2010 You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax filing deadline 2010 Securities dealer. Tax filing deadline 2010   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Tax filing deadline 2010 For more information, see sections 1256 and 1402(i). Tax filing deadline 2010 Securities trader. Tax filing deadline 2010   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Tax filing deadline 2010 As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Tax filing deadline 2010 However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Tax filing deadline 2010 For more information about securities traders, see Publication 550, Investment Income and Expenses. Tax filing deadline 2010 Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Tax filing deadline 2010 This section discusses some of the more common differences that may affect business transactions. Tax filing deadline 2010 Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Tax filing deadline 2010 If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Tax filing deadline 2010 Dealers in real estate are not allowed to use inventories. Tax filing deadline 2010 For more information on inventories, see chapter 2. Tax filing deadline 2010 Income paid to a third party. Tax filing deadline 2010   All income you earn is taxable to you. Tax filing deadline 2010 You cannot avoid tax by having the income paid to a third party. Tax filing deadline 2010 Example. Tax filing deadline 2010 You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Tax filing deadline 2010 The amount paid to your son is gross income to you. Tax filing deadline 2010 Cash discounts. Tax filing deadline 2010   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Tax filing deadline 2010 For income tax purposes, you can use either of the following two methods to account for cash discounts. Tax filing deadline 2010 Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Tax filing deadline 2010 Credit the cash discount to a discount income account. Tax filing deadline 2010 You must use the chosen method every year for all your purchase discounts. Tax filing deadline 2010   If you use the second method, the credit balance in the account at the end of your tax year is business income. Tax filing deadline 2010 Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Tax filing deadline 2010 When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Tax filing deadline 2010 Trade discounts. Tax filing deadline 2010   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Tax filing deadline 2010 Do not enter these discounts on your books of account. Tax filing deadline 2010 Instead, use only the net amount as the cost of the merchandise purchased. Tax filing deadline 2010 For more information, see Trade discounts in chapter 6. Tax filing deadline 2010 Payment placed in escrow. Tax filing deadline 2010   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Tax filing deadline 2010 However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Tax filing deadline 2010 Sales returns and allowances. Tax filing deadline 2010   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Tax filing deadline 2010 Advance payments. Tax filing deadline 2010   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Tax filing deadline 2010 Insurance proceeds. Tax filing deadline 2010   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Tax filing deadline 2010 You cannot deduct the reimbursed part of a casualty or theft loss. Tax filing deadline 2010   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Tax filing deadline 2010 Prev  Up  Next   Home   More Online Publications