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Can You File 1040x Electronically

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Can You File 1040x Electronically

Can you file 1040x electronically 4. Can you file 1040x electronically   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Can you file 1040x electronically However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Can you file 1040x electronically For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Can you file 1040x electronically This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Can you file 1040x electronically The student loan interest deduction is taken as an adjustment to income. Can you file 1040x electronically This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Can you file 1040x electronically This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Can you file 1040x electronically Table 4-1. Can you file 1040x electronically Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Can you file 1040x electronically Do not rely on this table alone. Can you file 1040x electronically Refer to the text for complete details. Can you file 1040x electronically Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Can you file 1040x electronically Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Can you file 1040x electronically Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Can you file 1040x electronically Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Can you file 1040x electronically Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Can you file 1040x electronically Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Can you file 1040x electronically It includes both required and voluntary interest payments. Can you file 1040x electronically Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Can you file 1040x electronically Loans from the following sources are not qualified student loans. Can you file 1040x electronically A related person. Can you file 1040x electronically A qualified employer plan. Can you file 1040x electronically Your dependent. Can you file 1040x electronically   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Can you file 1040x electronically You can find more information about dependents in Publication 501. Can you file 1040x electronically Exceptions. Can you file 1040x electronically   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Can you file 1040x electronically An individual can be your dependent even if you are the dependent of another taxpayer. Can you file 1040x electronically An individual can be your dependent even if the individual files a joint return with a spouse. Can you file 1040x electronically An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Can you file 1040x electronically Reasonable period of time. Can you file 1040x electronically   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Can you file 1040x electronically   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Can you file 1040x electronically The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Can you file 1040x electronically   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Can you file 1040x electronically Academic period. Can you file 1040x electronically   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Can you file 1040x electronically In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Can you file 1040x electronically Eligible student. Can you file 1040x electronically   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Can you file 1040x electronically Enrolled at least half-time. Can you file 1040x electronically   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Can you file 1040x electronically   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Can you file 1040x electronically However, the standard may not be lower than any of those established by the U. Can you file 1040x electronically S. Can you file 1040x electronically Department of Education under the Higher Education Act of 1965. Can you file 1040x electronically Related person. Can you file 1040x electronically   You cannot deduct interest on a loan you get from a related person. Can you file 1040x electronically Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Can you file 1040x electronically ), Your lineal descendants (children, grandchildren, etc. Can you file 1040x electronically ), and Certain corporations, partnerships, trusts, and exempt organizations. Can you file 1040x electronically Qualified employer plan. Can you file 1040x electronically   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Can you file 1040x electronically Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Can you file 1040x electronically They include amounts paid for the following items. Can you file 1040x electronically Tuition and fees. Can you file 1040x electronically Room and board. Can you file 1040x electronically Books, supplies, and equipment. Can you file 1040x electronically Other necessary expenses (such as transportation). Can you file 1040x electronically The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Can you file 1040x electronically Eligible educational institution. Can you file 1040x electronically   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Can you file 1040x electronically S. Can you file 1040x electronically Department of Education. Can you file 1040x electronically It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Can you file 1040x electronically   Certain educational institutions located outside the United States also participate in the U. Can you file 1040x electronically S. Can you file 1040x electronically Department of Education's Federal Student Aid (FSA) programs. Can you file 1040x electronically   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Can you file 1040x electronically   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Can you file 1040x electronically The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Can you file 1040x electronically    The educational institution should be able to tell you if it is an eligible educational institution. Can you file 1040x electronically Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Can you file 1040x electronically Employer-provided educational assistance. Can you file 1040x electronically See chapter 11, Employer-Provided Educational Assistance . Can you file 1040x electronically Tax-free distribution of earnings from a Coverdell education savings account (ESA). Can you file 1040x electronically See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Can you file 1040x electronically Tax-free distribution of earnings from a qualified tuition program (QTP). Can you file 1040x electronically See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Can you file 1040x electronically U. Can you file 1040x electronically S. Can you file 1040x electronically savings bond interest that you exclude from income because it is used to pay qualified education expenses. Can you file 1040x electronically See chapter 10, Education Savings Bond Program . Can you file 1040x electronically The tax-free part of scholarships and fellowships. Can you file 1040x electronically See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Can you file 1040x electronically Veterans' educational assistance. Can you file 1040x electronically See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Can you file 1040x electronically Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Can you file 1040x electronically Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Can you file 1040x electronically Loan origination fee. Can you file 1040x electronically   In general, this is a one-time fee charged by the lender when a loan is made. Can you file 1040x electronically To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Can you file 1040x electronically A loan origination fee treated as interest accrues over the term of the loan. Can you file 1040x electronically   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Can you file 1040x electronically If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Can you file 1040x electronically The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Can you file 1040x electronically A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Can you file 1040x electronically Example. Can you file 1040x electronically In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Can you file 1040x electronically The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Can you file 1040x electronically Bill began making payments on his student loan in 2013. Can you file 1040x electronically Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Can you file 1040x electronically Bill's loan is payable in 120 equal monthly payments. Can you file 1040x electronically He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Can you file 1040x electronically Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Can you file 1040x electronically To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Can you file 1040x electronically Capitalized interest. Can you file 1040x electronically   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Can you file 1040x electronically Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Can you file 1040x electronically No deduction for capitalized interest is allowed in a year in which no loan payments were made. Can you file 1040x electronically Interest on revolving lines of credit. Can you file 1040x electronically   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Can you file 1040x electronically See Qualified Education Expenses , earlier. Can you file 1040x electronically Interest on refinanced student loans. Can you file 1040x electronically   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Can you file 1040x electronically    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Can you file 1040x electronically Voluntary interest payments. Can you file 1040x electronically   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Can you file 1040x electronically Example. Can you file 1040x electronically The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Can you file 1040x electronically He began making payments as required. Can you file 1040x electronically In September 2013, Roger enrolled in graduate school on a full-time basis. Can you file 1040x electronically He applied for and was granted deferment of his loan payments while in graduate school. Can you file 1040x electronically Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Can you file 1040x electronically Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Can you file 1040x electronically Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Can you file 1040x electronically To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Can you file 1040x electronically Example. Can you file 1040x electronically In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Can you file 1040x electronically The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Can you file 1040x electronically The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Can you file 1040x electronically At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Can you file 1040x electronically The loan is payable over 60 months, with a payment of $200. Can you file 1040x electronically 51 due on the first of each month, beginning November 2013. Can you file 1040x electronically Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Can you file 1040x electronically However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Can you file 1040x electronically Payment Date   Payment   Stated Interest   Principal November 2013   $200. Can you file 1040x electronically 51   $44. Can you file 1040x electronically 27   $156. Can you file 1040x electronically 24 December 2013   $200. Can you file 1040x electronically 51   $43. Can you file 1040x electronically 62   $156. Can you file 1040x electronically 89 Totals   $401. Can you file 1040x electronically 02   $87. Can you file 1040x electronically 89   $313. Can you file 1040x electronically 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Can you file 1040x electronically 89. Can you file 1040x electronically Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Can you file 1040x electronically A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Can you file 1040x electronically Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Can you file 1040x electronically Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Can you file 1040x electronically 02 ($87. Can you file 1040x electronically 89 + $10 + $303. Can you file 1040x electronically 13). Can you file 1040x electronically For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Can you file 1040x electronically She also will apply the remaining amount of capitalized interest ($625 − $303. Can you file 1040x electronically 13 = $321. Can you file 1040x electronically 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Can you file 1040x electronically Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Can you file 1040x electronically Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Can you file 1040x electronically Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Can you file 1040x electronically Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Can you file 1040x electronically For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Can you file 1040x electronically When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Can you file 1040x electronically Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Can you file 1040x electronically Your filing status is any filing status except married filing separately. Can you file 1040x electronically No one else is claiming an exemption for you on his or her tax return. Can you file 1040x electronically You are legally obligated to pay interest on a qualified student loan. Can you file 1040x electronically You paid interest on a qualified student loan. Can you file 1040x electronically Claiming an exemption for you. Can you file 1040x electronically   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Can you file 1040x electronically Example 1. Can you file 1040x electronically During 2013, Josh paid $600 interest on his qualified student loan. Can you file 1040x electronically Only he is legally obligated to make the payments. Can you file 1040x electronically No one claimed an exemption for Josh for 2013. Can you file 1040x electronically Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Can you file 1040x electronically Example 2. Can you file 1040x electronically During 2013, Jo paid $1,100 interest on her qualified student loan. Can you file 1040x electronically Only she is legally obligated to make the payments. Can you file 1040x electronically Jo's parents claimed an exemption for her on their 2013 tax return. Can you file 1040x electronically In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Can you file 1040x electronically Interest paid by others. Can you file 1040x electronically   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Can you file 1040x electronically Example 1. Can you file 1040x electronically Darla obtained a qualified student loan to attend college. Can you file 1040x electronically After Darla's graduation from college, she worked as an intern for a nonprofit organization. Can you file 1040x electronically As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Can you file 1040x electronically This payment was treated as additional compensation and reported in box 1 of her Form W-2. Can you file 1040x electronically Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Can you file 1040x electronically Example 2. Can you file 1040x electronically Ethan obtained a qualified student loan to attend college. Can you file 1040x electronically After graduating from college, the first monthly payment on his loan was due in December. Can you file 1040x electronically As a gift, Ethan's mother made this payment for him. Can you file 1040x electronically No one is claiming a dependency exemption for Ethan on his or her tax return. Can you file 1040x electronically Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Can you file 1040x electronically No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Can you file 1040x electronically Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Can you file 1040x electronically However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Can you file 1040x electronically You can use Worksheet 4-1. Can you file 1040x electronically Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Can you file 1040x electronically Form 1098-E. Can you file 1040x electronically   To help you figure your student loan interest deduction, you should receive Form 1098-E. Can you file 1040x electronically Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Can you file 1040x electronically   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Can you file 1040x electronically Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Can you file 1040x electronically However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Can you file 1040x electronically See Allocating Payments Between Interest and Principal , earlier. Can you file 1040x electronically    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Can you file 1040x electronically The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Can you file 1040x electronically Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Can you file 1040x electronically You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Can you file 1040x electronically Modified adjusted gross income (MAGI). Can you file 1040x electronically   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Can you file 1040x electronically However, as discussed below, there may be other modifications. Can you file 1040x electronically Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Can you file 1040x electronically Table 4-2. Can you file 1040x electronically Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Can you file 1040x electronically . Can you file 1040x electronically . Can you file 1040x electronically AND your MAGI is. Can you file 1040x electronically . Can you file 1040x electronically . Can you file 1040x electronically THEN your student loan interest deduction is. Can you file 1040x electronically . Can you file 1040x electronically . Can you file 1040x electronically single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Can you file 1040x electronically more than $60,000  but less than $75,000 reduced because of the phaseout. Can you file 1040x electronically $75,000 or more eliminated by the phaseout. Can you file 1040x electronically married filing joint return not more than $125,000 not affected by the phaseout. Can you file 1040x electronically more than $125,000 but less than $155,000 reduced because of the phaseout. Can you file 1040x electronically $155,000 or more eliminated by the phaseout. Can you file 1040x electronically MAGI when using Form 1040A. Can you file 1040x electronically   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Can you file 1040x electronically MAGI when using Form 1040. Can you file 1040x electronically   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Can you file 1040x electronically MAGI when using Form 1040NR. Can you file 1040x electronically   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Can you file 1040x electronically MAGI when using Form 1040NR-EZ. Can you file 1040x electronically   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Can you file 1040x electronically Phaseout. Can you file 1040x electronically   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Can you file 1040x electronically To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Can you file 1040x electronically The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Can you file 1040x electronically The denominator is $15,000 ($30,000 in the case of a joint return). Can you file 1040x electronically Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Can you file 1040x electronically Example 1. Can you file 1040x electronically During 2013 you paid $800 interest on a qualified student loan. Can you file 1040x electronically Your 2013 MAGI is $145,000 and you are filing a joint return. Can you file 1040x electronically You must reduce your deduction by $533, figured as follows. Can you file 1040x electronically   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Can you file 1040x electronically Example 2. Can you file 1040x electronically The facts are the same as in Example 1 except that you paid $2,750 interest. Can you file 1040x electronically Your maximum deduction for 2013 is $2,500. Can you file 1040x electronically You must reduce your maximum deduction by $1,667, figured as follows. Can you file 1040x electronically   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Can you file 1040x electronically Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Can you file 1040x electronically However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Can you file 1040x electronically Student Loan Interest Deduction Worksheet at the end of this chapter. Can you file 1040x electronically Claiming the Deduction The student loan interest deduction is an adjustment to income. Can you file 1040x electronically To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Can you file 1040x electronically Worksheet 4-1. Can you file 1040x electronically Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Can you file 1040x electronically Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Can you file 1040x electronically 1. Can you file 1040x electronically Enter the total interest you paid in 2013 on qualified student loans. Can you file 1040x electronically Do not enter  more than $2,500 1. Can you file 1040x electronically   2. Can you file 1040x electronically Enter the amount from Form 1040, line 22 2. Can you file 1040x electronically       3. Can you file 1040x electronically Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Can you file 1040x electronically           4. Can you file 1040x electronically Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Can you file 1040x electronically           5. Can you file 1040x electronically Add lines 3 and 4 5. Can you file 1040x electronically       6. Can you file 1040x electronically Subtract line 5 from line 2 6. Can you file 1040x electronically       7. Can you file 1040x electronically Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Can you file 1040x electronically       8. Can you file 1040x electronically Enter any foreign housing deduction (Form 2555, line 50) 8. Can you file 1040x electronically       9. Can you file 1040x electronically Enter the amount of income from Puerto Rico you are excluding 9. Can you file 1040x electronically       10. Can you file 1040x electronically Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Can you file 1040x electronically       11. Can you file 1040x electronically Add lines 6 through 10. Can you file 1040x electronically This is your modified adjusted gross income 11. Can you file 1040x electronically   12. Can you file 1040x electronically Enter the amount shown below for your filing status 12. Can you file 1040x electronically     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Can you file 1040x electronically Is the amount on line 11 more than the amount on line 12?       □ No. Can you file 1040x electronically Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Can you file 1040x electronically       □ Yes. Can you file 1040x electronically Subtract line 12 from line 11 13. Can you file 1040x electronically   14. Can you file 1040x electronically Divide line 13 by $15,000 ($30,000 if married filing jointly). Can you file 1040x electronically Enter the result as a decimal  (rounded to at least three places). Can you file 1040x electronically If the result is 1. Can you file 1040x electronically 000 or more, enter 1. Can you file 1040x electronically 000 14. Can you file 1040x electronically . Can you file 1040x electronically 15. Can you file 1040x electronically Multiply line 1 by line 14 15. Can you file 1040x electronically   16. Can you file 1040x electronically Student loan interest deduction. Can you file 1040x electronically Subtract line 15 from line 1. Can you file 1040x electronically Enter the result here  and on Form 1040, line 33. Can you file 1040x electronically Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Can you file 1040x electronically ) 16. Can you file 1040x electronically   Prev  Up  Next   Home   More Online Publications
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Can you file 1040x electronically 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. Can you file 1040x electronically Hybrid method. Can you file 1040x electronically Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Can you file 1040x electronically Accounting Periods You must use a tax year to figure your taxable income. Can you file 1040x electronically A tax year is an annual accounting period for keeping records and reporting income and expenses. Can you file 1040x electronically An annual accounting period does not include a short tax year (discussed later). Can you file 1040x electronically You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Can you file 1040x electronically Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Can you file 1040x electronically A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Can you file 1040x electronically 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. Can you file 1040x electronically This section discusses: A calendar year. Can you file 1040x electronically A fiscal year (including a period of 52 or 53 weeks). Can you file 1040x electronically A short tax year. Can you file 1040x electronically An improper tax year. Can you file 1040x electronically A change in tax year. Can you file 1040x electronically Special situations that apply to individuals. Can you file 1040x electronically Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Can you file 1040x electronically Special situations that apply to corporations. Can you file 1040x electronically Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically See Change in Tax Year, later. Can you file 1040x electronically Generally, anyone can adopt the calendar year. Can you file 1040x electronically 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. Can you file 1040x electronically Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically If you make this election, your 52-53-week tax year must always end on the same day of the week. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Election. Can you file 1040x electronically   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Can you file 1040x electronically The month in which the new 52-53-week tax year ends. Can you file 1040x electronically The day of the week on which the tax year always ends. Can you file 1040x electronically The date the tax year ends. Can you file 1040x electronically 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. Can you file 1040x electronically   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Can you file 1040x electronically   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. Can you file 1040x electronically Example. Can you file 1040x electronically Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Can you file 1040x electronically 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. Can you file 1040x electronically Short Tax Year A short tax year is a tax year of less than 12 months. Can you file 1040x electronically 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. Can you file 1040x electronically Tax on a short period tax return is figured differently for each situation. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Example 1. Can you file 1040x electronically XYZ Corporation was organized on July 1, 2012. Can you file 1040x electronically It elected the calendar year as its tax year. Can you file 1040x electronically Therefore, its first tax return was due March 15, 2013. Can you file 1040x electronically This short period return will cover the period from July 1, 2012, through December 31, 2012. Can you file 1040x electronically Example 2. Can you file 1040x electronically A calendar year corporation dissolved on July 23, 2012. Can you file 1040x electronically Its final return is due by October 15, 2012. Can you file 1040x electronically It will cover the short period from January 1, 2012, through July 23, 2012. Can you file 1040x electronically Death of individual. Can you file 1040x electronically   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. Can you file 1040x electronically The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Can you file 1040x electronically 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. Can you file 1040x electronically Example. Can you file 1040x electronically   Agnes Green was a single, calendar year taxpayer. Can you file 1040x electronically She died on March 6, 2012. Can you file 1040x electronically Her final income tax return must be filed by April 15, 2013. Can you file 1040x electronically It will cover the short period from January 1, 2012, to March 6, 2012. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Figure tax for a short year under the general rule, explained below. Can you file 1040x electronically You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Can you file 1040x electronically General rule. Can you file 1040x electronically   Income tax for a short tax year must be annualized. Can you file 1040x electronically However, self-employment tax is figured on the actual self-employment income for the short period. Can you file 1040x electronically Individuals. Can you file 1040x electronically   An individual must figure income tax for the short tax year as follows. Can you file 1040x electronically Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Can you file 1040x electronically You must itemize deductions when you file a short period tax return. Can you file 1040x electronically Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Can you file 1040x electronically Subtract the amount in (2) from the amount in (1). Can you file 1040x electronically The result is your modified taxable income. Can you file 1040x electronically Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Can you file 1040x electronically The result is your annualized income. Can you file 1040x electronically Figure the total tax on your annualized income using the appropriate tax rate schedule. Can you file 1040x electronically Multiply the total tax by the number of months in the short tax year and divide the result by 12. Can you file 1040x electronically The result is your tax for the short tax year. Can you file 1040x electronically Relief procedure. Can you file 1040x electronically   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Can you file 1040x electronically It may result in less tax. Can you file 1040x electronically Under this procedure, the tax is figured by two separate methods. Can you file 1040x electronically 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. Can you file 1040x electronically For more information, see section 443(b)(2) of the Internal Revenue Code. Can you file 1040x electronically Alternative minimum tax. Can you file 1040x electronically   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. Can you file 1040x electronically Multiply the AMTI by 12. Can you file 1040x electronically Divide the result by the number of months in the short tax year. Can you file 1040x electronically Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Can you file 1040x electronically The result is the annualized AMT. Can you file 1040x electronically Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Can you file 1040x electronically   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Can you file 1040x electronically For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Can you file 1040x electronically Tax withheld from wages. Can you file 1040x electronically   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Can you file 1040x electronically Federal income tax is withheld on a calendar year basis. Can you file 1040x electronically The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Can you file 1040x electronically Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Can you file 1040x electronically 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. Can you file 1040x electronically See Accounting Periods, earlier, for a description of permissible tax years. Can you file 1040x electronically To change to a proper tax year, you must do one of the following. Can you file 1040x electronically 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. Can you file 1040x electronically Attach a completed Form 1128 to the amended tax return. Can you file 1040x electronically Write “FILED UNDER REV. Can you file 1040x electronically PROC. Can you file 1040x electronically 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Can you file 1040x electronically 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. Can you file 1040x electronically Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Can you file 1040x electronically See the Instructions for Form 1128 for exceptions. Can you file 1040x electronically If you qualify for an automatic approval request, a user fee is not required. Can you file 1040x electronically Individuals Generally, individuals must adopt the calendar year as their tax year. Can you file 1040x electronically 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. Can you file 1040x electronically Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Can you file 1040x electronically A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Can you file 1040x electronically 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). Can you file 1040x electronically The following discussions provide the rules for partnerships, S corporations, and PSCs. Can you file 1040x electronically Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically The partnership can establish a business purpose for a different tax year. Can you file 1040x electronically The rules for the required tax year for partnerships are as follows. Can you file 1040x electronically 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. Can you file 1040x electronically If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Can you file 1040x electronically A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Can you file 1040x electronically 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. Can you file 1040x electronically If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Can you file 1040x electronically Least aggregate deferral of income. Can you file 1040x electronically   The tax year that results in the least aggregate deferral of income is determined as follows. Can you file 1040x electronically Figure the number of months of deferral for each partner using one partner's tax year. Can you file 1040x electronically 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. Can you file 1040x electronically 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). Can you file 1040x electronically Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Can you file 1040x electronically Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Can you file 1040x electronically   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Can you file 1040x electronically 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. Can you file 1040x electronically However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Can you file 1040x electronically Example. Can you file 1040x electronically A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Can you file 1040x electronically A uses the calendar year and B uses a fiscal year ending November 30. Can you file 1040x electronically 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. Can you file 1040x electronically Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Can you file 1040x electronically 5 -0- -0- B 11/30 0. Can you file 1040x electronically 5 11 5. Can you file 1040x electronically 5 Total Deferral 5. Can you file 1040x electronically 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Can you file 1040x electronically 5 1 0. Can you file 1040x electronically 5 B 11/30 0. Can you file 1040x electronically 5 -0- -0- Total Deferral 0. Can you file 1040x electronically 5 When determination is made. Can you file 1040x electronically   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. Can you file 1040x electronically However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Can you file 1040x electronically This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Can you file 1040x electronically Short period return. Can you file 1040x electronically   When a partnership changes its tax year, a short period return must be filed. Can you file 1040x electronically 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. Can you file 1040x electronically   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. Can you file 1040x electronically The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Can you file 1040x electronically 706-1. Can you file 1040x electronically ” More information. Can you file 1040x electronically   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Can you file 1040x electronically S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Can you file 1040x electronically A permitted tax year is any of the following. Can you file 1040x electronically The calendar year. Can you file 1040x electronically A tax year elected under section 444 of the Internal Revenue Code. Can you file 1040x electronically See Section 444 Election, below for details. Can you file 1040x electronically A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Can you file 1040x electronically Any other tax year for which the corporation establishes a business purpose. Can you file 1040x electronically 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. Can you file 1040x electronically For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Can you file 1040x electronically Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Can you file 1040x electronically The corporation makes an election under section 444 of the Internal Revenue Code. Can you file 1040x electronically See Section 444 Election, below for details. Can you file 1040x electronically 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. Can you file 1040x electronically The corporation establishes a business purpose for a fiscal year. Can you file 1040x electronically See the Instructions for Form 1120 for general information about PSCs. Can you file 1040x electronically For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Can you file 1040x electronically 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. Can you file 1040x electronically Certain restrictions apply to the election. Can you file 1040x electronically 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). Can you file 1040x electronically 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. Can you file 1040x electronically A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Can you file 1040x electronically It is not a member of a tiered structure (defined in section 1. Can you file 1040x electronically 444-2T of the regulations). Can you file 1040x electronically It has not previously had a section 444 election in effect. Can you file 1040x electronically It elects a year that meets the deferral period requirement. Can you file 1040x electronically Deferral period. Can you file 1040x electronically   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. Can you file 1040x electronically Retaining tax year. Can you file 1040x electronically   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. Can you file 1040x electronically This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Can you file 1040x electronically Adopting or changing tax year. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Can you file 1040x electronically If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Can you file 1040x electronically Example 1. Can you file 1040x electronically BD Partnership uses a calendar year, which is also its required tax year. Can you file 1040x electronically BD cannot make a section 444 election because the deferral period is zero. Can you file 1040x electronically Example 2. Can you file 1040x electronically E, a newly formed partnership, began operations on December 1. Can you file 1040x electronically E is owned by calendar year partners. Can you file 1040x electronically E wants to make a section 444 election to adopt a September 30 tax year. Can you file 1040x electronically E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Can you file 1040x electronically Making the election. Can you file 1040x electronically   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Can you file 1040x electronically 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. Can you file 1040x electronically For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Can you file 1040x electronically Note. Can you file 1040x electronically If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Can you file 1040x electronically   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. Can you file 1040x electronically Example 1. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Example 2. Can you file 1040x electronically The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Can you file 1040x electronically AB must file Form 8716 by March 17, 2013. Can you file 1040x electronically Example 3. Can you file 1040x electronically B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Can you file 1040x electronically B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Can you file 1040x electronically 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. Can you file 1040x electronically Note. Can you file 1040x electronically The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Can you file 1040x electronically Extension of time for filing. Can you file 1040x electronically   There is an automatic extension of 12 months to make this election. Can you file 1040x electronically See the Form 8716 instructions for more information. Can you file 1040x electronically Terminating the election. Can you file 1040x electronically   The section 444 election remains in effect until it is terminated. Can you file 1040x electronically If the election is terminated, another section 444 election cannot be made for any tax year. Can you file 1040x electronically   The election ends when any of the following applies to the partnership, S corporation, or PSC. Can you file 1040x electronically The entity changes to its required tax year. Can you file 1040x electronically The entity liquidates. Can you file 1040x electronically The entity becomes a member of a tiered structure. Can you file 1040x electronically The IRS determines that the entity willfully failed to comply with the required payments or distributions. Can you file 1040x electronically   The election will also end if either of the following events occur. Can you file 1040x electronically An S corporation's S election is terminated. Can you file 1040x electronically However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Can you file 1040x electronically A PSC ceases to be a PSC. Can you file 1040x electronically If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Can you file 1040x electronically Required payment for partnership or S corporation. Can you file 1040x electronically   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Can you file 1040x electronically The required payment for that year (or any preceding tax year) is more than $500. Can you file 1040x electronically    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Applicable election year. Can you file 1040x electronically   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Can you file 1040x electronically 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. Can you file 1040x electronically Required distribution for PSC. Can you file 1040x electronically   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Can you file 1040x electronically If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Can you file 1040x electronically The amount deferred is treated as paid or incurred in the following tax year. Can you file 1040x electronically   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). Can you file 1040x electronically Back-up election. Can you file 1040x electronically   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. Can you file 1040x electronically If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Can you file 1040x electronically Making back-up election. Can you file 1040x electronically   The general rules for making a section 444 election, as discussed earlier, apply. Can you file 1040x electronically When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Can you file 1040x electronically 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. Can you file 1040x electronically Activating election. Can you file 1040x electronically   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Can you file 1040x electronically The due date for filing Form 8752 and making the payment is the later of the following dates. Can you file 1040x electronically May 15 of the calendar year following the calendar year in which the applicable election year begins. Can you file 1040x electronically 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Can you file 1040x electronically   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. Can you file 1040x electronically ” 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). Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Can you file 1040x electronically See the Instructions for Form 1128 for details. Can you file 1040x electronically Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Can you file 1040x electronically 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. Can you file 1040x electronically An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Can you file 1040x electronically 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. Can you file 1040x electronically See the Instructions for Form 1128 for details. Can you file 1040x electronically Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Can you file 1040x electronically Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Can you file 1040x electronically You choose an accounting method when you file your first tax return. Can you file 1040x electronically If you later want to change your accounting method, you must get IRS approval. Can you file 1040x electronically See Change in Accounting Method, later. Can you file 1040x electronically No single accounting method is required of all taxpayers. Can you file 1040x electronically 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. Can you file 1040x electronically In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Can you file 1040x electronically You must use the same accounting method from year to year. Can you file 1040x electronically An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Can you file 1040x electronically 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. Can you file 1040x electronically Methods you can use. Can you file 1040x electronically   In general, you can compute your taxable income under any of the following accounting methods. Can you file 1040x electronically Cash method. Can you file 1040x electronically Accrual method. Can you file 1040x electronically Special methods of accounting for certain items of income and expenses. Can you file 1040x electronically A hybrid method which combines elements of two or more of the above accounting methods. Can you file 1040x electronically The cash and accrual methods of accounting are explained later. Can you file 1040x electronically Special methods. Can you file 1040x electronically   This publication does not discuss special methods of accounting for certain items of income or expenses. Can you file 1040x electronically 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. Can you file 1040x electronically The following publications also discuss special methods of reporting income or expenses. Can you file 1040x electronically Publication 225, Farmer's Tax Guide. Can you file 1040x electronically Publication 535, Business Expenses. Can you file 1040x electronically Publication 537, Installment Sales. Can you file 1040x electronically Publication 946, How To Depreciate Property. Can you file 1040x electronically Hybrid method. Can you file 1040x electronically   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. Can you file 1040x electronically However, the following restrictions apply. Can you file 1040x electronically If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Can you file 1040x electronically See Exceptions under Inventories, later. Can you file 1040x electronically Generally, you can use the cash method for all other items of income and expenses. Can you file 1040x electronically See Inventories, later. Can you file 1040x electronically If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Can you file 1040x electronically If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Can you file 1040x electronically Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Can you file 1040x electronically Business and personal items. Can you file 1040x electronically   You can account for business and personal items using different accounting methods. Can you file 1040x electronically 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. Can you file 1040x electronically Two or more businesses. Can you file 1040x electronically   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Can you file 1040x electronically No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Can you file 1040x electronically Note. Can you file 1040x electronically 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. Can you file 1040x electronically Cash Method Most individuals and many small businesses use the cash method of accounting. Can you file 1040x electronically Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Can you file 1040x electronically See Inventories, later, for exceptions to this rule. Can you file 1040x electronically Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Can you file 1040x electronically If you receive property and services, you must include their fair market value (FMV) in income. Can you file 1040x electronically Constructive receipt. Can you file 1040x electronically   Income is constructively received when an amount is credited to your account or made available to you without restriction. Can you file 1040x electronically You need not have possession of it. Can you file 1040x electronically 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. Can you file 1040x electronically Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Can you file 1040x electronically Example. Can you file 1040x electronically You are a calendar year taxpayer. Can you file 1040x electronically Your bank credited, and made available, interest to your bank account in December 2012. Can you file 1040x electronically You did not withdraw it or enter it into your books until 2013. Can you file 1040x electronically You must include the amount in gross income for 2012, the year you constructively received it. Can you file 1040x electronically You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Can you file 1040x electronically You must report the income in the year the property is received or made available to you without restriction. Can you file 1040x electronically Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Can you file 1040x electronically This includes business expenses for which you contest liability. Can you file 1040x electronically However, you may not be able to deduct an expense paid in advance. Can you file 1040x electronically Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Can you file 1040x electronically Expense paid in advance. Can you file 1040x electronically   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. Can you file 1040x electronically   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. Can you file 1040x electronically 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Can you file 1040x electronically   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. Can you file 1040x electronically See Change in Accounting Method, later. Can you file 1040x electronically Example 1. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Example 2. Can you file 1040x electronically 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. Can you file 1040x electronically The 12-month rule applies. Can you file 1040x electronically Therefore, the full $10,000 is deductible in 2012. Can you file 1040x electronically Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Can you file 1040x electronically (See Special rules for farming businesses, later. Can you file 1040x electronically ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Can you file 1040x electronically See Gross receipts test, below. Can you file 1040x electronically 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. Can you file 1040x electronically See Gross receipts test, below. Can you file 1040x electronically A tax shelter. Can you file 1040x electronically Exceptions The following entities are not prohibited from using the cash method of accounting. Can you file 1040x electronically Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Can you file 1040x electronically A qualified personal service corporation (PSC). Can you file 1040x electronically Gross receipts test. Can you file 1040x electronically   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Can you file 1040x electronically 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. Can you file 1040x electronically    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. Can you file 1040x electronically See Gross receipts test for qualifying taxpayers, for more information. Can you file 1040x electronically Generally, a partnership applies the test at the partnership level. Can you file 1040x electronically Gross receipts for a short tax year are annualized. Can you file 1040x electronically Aggregation rules. Can you file 1040x electronically   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. Can you file 1040x electronically Change to accrual method. Can you file 1040x electronically   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. Can you file 1040x electronically Special rules for farming businesses. Can you file 1040x electronically   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Can you file 1040x electronically 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. Can you file 1040x electronically 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). Can you file 1040x electronically   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. Can you file 1040x electronically For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Can you file 1040x electronically See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Can you file 1040x electronically Qualified PSC. Can you file 1040x electronically   A PSC that meets the following function and ownership tests can use the cash method. Can you file 1040x electronically Function test. Can you file 1040x electronically   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. Can you file 1040x electronically Ownership test. Can you file 1040x electronically   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. Can you file 1040x electronically Employees performing services for the corporation in a field qualifying under the function test. Can you file 1040x electronically Retired employees who had performed services in those fields. Can you file 1040x electronically The estate of an employee described in (1) or (2). Can you file 1040x electronically 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. Can you file 1040x electronically   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Can you file 1040x electronically Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Can you file 1040x electronically 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. Can you file 1040x electronically   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. Can you file 1040x electronically Change to accrual method. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically The purpose of an accrual method of accounting is to match income and expenses in the correct year. Can you file 1040x electronically 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. Can you file 1040x electronically Under this rule, you report an amount in your gross income on the earliest of the following dates. Can you file 1040x electronically When you receive payment. Can you file 1040x electronically When the income amount is due to you. Can you file 1040x electronically When you earn the income. Can you file 1040x electronically When title has passed. Can you file 1040x electronically Estimated income. Can you file 1040x electronically   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. Can you file 1040x electronically Change in payment schedule. Can you file 1040x electronically   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. Can you file 1040x electronically Continue this procedure until you complete the services, then account for the difference. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically However, you cannot postpone including any payment beyond that tax year. Can you file 1040x electronically Service agreement. Can you file 1040x electronically   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Can you file 1040x electronically This includes an agreement providing for incidental replacement of parts or materials. Can you file 1040x electronically However, this applies only if you offer the property without a service agreement in the normal course of business. Can you file 1040x electronically Postponement not allowed. Can you file 1040x electronically   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically Examples. Can you file 1040x electronically   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Can you file 1040x electronically Example 1. Can you file 1040x electronically You manufacture, sell, and service computers. Can you file 1040x electronically You received payment in 2012 for a one-year contingent service contract on a computer you sold. Can you file 1040x electronically 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. Can you file 1040x electronically Example 2. Can you file 1040x electronically You are in the television repair business. Can you file 1040x electronically 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. Can you file 1040x electronically You include the payments in gross income as you earn them. Can you file 1040x electronically Example 3. Can you file 1040x electronically You own a dance studio. Can you file 1040x electronically On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Can you file 1040x electronically You give eight lessons in 2012. Can you file 1040x electronically 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. Can you file 1040x electronically Example 4. Can you file 1040x electronically Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Can you file 1040x electronically You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Can you file 1040x electronically Guarantee or warranty. Can you file 1040x electronically   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Can you file 1040x electronically Prepaid rent. Can you file 1040x electronically   You cannot postpone reporting income from prepaid rent. Can you file 1040x electronically Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Can you file 1040x electronically 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. Can you file 1040x electronically Books and records. Can you file 1040x electronically   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. Can you file 1040x electronically Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Can you file 1040x electronically IRS approval. Can you file 1040x electronically   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically An agreement includes a gift certificate that can be redeemed for goods. Can you file 1040x electronically Amounts due and payable are considered received. Can you file 1040x electronically How to report payments. Can you file 1040x electronically   Generally, include an advance payment in income in the year in which you receive it. Can you file 1040x electronically However, you can use the alternative method, discussed next. Can you file 1040x electronically Alternative method of reporting. Can you file 1040x electronically   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. Can you file 1040x electronically Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Can you file 1040x electronically Example 1. Can you file 1040x electronically You are a retailer. Can you file 1040x electronically You use an accrual method of accounting and account for the sale of goods when you ship the goods. Can you file 1040x electronically You use this method for both tax and financial reporting purposes. Can you file 1040x electronically 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. Can you file 1040x electronically However, see Exception for inventory goods, later. Can you file 1040x electronically Example 2. Can you file 1040x electronically You are a calendar year taxpayer. Can you file 1040x electronically You manufacture household furniture and use an accrual method of accounting. Can you file 1040x electronically Under this method, you accrue income for your financial reports when you ship the furniture. Can you file 1040x electronically For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Can you file 1040x electronically 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. Can you file 1040x electronically You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Can you file 1040x electronically 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. Can you file 1040x electronically Information schedule. Can you file 1040x electronically   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. Can you file 1040x electronically Total advance payments received in the current tax year. Can you file 1040x electronically Total advance payments received in earlier tax years and not included in income before the current tax year. Can you file 1040x electronically Total payments received in earlier tax years included in income for the current tax year. Can you file 1040x electronically Exception for inventory goods. Can you file 1040x electronically   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. Can you file 1040x electronically You account for the advance payment under the alternative method (discussed earlier). Can you file 1040x electronically You have received a substantial advance payment on the agreement (discussed next). Can you file 1040x electronically You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Can you file 1040x electronically 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. Can you file 1040x electronically   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. Can you file 1040x electronically You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Can you file 1040x electronically If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Can you file 1040x electronically Note. Can you file 1040x electronically You must report any advance payments you receive after the second year in the year received. Can you file 1040x electronically No further deferral is allowed. Can you file 1040x electronically Substantial advance payments. Can you file 1040x electronically   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. Can you file 1040x electronically Example. Can you file 1040x electronically You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Can you file 1040x electronically In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Can you file 1040x electronically The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Can you file 1040x electronically You receive the following advance payments under the contract. Can you file 1040x electronically 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. Can you file 1040x electronically In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Can you file 1040x electronically 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. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Can you file 1040x electronically   No further deferral is allowed. Can you file 1040x electronically You must include in gross income the advance payment you receive each remaining year of the contract. Can you file 1040x electronically Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Can you file 1040x electronically IRS approval. Can you file 1040x electronically   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Can you file 1040x electronically Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Can you file 1040x electronically The all-events test has been met. Can you file 1040x electronically The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Can you file 1040x electronically Economic performance has occurred. Can you file 1040x electronically Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Can you file 1040x electronically 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. Can you file 1040x electronically If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Can you file 1040x electronically Example. Can you file 1040x electronically You are a calendar year taxpayer. Can you file 1040x electronically You buy office supplies in December 2012. Can you file 1040x electronically You receive the supplies and the bill in December, but you pay the bill in January 2013. Can you file 1040x electronically 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. Can you file 1040x electronically Your office supplies may qualify as a recurring item, discussed later. Can you file 1040x electronically If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Can you file 1040x electronically Workers' compensation and tort liability. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically Taxes. Can you file 1040x electronically   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Can you file 1040x electronically are paid. Can you file 1040x electronically However, you can elect to treat taxes as a recurring item, discussed later. Can you file 1040x electronically You can also elect to ratably accrue real estate taxes. Can you file 1040x electronically See chapter 5 of Publication 535 for information about real estate taxes. Can you file 1040x electronically Other liabilities. Can you file 1040x electronically   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. Can you file 1040x electronically Interest. Can you file 1040x electronically   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. Can you file 1040x electronically Compensation for services. Can you file 1040x electronically   Generally, economic performance occurs as an employee renders service to the employer. Can you file 1040x electronically 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. Can you file 1040x electronically For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Can you file 1040x electronically Vacation pay. Can you file 1040x electronically   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. Can you file 1040x electronically If you pay it later than this, you must deduct it in the year actually paid. Can you file 1040x electronically An amount is vested if your right to it cannot be nullified or cancelled. Can you file 1040x electronically Exception for recurring items. Can you file 1040x electronically   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. Can you file 1040x electronically The exception applies if all the following requirements are met. Can you file 1040x electronically The all-events test, discussed earlier, is met. Can you file 1040x electronically Economic performance occurs by the earlier of the following dates. Can you file 1040x electronically 8½ months after the close of the year. Can you file 1040x electronically The date you file a timely return (including extensions) for the year. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically This exception does not apply to workers' compensation or tort liabilities. Can you file 1040x electronically Amended return. Can you file 1040x electronically   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Can you file 1040x electronically 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. Can you file 1040x electronically Recurrence and consistency. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically Materiality. Can you file 1040x electronically   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. Can you file 1040x electronically   An item considered material for financial statement purposes is also considered material for tax purposes. Can you file 1040x electronically However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Can you file 1040x electronically Matching expenses with income. Can you file 1040x electronically   Costs directly associated with the revenue of a period are properly allocable to that period. Can you file 1040x electronically 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. Can you file 1040x electronically fasab. Can you file 1040x electronically gov/accepted. Can you file 1040x electronically html) are an important factor. Can you file 1040x electronically   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. Can you file 1040x electronically 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. Can you file 1040x electronically However, the matching requirement is considered met for certain types of expenses. Can you file 1040x electronically These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Can you file 1040x electronically 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. Can you file 1040x electronically 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. Can you file 1040x electronically 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Can you file 1040x electronically 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. Can you file 1040x electronically See Change in Accounting Method, later, for information on how to get IRS approval. Can you file 1040x electronically See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Can you file 1040x electronically 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. Can you file 1040x electronically Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Can you file 1040x electronically See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Can you file 1040x electronically Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Can you file 1040x electronically If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Can you file 1040x electronically However, see Exceptions, next. Can you file 1040x electronically See also Accrual Method, earlier. Can you file 1040x electronically To figure taxable income, you must value your inventory at the beginning and end of each tax year. Can you file 1040x electronically To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Can you file 1040x electronically See Identifying Cost and Valuing Inventory, later. Can you file 1040x electronically The rules for valuing inventory are not the same for all businesses. Can you file 1040x electronically The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Can you file 1040x electronically Your inventory practices must be consistent from year to year. Can you file 1040x electronically 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. Can you file 1040x electronically Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Can you file 1040x electronically These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Can you file 1040x electronically A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Can you file 1040x electronically irs. Can you file 1040x electronically gov/pub/irs-irbs/irb01–02. Can you file 1040x electronically pdf. Can you file 1040x electronically A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Can you file 1040x electronically irs. Can you file 1040x electronically gov/pub/irs-irbs/irb02–18. Can you file 1040x electronically pdf. Can you file 1040x electronically 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). Can you file 1040x electronically Qualifying taxpayer. Can you file 1040x electronically   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). Can you file 1040x electronically Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Can you file 1040x electronically You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Can you file 1040x electronically Gross receipts test for qualifying taxpayers. Can you file 1040x electronically   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Can you file 1040x electronically List each of the test years. Can you file 1040x electronically For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Can you file 1040x electronically Step 2. Can you file 1040x electronically Determine your average annual gross receipts for each test year listed in Step 1. Can you file 1040x electronically 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. Can you file 1040x electronically Step 3. Can you file 1040x electronically 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. Can you file 1040x electronically Qualifying small business taxpayer. Can you file 1040x electronically   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). Can you file 1040x electronically Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Can you file 1040x electronically You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Can you file 1040x electronically Your principle business activity is an eligible business. Can you file 1040x electronically See Eligible business, later. Can you file 1040x electronically 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. Can you file 1040x electronically Note. Can you file 1040x electronically Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Can you file 1040x electronically A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Can you file 1040x electronically See Special rules for farming businesses under Cash Method, earlier. Can you file 1040x electronically Gross receipts test for qualifying small business taxpayers. Can you file 1040x electronically   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Can you file 1040x electronically List each of the test years. Can you file 1040x electronically 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. Can you file 1040x electronically Step 2. Can you file 1040x electronically Determine your average annual gross receipts for each test year listed in Step 1. Can you file 1040x electronically 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. Can you file 1040x electronically Step 3. Can you file 1040x electronically 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. Can you file 1040x electronically Eligible business. Can you file 1040x electronically   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. Can you file 1040x electronically You have an eligible business if you meet any of the following requirements. Can you file 1040x electronically 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). Can you file 1040x electronically NAICS codes 31-33 (manufacturing). Can you file 1040x electronically NAICS code 42 (wholesale trade). Can you file 1040x electronically NAICS codes 44-45 (retail trade). Can you file 1040x electronically NAICS codes 5111 and 5122 (information industries). Can you file 1040x electronically Your principal business activity is the provision of services, including the provision of property incident to those services. Can you file 1040x electronically Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Can you file 1040x electronically   Information about the NAICS codes can be found at http://www. Can you file 1040x electronically census. Can you file 1040x electronically gov/naics or in the instructions for your federal income tax return. Can you file 1040x electronically Gross receipts. Can you file 1040x electronically   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. Can you file 1040x electronically See the definit