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2012 Tax Amendment

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2012 Tax Amendment

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

Look for these warning signs to avoid fraud:

  • Someone you don't know asks you to send money or money orders to claim a prize, lottery, credit card, loan, or other valuable offer.
  • Someone you don't know offers you the chance to receive a credit card, loan, prize, lottery, or other valuable item, but asks you for personal data to claim it.
  • An unknown caller claiming to be a lawyer or in law enforcement offers to help you get your money back (for a fee).
  • The deal is only good "for today" or a short period of time.
  • The seller offers "free gifts" in return for a minimum effort or a fee.
  • A "repair person" suddenly finds a dangerous defect in your car or home.
  • You are given little or no time to read a contract.
  • A sale item is suddenly unavailable but a "much better item" is available for slightly more money.
  • Someone is trying to scare you into purchasing credit protection plans.
  • The solicitation looks like a government document and suggests contest winnings or unclaimed assets are yours for a small fee. (The government doesn't solicit money from citizens.)
  • You are asked for your bank account or credit card number.

Quick Tips for Avoiding Fraud

  • Don't give out personal information. Be suspicious of anyone you don't know who asks for your Social Security number, credit card and bank account details, date of birth, etc.
  • Don't be intimidated. Be suspicious of calls or e-mails that want you to provide or verify personal information immediately. Tell them you're not interested and hang up or don't reply to the e-mail.
  • Monitor your accounts. Review bank and credit card statements carefully. Report unauthorized transactions to your financial institution immediately.
  • Use a shredder. Tear or shred credit offers you receive in the mail, bank statements, insurance forms and other papers with personal information.

Fraud Alert

Be on the lookout for these common scams:

  • Fake Check Scams- You discover the check is worthless after you've deposited it and wired money back to the crook.
  • Sweetheart Swindles- Criminals befriend you in online chat rooms or dating sites, then request money as a favor or for accident or travel expenses.
  • Auctions- Beware of fraudulent sellers and bogus merchandise.
  • Lotteries- Don't fall for foreign lotteries; they're illegal to play and may be a scam.
  • Advance Fee Loans and Credit- It's illegal for telemarketers to charge a fee in advance for help getting a loan.

The 2012 Tax Amendment

2012 tax amendment Publication 590 - Introductory Material Table of Contents What's New for 2013 What's New for 2014 Reminders IntroductionOrdering forms and publications. 2012 tax amendment Tax questions. 2012 tax amendment Useful Items - You may want to see: Note. 2012 tax amendment After 2013, Publication 590 will be split into two separate publications as follows. 2012 tax amendment Publication 590-A, will focus on contributions to traditional IRAs as well as Roth IRAs. 2012 tax amendment This publication will include the rules for rollover and conversion contributions. 2012 tax amendment Publication 590-B, will focus on distributions from traditional IRAs as well as Roth IRAs. 2012 tax amendment This publication will include the rules for required minimum distributions and IRA beneficiaries. 2012 tax amendment What's New for 2013 Traditional IRA contribution and deduction limit. 2012 tax amendment  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. 2012 tax amendment If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. 2012 tax amendment For more information, see How Much Can Be Contributed? in chapter 1. 2012 tax amendment Roth IRA contribution limit. 2012 tax amendment  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. 2012 tax amendment If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. 2012 tax amendment However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. 2012 tax amendment For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in chapter 2. 2012 tax amendment Modified AGI limit for traditional IRA contributions increased. 2012 tax amendment  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. 2012 tax amendment If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. 2012 tax amendment If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. 2012 tax amendment See How Much Can You Deduct? in chapter 1. 2012 tax amendment Modified AGI limit for Roth IRA contributions increased. 2012 tax amendment  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. 2012 tax amendment Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. 2012 tax amendment Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. 2012 tax amendment Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. 2012 tax amendment See Can You Contribute to a Roth IRA? in chapter 2. 2012 tax amendment Net Investment Income Tax. 2012 tax amendment  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). 2012 tax amendment However, these distributions are taken into account when determining the modified adjusted gross income threshold. 2012 tax amendment Distributions from a nonqualified retirement plan are included in net investment income. 2012 tax amendment See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. 2012 tax amendment Kay Bailey Hutchison Spousal IRA. 2012 tax amendment . 2012 tax amendment  In 2013, spousal IRAs were renamed to Kay Bailey Hutchison Spousal IRAs. 2012 tax amendment There are no changes to the rules regarding these IRAs. 2012 tax amendment See Kay Bailey Hutchison Spousal IRA Limit in chapter 1 for more information. 2012 tax amendment What's New for 2014 Modified AGI limit for traditional IRA contributions increased. 2012 tax amendment  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. 2012 tax amendment If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. 2012 tax amendment If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. 2012 tax amendment Modified AGI limit for Roth IRA contributions increased. 2012 tax amendment  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. 2012 tax amendment Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. 2012 tax amendment Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. 2012 tax amendment Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. 2012 tax amendment You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. 2012 tax amendment Reminders Future developments. 2012 tax amendment  For the latest information about developments related to Publication 590, such as legislation enacted after it was published, go to www. 2012 tax amendment irs. 2012 tax amendment gov/pub590. 2012 tax amendment Simplified employee pension (SEP). 2012 tax amendment  SEP IRAs are not covered in this publication. 2012 tax amendment They are covered in Publication 560, Retirement Plans for Small Business. 2012 tax amendment Deemed IRAs. 2012 tax amendment  A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. 2012 tax amendment If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. 2012 tax amendment An employee's account can be treated as a traditional IRA or a Roth IRA. 2012 tax amendment For this purpose, a “qualified employer plan” includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), A tax-sheltered annuity plan (section 403(b) plan), and A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. 2012 tax amendment Contributions to both traditional and Roth IRAs. 2012 tax amendment  For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in chapter 2. 2012 tax amendment Statement of required minimum distribution (RMD). 2012 tax amendment  If an RMD is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the RMD to you, or offer to calculate it for you. 2012 tax amendment The report or offer must include the date by which the amount must be distributed. 2012 tax amendment The report is due January 31 of the year in which the minimum distribution is required. 2012 tax amendment It can be provided with the year-end fair market value statement that you normally get each year. 2012 tax amendment No report is required for section 403(b) contracts (generally tax-sheltered annuities) or for IRAs of owners who have died. 2012 tax amendment IRA interest. 2012 tax amendment  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. 2012 tax amendment Tax on your traditional IRA is generally deferred until you take a distribution. 2012 tax amendment Do not report this interest on your return as tax-exempt interest. 2012 tax amendment For more information on tax-exempt interest, see the instructions for your tax return. 2012 tax amendment Photographs of missing children. 2012 tax amendment  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 tax amendment Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 tax amendment You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2012 tax amendment Introduction This publication discusses individual retirement arrangements (IRAs). 2012 tax amendment An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. 2012 tax amendment What are some tax advantages of an IRA?   Two tax advantages of an IRA are that: Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances, and Generally, amounts in your IRA (including earnings and gains) are not taxed until distributed. 2012 tax amendment In some cases, amounts are not taxed at all if distributed according to the rules. 2012 tax amendment What's in this publication?   This publication discusses traditional, Roth, and SIMPLE IRAs. 2012 tax amendment It explains the rules for: Setting up an IRA, Contributing to an IRA, Transferring money or property to and from an IRA, Handling an inherited IRA, Receiving distributions (making withdrawals) from an IRA, and Taking a credit for contributions to an IRA. 2012 tax amendment   It also explains the penalties and additional taxes that apply when the rules are not followed. 2012 tax amendment To assist you in complying with the tax rules for IRAs, this publication contains worksheets, sample forms, and tables, which can be found throughout the publication and in the appendices at the back of the publication. 2012 tax amendment How to use this publication. 2012 tax amendment   The rules that you must follow depend on which type of IRA you have. 2012 tax amendment Use Table I-1 to help you determine which parts of this publication to read. 2012 tax amendment Also use Table I-1 if you were referred to this publication from instructions to a form. 2012 tax amendment Comments and suggestions. 2012 tax amendment   We welcome your comments about this publication and your suggestions for future editions. 2012 tax amendment   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 tax amendment NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 tax amendment Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 tax amendment   You can send your comments from www. 2012 tax amendment irs. 2012 tax amendment gov/formspubs/. 2012 tax amendment Click on “More Information” and then on “Comment on Tax Forms and Publications”. 2012 tax amendment   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2012 tax amendment Ordering forms and publications. 2012 tax amendment   Visit www. 2012 tax amendment irs. 2012 tax amendment gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2012 tax amendment Internal Revenue Service 1201 N. 2012 tax amendment Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 tax amendment   If you have a tax question, check the information available on IRS. 2012 tax amendment gov or call 1-800-829-1040. 2012 tax amendment We cannot answer tax questions sent to either of the above addresses. 2012 tax amendment Useful Items - You may want to see: Publications 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 571 Tax-Sheltered Annuity Plans (403(b) Plans) 575 Pension and Annuity Income 939 General Rule for Pensions and Annuities Forms (and instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2012 tax amendment 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–Not for Use With a Designated Financial Institution 5305-S SIMPLE Individual Retirement Trust Account 5305-SA SIMPLE Individual Retirement Custodial Account 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)–for Use With a Designated Financial Institution 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5498 IRA Contribution Information 8606 Nondeductible IRAs 8815 Exclusion of Interest From Series EE and I U. 2012 tax amendment S. 2012 tax amendment Savings Bonds Issued After 1989 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions See chapter 5 for information about getting these publications and forms. 2012 tax amendment Table I-1. 2012 tax amendment Using This Publication IF you need information on . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment THEN see . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment traditional IRAs chapter 1. 2012 tax amendment Roth IRAs chapter 2, and parts of  chapter 1. 2012 tax amendment SIMPLE IRAs chapter 3. 2012 tax amendment the credit for qualified retirement savings contributions (the saver's credit) chapter 4. 2012 tax amendment how to keep a record of your contributions to, and distributions from, your traditional IRA(s) appendix A. 2012 tax amendment SEP IRAs and 401(k) plans Publication 560. 2012 tax amendment Coverdell education savings accounts (formerly called education IRAs) Publication 970. 2012 tax amendment IF for 2013, you received social security benefits, had taxable compensation, contributed to a traditional IRA, and you or your spouse was covered by an employer retirement plan, and you want to. 2012 tax amendment . 2012 tax amendment . 2012 tax amendment THEN see . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment first figure your modified adjusted gross income (AGI) appendix B, worksheet 1. 2012 tax amendment then figure how much of your traditional IRA contribution you can deduct appendix B, worksheet 2. 2012 tax amendment and finally figure how much of your social security is taxable appendix B, worksheet 3. 2012 tax amendment Table I-2. 2012 tax amendment How Are a Traditional IRA and a Roth IRA Different? This table shows the differences between traditional and Roth IRAs. 2012 tax amendment Answers in the middle column apply to traditional IRAs. 2012 tax amendment Answers in the right column apply to Roth IRAs. 2012 tax amendment Question Answer   Traditional IRA? Roth IRA? Is there an age limit on when I can open and contribute to a Yes. 2012 tax amendment You must not have reached age  70½ by the end of the year. 2012 tax amendment See Who Can Open a Traditional IRA? in chapter 1. 2012 tax amendment No. 2012 tax amendment You can be any age. 2012 tax amendment See Can You Contribute to a Roth IRA? in chapter 2. 2012 tax amendment If I earned more than $5,500 in 2013 ($6,500 if I was 50 or older by the end of 2013), is there a limit on how much I can contribute to a Yes. 2012 tax amendment For 2013, you can contribute to a traditional IRA up to: $5,500, or $6,500 if you were age 50 or older by the end of 2013. 2012 tax amendment  There is no upper limit on how much you can earn and still contribute. 2012 tax amendment See How Much Can Be Contributed? in chapter 1. 2012 tax amendment Yes. 2012 tax amendment For 2013, you may be able to contribute to a Roth IRA up to: $5,500, or $6,500 if you were age 50 or older by the end of 2013,  but the amount you can contribute may be less than that depending on your income, filing status, and if you contribute to another IRA. 2012 tax amendment See How Much Can Be Contributed? and Table 2-1 in chapter 2. 2012 tax amendment Can I deduct contributions to a Yes. 2012 tax amendment You may be able to deduct your contributions to a traditional IRA depending on your income, filing status, whether you are covered by a retirement plan at work, and whether you receive social security benefits. 2012 tax amendment See How Much Can You Deduct? in chapter 1. 2012 tax amendment No. 2012 tax amendment You can never deduct contributions to a Roth IRA. 2012 tax amendment See What Is a Roth IRA? in chapter 2. 2012 tax amendment Do I have to file a form just because I contribute to a Not unless you make nondeductible contributions to your traditional IRA. 2012 tax amendment In that case, you must file Form 8606. 2012 tax amendment See Nondeductible Contributions in chapter 1. 2012 tax amendment No. 2012 tax amendment You do not have to file a form if you contribute to a Roth IRA. 2012 tax amendment See Contributions not reported in chapter 2. 2012 tax amendment Do I have to start taking distributions when I reach a certain age from a Yes. 2012 tax amendment You must begin receiving required minimum distributions by April 1 of the year following the year you reach age 70½. 2012 tax amendment See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. 2012 tax amendment No. 2012 tax amendment If you are the original owner of a Roth IRA, you do not have to take distributions regardless of your age. 2012 tax amendment See Are Distributions Taxable? in chapter 2. 2012 tax amendment However, if you are the beneficiary of a Roth IRA, you may have to take distributions. 2012 tax amendment See Distributions After Owner's Death in chapter 2. 2012 tax amendment How are distributions taxed from a Distributions from a traditional IRA are taxed as ordinary income, but if you made nondeductible contributions, not all of the distribution is taxable. 2012 tax amendment See Are Distributions Taxable? in chapter 1. 2012 tax amendment Distributions from a Roth IRA are not taxed as long as you meet certain criteria. 2012 tax amendment See Are Distributions Taxable? in chapter 2. 2012 tax amendment Do I have to file a form just because I receive distributions from a Not unless you have ever made a nondeductible contribution to a traditional IRA. 2012 tax amendment If you have, file Form 8606. 2012 tax amendment See Nondeductible Contributions in chapter 1. 2012 tax amendment Yes. 2012 tax amendment File Form 8606 if you received distributions from a Roth IRA (other than a rollover, qualified charitable distribution, one-time distribution to fund an HSA, recharacterization, certain qualified distributions, or a return of certain contributions). 2012 tax amendment Prev  Up  Next   Home   More Online Publications