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Tax forms 5. Tax forms 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 forms Short-term lease. Tax forms Retail space. Tax forms Qualified long-term real property. Tax forms 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 forms If there is a connection between any income you receive and your business, the income is business income. Tax forms 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 forms You can have business income even if you are not involved in the activity on a regular full-time basis. Tax forms Income from work you do on the side in addition to your regular job can be business income. Tax forms You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Tax forms 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 forms For information on selling business assets, see chapter 3. Tax forms Nonemployee compensation. Tax forms Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Tax forms This includes amounts reported as nonemployee compensation in box 7 of the form. Tax forms You can find more information in the instructions on the back of the Form 1099-MISC you received. Tax forms Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Tax forms In most cases, your business income will be in the form of cash, checks, and credit card charges. Tax forms But business income can be in other forms, such as property or services. Tax forms These and other types of income are explained next. Tax forms If you are a U. Tax forms S. Tax forms 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 forms S. Tax forms law. Tax forms If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Tax forms For details, see Publication 54, Tax Guide for U. Tax forms S. Tax forms Citizens and Resident Aliens Abroad. Tax forms Bartering for Property or Services Bartering is an exchange of property or services. Tax forms 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 forms 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 forms Example 1. Tax forms You are a self-employed lawyer. Tax forms You perform legal services for a client, a small corporation. Tax forms In payment for your services, you receive shares of stock in the corporation. Tax forms You must include the fair market value of the shares in income. Tax forms Example 2. Tax forms You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Tax forms You must include the fair rental value of the apartment in your gross receipts. Tax forms Your landlord must include the fair market value of the work of art in his or her rental income. Tax forms Example 3. Tax forms You are a self-employed accountant. Tax forms 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 forms Members get in touch with other members directly and bargain for the value of the services to be performed. Tax forms In return for accounting services you provided for the house painter's business, the house painter painted your home. Tax forms You must include in gross receipts the fair market value of the services you received from the house painter. Tax forms The house painter must include the fair market value of your accounting services in his or her gross receipts. Tax forms Example 4. Tax forms 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 forms 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 forms 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 forms 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 forms It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Tax forms See Publication 15 (Circular E), Employer's Tax Guide. Tax forms Example 5. Tax forms You operate a plumbing business and use the cash method of accounting. Tax forms You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Tax forms Each member has access to a directory that lists the members of the club and the services available. Tax forms Members contact each other directly and request services to be performed. Tax forms 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 forms 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 forms Information returns. Tax forms If you are involved in a bartering transaction, you may have to file either of the following forms. Tax forms Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Tax forms Form 1099-MISC, Miscellaneous Income. Tax forms For information about these forms, see the General Instructions for Certain Information Returns. Tax forms 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 forms , who provides services (maid services, etc. Tax forms ) for guests, report the rental income and expenses on Schedule C or C-EZ. Tax forms 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 forms For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Tax forms Real estate dealer. Tax forms 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 forms Rent you receive from real estate held for sale to customers is subject to SE tax. Tax forms However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Tax forms Trailer park owner. Tax forms 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 forms 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 forms Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Tax forms 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 forms 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 forms Hotels, boarding houses, and apartments. Tax forms 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 forms 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 forms An example of a service that is not normally provided for the convenience of the occupants is maid service. Tax forms However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Tax forms Prepaid rent. Tax forms 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 forms This is true no matter what accounting method or period you use. Tax forms Lease bonus. Tax forms A bonus you receive from a lessee for granting a lease is an addition to the rent. Tax forms Include it in your gross receipts in the year received. Tax forms Lease cancellation payments. Tax forms Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Tax forms Payments to third parties. Tax forms 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 forms A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Tax forms Settlement payments. Tax forms 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 forms Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Tax forms ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Tax forms Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Tax forms If you receive any of those payments, include them in your gross receipts as explained in that discussion. Tax forms Interest and Dividend Income Interest and dividends may be considered business income. Tax forms Interest. Tax forms Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Tax forms Interest received on loans is business income if you are in the business of lending money. Tax forms Uncollectible loans. Tax forms 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 forms If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Tax forms See Bad Debts in chapter 8. Tax forms Unstated interest. Tax forms 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 forms See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Tax forms Dividends. Tax forms Generally, dividends are business income to dealers in securities. Tax forms For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Tax forms If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Tax forms 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 forms To find out how much you have to report, see Recovery of items previously deducted under Other Income, later. Tax forms Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Tax forms 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 forms Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Tax forms If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Tax forms Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Tax forms Price reduced after purchase. Tax forms 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 forms 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 forms Deductible debt. Tax forms You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Tax forms Example. Tax forms You get accounting services for your business on credit. Tax forms Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Tax forms Your accountant forgives part of the amount you owe for the accounting services. Tax forms How you treat the canceled debt depends on your method of accounting. Tax forms 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 forms Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Tax forms For information on the cash and accrual methods of accounting, see chapter 2. Tax forms Exclusions Do not include canceled debt in income in the following situations. Tax forms However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Tax forms For more information, see Form 982. Tax forms The cancellation takes place in a bankruptcy case under title 11 of the U. Tax forms S. Tax forms Code (relating to bankruptcy). Tax forms See Publication 908, Bankruptcy Tax Guide. Tax forms The cancellation takes place when you are insolvent. Tax forms You can exclude the canceled debt to the extent you are insolvent. Tax forms See Publication 908. Tax forms The canceled debt is a qualified farm debt owed to a qualified person. Tax forms See chapter 3 in Publication 225, Farmer's Tax Guide. Tax forms The canceled debt is a qualified real property business debt. Tax forms This situation is explained later. Tax forms The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Tax forms See Form 982. Tax forms 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 forms 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 forms Debt. Tax forms For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Tax forms Qualified real property business debt. Tax forms You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Tax forms If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Tax forms Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Tax forms However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Tax forms Cancellation of qualified real property business debt. Tax forms Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Tax forms It was incurred or assumed in connection with real property used in a trade or business. Tax forms It was secured by such real property. Tax forms It was incurred or assumed at either of the following times. Tax forms Before January 1, 1993. Tax forms After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Tax forms It is debt to which you choose to apply these rules. Tax forms 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 forms You cannot exclude more than either of the following amounts. Tax forms 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 forms The total adjusted bases of depreciable real property held by you immediately before the cancellation. Tax forms These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Tax forms Do not take into account depreciable real property acquired in contemplation of the cancellation. Tax forms Election. Tax forms 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 forms You must file your return by the due date (including extensions). Tax forms 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 forms For more information, see When To File in the form instructions. Tax forms Other Income The following discussion explains how to treat other types of business income you may receive. Tax forms Restricted property. Tax forms Restricted property is property that has certain restrictions that affect its value. Tax forms 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 forms However, you can choose to be taxed in the year you receive the property. Tax forms For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Tax forms Gains and losses. Tax forms 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 forms Instead, you must report these gains and losses on other forms. Tax forms For more information, see chapter 3. Tax forms Promissory notes. Tax forms 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 forms In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Tax forms Lost income payments. Tax forms 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 forms Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Tax forms Damages. Tax forms 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 forms Patent infringement. Tax forms Breach of contract or fiduciary duty. Tax forms Antitrust injury. Tax forms Economic injury. Tax forms You may be entitled to a deduction against the income if it compensates you for actual economic injury. Tax forms Your deduction is the smaller of the following amounts. Tax forms 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 forms Your loss from the injury that you have not yet deducted. Tax forms Punitive damages. Tax forms You must also include punitive damages in income. Tax forms Kickbacks. Tax forms If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Tax forms 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 forms Recovery of items previously deducted. Tax forms 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 forms 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 forms If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Tax forms Example. Tax forms 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 forms He also had 2 personal exemptions for a total of $7,800. Tax forms He would not pay income tax even if he did not deduct the bad debt. Tax forms Therefore, he will not report as income any part of the $300 he may recover in any future year. Tax forms Exception for depreciation. Tax forms This rule does not apply to depreciation. Tax forms You recover depreciation using the rules explained next. Tax forms Recapture of depreciation. Tax forms In the following situations, you have to recapture the depreciation deduction. Tax forms This means you include in income part or all of the depreciation you deducted in previous years. Tax forms Listed property. Tax forms 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 forms You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Tax forms Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Tax forms For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Tax forms That chapter explains how to determine whether property is used more than 50% in your business. Tax forms Section 179 property. Tax forms 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 forms You do this by including in income on Schedule C part of the deduction you took. Tax forms Use Part IV of Form 4797 to figure the amount to include on Schedule C. Tax forms See chapter 2 in Publication 946 to find out when you recapture the deduction. Tax forms Sale or exchange of depreciable property. Tax forms 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 forms You figure the income due to depreciation recapture in Part III of Form 4797. Tax forms For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Tax forms Items That Are Not Income In some cases the property or money you receive is not income. Tax forms Appreciation. Tax forms Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Tax forms Consignments. Tax forms Consignments of merchandise to others to sell for you are not sales. Tax forms The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Tax forms Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Tax forms Merchandise you have shipped out on consignment is included in your inventory until it is sold. Tax forms Do not include merchandise you receive on consignment in your inventory. Tax forms 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 forms Construction allowances. Tax forms 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 forms Under a short-term lease of retail space. Tax forms For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Tax forms Amount you can exclude. Tax forms You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Tax forms Short-term lease. Tax forms A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Tax forms The following rules apply in determining whether the lease is for 15 years or less. Tax forms Take into account options to renew when figuring whether the lease is for 15 years or less. Tax forms But do not take into account any option to renew at fair market value determined at the time of renewal. Tax forms 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 forms Retail space. Tax forms 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 forms Qualified long-term real property. Tax forms 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 forms Exchange of like-kind property. Tax forms 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 forms This means that the gain is not taxable and the loss is not deductible. Tax forms A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Tax forms For more information, see Form 8824. Tax forms Leasehold improvements. Tax forms 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 forms However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Tax forms Loans. Tax forms Money borrowed through a bona fide loan is not income. Tax forms Sales tax. Tax forms 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 forms 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 forms Direct seller. Tax forms You must report all income you receive as a direct seller on Schedule C or C-EZ. Tax forms This includes any of the following. Tax forms Income from sales—payments you receive from customers for products they buy from you. Tax forms Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Tax forms Prizes, awards, and gifts you receive from your selling business. Tax forms You must report this income regardless of whether it is reported to you on an information return. Tax forms You are a direct seller if you meet all the following conditions. Tax forms You are engaged in one of the following trades or businesses. Tax forms 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 forms Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Tax forms 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 forms 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 forms Executor or administrator. Tax forms 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 forms A nonprofessional fiduciary (personal representative) and both of the following apply. Tax forms The estate includes an active trade or business in which you actively participate. Tax forms Your fees are related to the operation of that trade or business. Tax forms 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 forms If the fees do not meet the above requirements, report them on line 21 of Form 1040. Tax forms Fishing crew member. Tax forms 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 forms Insurance agent, former. Tax forms 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 forms You received payments after your agreement to perform services for the company ended. Tax forms 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 forms 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 forms 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 forms 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 forms Insurance agent, retired. Tax forms 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 forms Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Tax forms However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Tax forms Newspaper carrier or distributor. Tax forms You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Tax forms 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 forms 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 forms You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax forms This rule applies whether or not you hire others to help you make deliveries. Tax forms It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Tax forms Newspaper or magazine vendor. Tax forms 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 forms You sell newspapers or magazines to ultimate consumers. Tax forms You sell them at a fixed price. Tax forms Your earnings are based on the difference between the sales price and your cost of goods sold. Tax forms This rule applies whether or not you are guaranteed a minimum amount of earnings. Tax forms It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Tax forms Notary public. Tax forms Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Tax forms These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Tax forms Public official. Tax forms Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Tax forms 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 forms 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 forms 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 forms Real estate agent or direct seller. Tax forms 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 forms 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 forms You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Tax forms Securities dealer. Tax forms 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 forms For more information, see sections 1256 and 1402(i). Tax forms Securities trader. Tax forms You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Tax forms As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Tax forms However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Tax forms For more information about securities traders, see Publication 550, Investment Income and Expenses. Tax forms Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Tax forms This section discusses some of the more common differences that may affect business transactions. Tax forms Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Tax forms 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 forms Dealers in real estate are not allowed to use inventories. Tax forms For more information on inventories, see chapter 2. Tax forms Income paid to a third party. Tax forms All income you earn is taxable to you. Tax forms You cannot avoid tax by having the income paid to a third party. Tax forms Example. Tax forms You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Tax forms The amount paid to your son is gross income to you. Tax forms Cash discounts. Tax forms These are amounts the seller permits you to deduct from the invoice price for prompt payment. Tax forms For income tax purposes, you can use either of the following two methods to account for cash discounts. Tax forms Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Tax forms Credit the cash discount to a discount income account. Tax forms You must use the chosen method every year for all your purchase discounts. Tax forms If you use the second method, the credit balance in the account at the end of your tax year is business income. Tax forms Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Tax forms 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 forms Trade discounts. Tax forms These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Tax forms Do not enter these discounts on your books of account. Tax forms Instead, use only the net amount as the cost of the merchandise purchased. Tax forms For more information, see Trade discounts in chapter 6. Tax forms Payment placed in escrow. Tax forms 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 forms 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 forms Sales returns and allowances. Tax forms 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 forms Advance payments. Tax forms Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Tax forms Insurance proceeds. Tax forms 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 forms You cannot deduct the reimbursed part of a casualty or theft loss. Tax forms For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Tax forms Prev Up Next Home More Online Publications
Small Business/Self-Employed Topics
Employer ID Numbers (EINs)
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An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service. You must check with your state to make sure you need a state number or charter.
Apply for an EIN Online
Check out our Interview-style online EIN application. No need to file a Form SS-4! We ask you the questions and you give us the answers. The application includes embedded help topics and hyperlinked keywords and definitions so separate instructions aren’t needed. After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your confirmation notice. It’s fast, free, and user-friendly!
Change of Ownership or Structure
Generally, businesses need a new EIN when their ownership or structure has changed. Refer to "Do You Need a New EIN?" to determine if this applies to your business.
Verify Your EIN
If you want to verify your EIN, see the Lost or Misplaced Your EIN page for instructions.
Daily Limitation of an Employer Identification Number
Effective May 21, 2012, to ensure fair and equitable treatment for all taxpayers, the Internal Revenue Service will limit Employer Identification Number (EIN) issuance to one per responsible party per day. This limitation is applicable to all requests for EINs whether online or by fax or mail. We apologize for any inconvenience this may cause.
Page Last Reviewed or Updated: 03-Jan-2014
The Tax Forms
Tax forms Publication 901 - Additional Material Table of Contents How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Tax forms How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Tax forms By selecting the method that is best for you, you will have quick and easy access to tax help. Tax forms Free help with your tax return. Tax forms Free help in preparing your return is available nationwide from IRS-certified volunteers. Tax forms The Volunteer Income Tax Assistance (VITA) program is designed to help low-moderate income, elderly, disabled, and limited English proficient taxpayers. Tax forms The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Tax forms Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Tax forms Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Tax forms To find the nearest VITA or TCE site, visit IRS. Tax forms gov or call 1-800-906-9887 or 1-800-829-1040. Tax forms As part of the TCE program, AARP offers the Tax-Aide counseling program. Tax forms To find the nearest AARP Tax-Aide site, visit AARP's website at www. Tax forms aarp. Tax forms org/money/taxaide or call 1-888-227-7669. Tax forms For more information on these programs, go to IRS. Tax forms gov and enter “VITA” in the search box. Tax forms Internet. Tax forms You can access the IRS website at IRS. Tax forms gov 24 hours a day, 7 days a week to: E-file your return. Tax forms Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Tax forms Check the status of your 2012 refund. Tax forms Go to IRS. Tax forms gov and click on Where’s My Refund. Tax forms Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. Tax forms If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Tax forms Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Tax forms Where's My Refund? has a new look this year! The tool will include a tracker that displays progress through three stages: (1) return received, (2) refund approved, and (3) refund sent. Tax forms Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax forms So in a change from previous filing seasons, you won't get an estimated refund date right away. Tax forms Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Tax forms You can obtain a free transcript online at IRS. Tax forms gov by clicking on Order a Return or Account Transcript under “Tools. Tax forms ” For a transcript by phone, call 1-800-908-9946 and follow the prompts in the recorded message. Tax forms You will be prompted to provide your SSN or Individual Taxpayer Identification Number (ITIN), date of birth, street address and ZIP code. Tax forms Download forms, including talking tax forms, instructions, and publications. Tax forms Order IRS products. Tax forms Research your tax questions. Tax forms Search publications by topic or keyword. Tax forms Use the Internal Revenue Code, regulations, or other official guidance. Tax forms View Internal Revenue Bulletins (IRBs) published in the last few years. Tax forms Figure your withholding allowances using the IRS Withholding Calculator at www. Tax forms irs. Tax forms gov/individuals. Tax forms Determine if Form 6251 (Alternative Minimum Tax— Individuals), must be filed by using our Alternative Minimum Tax (AMT) Assistant available at IRS. Tax forms gov by typing Alternative Minimum Tax Assistant in the search box. Tax forms Sign up to receive local and national tax news by email. Tax forms Get information on starting and operating a small business. Tax forms Phone. Tax forms Many services are available by phone. Tax forms Ordering forms, instructions, and publications. Tax forms Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions (limited to 5 years). Tax forms You should receive your order within 10 days. Tax forms Asking tax questions. Tax forms Call the IRS with your tax questions at 1-800-829-1040. Tax forms Solving problems. Tax forms You can get face-to-face help solving tax problems most business days in IRS Taxpayer Assistance Centers (TAC). Tax forms An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Tax forms Call your local Taxpayer Assistance Center for an appointment. Tax forms To find the number, go to www. Tax forms irs. Tax forms gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Tax forms TTY/TDD equipment. Tax forms If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Tax forms The TTY/TDD telephone number is for individuals who are deaf, hard of hearing, or have a speech disability. Tax forms These individuals can also access the IRS through relay services such as the Federal Relay Service at www. Tax forms gsa. Tax forms gov/fedrelay. Tax forms TeleTax topics. Tax forms Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Tax forms Checking the status of your 2012 refund. Tax forms To check the status of your 2012 refund, call 1-800-829-1954 or 1-800-829-4477 (automated Where's My Refund? information 24 hours a day, 7 days a week). Tax forms Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. Tax forms If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Tax forms Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Tax forms Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. Tax forms Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Tax forms Evaluating the quality of our telephone services. Tax forms To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Tax forms One method is for a second IRS representative to listen in on or record random telephone calls. Tax forms Another is to ask some callers to complete a short survey at the end of the call. Tax forms Walk-in. Tax forms Some products and services are available on a walk-in basis. Tax forms Products. Tax forms You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Tax forms Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Tax forms Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Tax forms Services. Tax forms You can walk in to your local TAC most business days for personal, face-to-face tax help. Tax forms An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Tax forms If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Tax forms No appointment is necessary—just walk in. Tax forms Before visiting, check www. Tax forms irs. Tax forms gov/localcontacts for hours of operation and services provided. Tax forms If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested by calling your local TAC. Tax forms You can leave a message and a representative will call you back within 2 business days. Tax forms All other issues will be handled without an appointment. Tax forms To call your local TAC, go to www. Tax forms irs. Tax forms gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Tax forms Mail. Tax forms You can send your order for forms, instructions, and publications to the address below. Tax forms You should receive a response within 10 days after your request is received. Tax forms Internal Revenue Service 1201 N. Tax forms Mitsubishi Motorway Bloomington, IL 61705-6613 Taxpayer Advocate Service. Tax forms The Taxpayer Advocate Service (TAS) is your voice at the IRS. Tax forms Its job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. Tax forms TAS offers free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own. Tax forms Remember, the worst thing you can do is nothing at all. Tax forms TAS can help if you can’t resolve your problem with the IRS and: Your problem is causing financial difficulties for you, your family, or your business. Tax forms You face (or your business is facing) an immediate threat of adverse action. Tax forms You have tried repeatedly to contact the IRS but no one has responded, or the IRS has not responded to you by the date promised. Tax forms If you qualify for help, they will do everything they can to get your problem resolved. Tax forms You will be assigned to one advocate who will be with you at every turn. Tax forms TAS has offices in every state, the District of Columbia, and Puerto Rico. Tax forms Although TAS is independent within the IRS, their advocates know how to work with the IRS to get your problems resolved. Tax forms And its services are always free. Tax forms As a taxpayer, you have rights that the IRS must abide by in its dealings with you. Tax forms The TAS tax toolkit at www. Tax forms TaxpayerAdvocate. Tax forms irs. Tax forms gov can help you understand these rights. Tax forms If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on our website at www. Tax forms irs. Tax forms gov/advocate. Tax forms You can also call the toll-free number at 1-877-777-4778. Tax forms Deaf and hard of hearing individuals who have access to TTY/TDD equipment can call 1-800-829-4059. Tax forms These individuals can also access the IRS through relay services such as the Federal Relay Service at www. Tax forms gsa. Tax forms gov/fedrelay. Tax forms TAS also handles large-scale or systemic problems that affect many taxpayers. Tax forms If you know of one of these broad issues, please report it through the Systemic Advocacy Management System at www. Tax forms irs. Tax forms gov/advocate. Tax forms Low Income Taxpayer Clinics (LITCs). Tax forms Low Income Taxpayer Clinics (LITCs) are independent from the IRS. Tax forms Some clinics serve individuals whose income is below a certain level and who need to resolve a tax problem. Tax forms These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. Tax forms Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. Tax forms For more information and to find a clinic near you, see the LITC page on www. Tax forms irs. Tax forms gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. Tax forms This publication is also available by calling 1-800-TAX-FORM (1-800-829-3676) or at your local IRS office. Tax forms Free tax services. Tax forms Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Tax forms Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Tax forms The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Tax forms The majority of the information and services listed in this publication are available to you free of charge. Tax forms If there is a fee associated with a resource or service, it is listed in the publication. Tax forms Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Tax forms DVD for tax products. Tax forms You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Tax forms Prior-year forms, instructions, and publications. Tax forms Tax Map: an electronic research tool and finding aid. Tax forms Tax law frequently asked questions. Tax forms Tax Topics from the IRS telephone response system. Tax forms Internal Revenue Code—Title 26 of the U. Tax forms S. Tax forms Code. Tax forms Links to other Internet-based tax research materials. Tax forms Fill-in, print, and save features for most tax forms. Tax forms Internal Revenue Bulletins. Tax forms Toll-free and email technical support. Tax forms Two releases during the year. Tax forms – The first release will ship the beginning of January 2013. Tax forms – The final release will ship the beginning of March 2013. Tax forms Purchase the DVD from National Technical Information Service (NTIS) at www. Tax forms irs. Tax forms gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). Tax forms Prev Up Next Home More Online Publications