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File 2005 Taxes Free

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File 2005 Taxes Free

File 2005 taxes free 5. File 2005 taxes free   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. File 2005 taxes free Short-term lease. File 2005 taxes free Retail space. File 2005 taxes free Qualified long-term real property. File 2005 taxes free Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. File 2005 taxes free If there is a connection between any income you receive and your business, the income is business income. File 2005 taxes free A connection exists if it is clear that the payment of income would not have been made if you did not have the business. File 2005 taxes free You can have business income even if you are not involved in the activity on a regular full-time basis. File 2005 taxes free Income from work you do on the side in addition to your regular job can be business income. File 2005 taxes free You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. File 2005 taxes free But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. File 2005 taxes free For information on selling business assets, see chapter 3. File 2005 taxes free Nonemployee compensation. File 2005 taxes free Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. File 2005 taxes free This includes amounts reported as nonemployee compensation in box 7 of the form. File 2005 taxes free You can find more information in the instructions on the back of the Form 1099-MISC you received. File 2005 taxes free Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. File 2005 taxes free In most cases, your business income will be in the form of cash, checks, and credit card charges. File 2005 taxes free But business income can be in other forms, such as property or services. File 2005 taxes free These and other types of income are explained next. File 2005 taxes free If you are a U. File 2005 taxes free S. File 2005 taxes free citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. File 2005 taxes free S. File 2005 taxes free law. File 2005 taxes free If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. File 2005 taxes free For details, see Publication 54, Tax Guide for U. File 2005 taxes free S. File 2005 taxes free Citizens and Resident Aliens Abroad. File 2005 taxes free Bartering for Property or Services Bartering is an exchange of property or services. File 2005 taxes free You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. File 2005 taxes free If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. File 2005 taxes free Example 1. File 2005 taxes free You are a self-employed lawyer. File 2005 taxes free You perform legal services for a client, a small corporation. File 2005 taxes free In payment for your services, you receive shares of stock in the corporation. File 2005 taxes free You must include the fair market value of the shares in income. File 2005 taxes free Example 2. File 2005 taxes free You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. File 2005 taxes free You must include the fair rental value of the apartment in your gross receipts. File 2005 taxes free Your landlord must include the fair market value of the work of art in his or her rental income. File 2005 taxes free Example 3. File 2005 taxes free You are a self-employed accountant. File 2005 taxes free Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. File 2005 taxes free Members get in touch with other members directly and bargain for the value of the services to be performed. File 2005 taxes free In return for accounting services you provided for the house painter's business, the house painter painted your home. File 2005 taxes free You must include in gross receipts the fair market value of the services you received from the house painter. File 2005 taxes free The house painter must include the fair market value of your accounting services in his or her gross receipts. File 2005 taxes free Example 4. File 2005 taxes free You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. File 2005 taxes free As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. File 2005 taxes free You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. File 2005 taxes free The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. File 2005 taxes free It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. File 2005 taxes free See Publication 15 (Circular E), Employer's Tax Guide. File 2005 taxes free Example 5. File 2005 taxes free You operate a plumbing business and use the cash method of accounting. File 2005 taxes free You join a barter club and agree to provide plumbing services to any member for a specified number of hours. File 2005 taxes free Each member has access to a directory that lists the members of the club and the services available. File 2005 taxes free Members contact each other directly and request services to be performed. File 2005 taxes free You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. File 2005 taxes free You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. File 2005 taxes free Information returns. File 2005 taxes free   If you are involved in a bartering transaction, you may have to file either of the following forms. File 2005 taxes free Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. File 2005 taxes free Form 1099-MISC, Miscellaneous Income. File 2005 taxes free For information about these forms, see the General Instructions for Certain Information Returns. File 2005 taxes free Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. File 2005 taxes free , who provides services (maid services, etc. File 2005 taxes free ) for guests, report the rental income and expenses on Schedule C or C-EZ. File 2005 taxes free If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. File 2005 taxes free For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). File 2005 taxes free Real estate dealer. File 2005 taxes free   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. File 2005 taxes free Rent you receive from real estate held for sale to customers is subject to SE tax. File 2005 taxes free However, rent you receive from real estate held for speculation or investment is not subject to SE tax. File 2005 taxes free Trailer park owner. File 2005 taxes free   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. File 2005 taxes free    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. File 2005 taxes free Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. File 2005 taxes free   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. File 2005 taxes free   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. File 2005 taxes free Hotels, boarding houses, and apartments. File 2005 taxes free   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. File 2005 taxes free   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. File 2005 taxes free An example of a service that is not normally provided for the convenience of the occupants is maid service. File 2005 taxes free However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. File 2005 taxes free Prepaid rent. File 2005 taxes free   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. File 2005 taxes free This is true no matter what accounting method or period you use. File 2005 taxes free Lease bonus. File 2005 taxes free   A bonus you receive from a lessee for granting a lease is an addition to the rent. File 2005 taxes free Include it in your gross receipts in the year received. File 2005 taxes free Lease cancellation payments. File 2005 taxes free   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. File 2005 taxes free Payments to third parties. File 2005 taxes free   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. File 2005 taxes free A common example of this kind of income is a lessee's payment of your property taxes on leased real property. File 2005 taxes free Settlement payments. File 2005 taxes free   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. File 2005 taxes free Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. File 2005 taxes free ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. File 2005 taxes free Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. File 2005 taxes free If you receive any of those payments, include them in your gross receipts as explained in that discussion. File 2005 taxes free Interest and Dividend Income Interest and dividends may be considered business income. File 2005 taxes free Interest. File 2005 taxes free   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. File 2005 taxes free Interest received on loans is business income if you are in the business of lending money. File 2005 taxes free Uncollectible loans. File 2005 taxes free   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. File 2005 taxes free If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. File 2005 taxes free See Bad Debts in chapter 8. File 2005 taxes free Unstated interest. File 2005 taxes free   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. File 2005 taxes free See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. File 2005 taxes free Dividends. File 2005 taxes free   Generally, dividends are business income to dealers in securities. File 2005 taxes free For most sole proprietors and statutory employees, however, dividends are nonbusiness income. File 2005 taxes free If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. File 2005 taxes free   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. File 2005 taxes free To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. File 2005 taxes free Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. File 2005 taxes free General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. File 2005 taxes free Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. File 2005 taxes free If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. File 2005 taxes free Exceptions The following discussion covers some exceptions to the general rule for canceled debt. File 2005 taxes free Price reduced after purchase. File 2005 taxes free   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. File 2005 taxes free Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. File 2005 taxes free Deductible debt. File 2005 taxes free   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. File 2005 taxes free Example. File 2005 taxes free You get accounting services for your business on credit. File 2005 taxes free Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. File 2005 taxes free Your accountant forgives part of the amount you owe for the accounting services. File 2005 taxes free How you treat the canceled debt depends on your method of accounting. File 2005 taxes free Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. File 2005 taxes free Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. File 2005 taxes free   For information on the cash and accrual methods of accounting, see chapter 2. File 2005 taxes free Exclusions Do not include canceled debt in income in the following situations. File 2005 taxes free However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File 2005 taxes free For more information, see Form 982. File 2005 taxes free The cancellation takes place in a bankruptcy case under title 11 of the U. File 2005 taxes free S. File 2005 taxes free Code (relating to bankruptcy). File 2005 taxes free See Publication 908, Bankruptcy Tax Guide. File 2005 taxes free The cancellation takes place when you are insolvent. File 2005 taxes free You can exclude the canceled debt to the extent you are insolvent. File 2005 taxes free See Publication 908. File 2005 taxes free The canceled debt is a qualified farm debt owed to a qualified person. File 2005 taxes free See chapter 3 in Publication 225, Farmer's Tax Guide. File 2005 taxes free The canceled debt is a qualified real property business debt. File 2005 taxes free This situation is explained later. File 2005 taxes free The canceled debt is qualified principal residence indebtedness which is discharged after 2006. File 2005 taxes free See Form 982. File 2005 taxes free If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. File 2005 taxes free If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. File 2005 taxes free Debt. File 2005 taxes free   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. File 2005 taxes free Qualified real property business debt. File 2005 taxes free   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. File 2005 taxes free If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. File 2005 taxes free Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. File 2005 taxes free However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. File 2005 taxes free Cancellation of qualified real property business debt. File 2005 taxes free   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. File 2005 taxes free It was incurred or assumed in connection with real property used in a trade or business. File 2005 taxes free It was secured by such real property. File 2005 taxes free It was incurred or assumed at either of the following times. File 2005 taxes free Before January 1, 1993. File 2005 taxes free After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. File 2005 taxes free It is debt to which you choose to apply these rules. File 2005 taxes free   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. File 2005 taxes free   You cannot exclude more than either of the following amounts. File 2005 taxes free The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. File 2005 taxes free The total adjusted bases of depreciable real property held by you immediately before the cancellation. File 2005 taxes free These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. File 2005 taxes free Do not take into account depreciable real property acquired in contemplation of the cancellation. File 2005 taxes free Election. File 2005 taxes free   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. File 2005 taxes free You must file your return by the due date (including extensions). File 2005 taxes free If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). File 2005 taxes free For more information, see When To File in the form instructions. File 2005 taxes free Other Income The following discussion explains how to treat other types of business income you may receive. File 2005 taxes free Restricted property. File 2005 taxes free   Restricted property is property that has certain restrictions that affect its value. File 2005 taxes free If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. File 2005 taxes free However, you can choose to be taxed in the year you receive the property. File 2005 taxes free For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. File 2005 taxes free Gains and losses. File 2005 taxes free   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. File 2005 taxes free Instead, you must report these gains and losses on other forms. File 2005 taxes free For more information, see chapter 3. File 2005 taxes free Promissory notes. File 2005 taxes free   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. File 2005 taxes free In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. File 2005 taxes free Lost income payments. File 2005 taxes free   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. File 2005 taxes free Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. File 2005 taxes free Damages. File 2005 taxes free   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. File 2005 taxes free Patent infringement. File 2005 taxes free Breach of contract or fiduciary duty. File 2005 taxes free Antitrust injury. File 2005 taxes free Economic injury. File 2005 taxes free   You may be entitled to a deduction against the income if it compensates you for actual economic injury. File 2005 taxes free Your deduction is the smaller of the following amounts. File 2005 taxes free The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. File 2005 taxes free Your loss from the injury that you have not yet deducted. File 2005 taxes free Punitive damages. File 2005 taxes free   You must also include punitive damages in income. File 2005 taxes free Kickbacks. File 2005 taxes free   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. File 2005 taxes free However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. File 2005 taxes free Recovery of items previously deducted. File 2005 taxes free   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. File 2005 taxes free However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. File 2005 taxes free If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. File 2005 taxes free Example. File 2005 taxes free Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. File 2005 taxes free He also had 2 personal exemptions for a total of $7,800. File 2005 taxes free He would not pay income tax even if he did not deduct the bad debt. File 2005 taxes free Therefore, he will not report as income any part of the $300 he may recover in any future year. File 2005 taxes free Exception for depreciation. File 2005 taxes free   This rule does not apply to depreciation. File 2005 taxes free You recover depreciation using the rules explained next. File 2005 taxes free Recapture of depreciation. File 2005 taxes free   In the following situations, you have to recapture the depreciation deduction. File 2005 taxes free This means you include in income part or all of the depreciation you deducted in previous years. File 2005 taxes free Listed property. File 2005 taxes free   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. File 2005 taxes free You do this by including in income on Schedule C part of the depreciation you deducted in previous years. File 2005 taxes free Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. File 2005 taxes free For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. File 2005 taxes free That chapter explains how to determine whether property is used more than 50% in your business. File 2005 taxes free Section 179 property. File 2005 taxes free   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. File 2005 taxes free You do this by including in income on Schedule C part of the deduction you took. File 2005 taxes free Use Part IV of Form 4797 to figure the amount to include on Schedule C. File 2005 taxes free See chapter 2 in Publication 946 to find out when you recapture the deduction. File 2005 taxes free Sale or exchange of depreciable property. File 2005 taxes free   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. File 2005 taxes free You figure the income due to depreciation recapture in Part III of Form 4797. File 2005 taxes free For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. File 2005 taxes free Items That Are Not Income In some cases the property or money you receive is not income. File 2005 taxes free Appreciation. File 2005 taxes free   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. File 2005 taxes free Consignments. File 2005 taxes free   Consignments of merchandise to others to sell for you are not sales. File 2005 taxes free The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. File 2005 taxes free Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. File 2005 taxes free Merchandise you have shipped out on consignment is included in your inventory until it is sold. File 2005 taxes free   Do not include merchandise you receive on consignment in your inventory. File 2005 taxes free Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. File 2005 taxes free Construction allowances. File 2005 taxes free   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. File 2005 taxes free Under a short-term lease of retail space. File 2005 taxes free For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. File 2005 taxes free Amount you can exclude. File 2005 taxes free   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. File 2005 taxes free Short-term lease. File 2005 taxes free   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. File 2005 taxes free The following rules apply in determining whether the lease is for 15 years or less. File 2005 taxes free Take into account options to renew when figuring whether the lease is for 15 years or less. File 2005 taxes free But do not take into account any option to renew at fair market value determined at the time of renewal. File 2005 taxes free Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. File 2005 taxes free Retail space. File 2005 taxes free   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. File 2005 taxes free Qualified long-term real property. File 2005 taxes free   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. File 2005 taxes free Exchange of like-kind property. File 2005 taxes free   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. File 2005 taxes free This means that the gain is not taxable and the loss is not deductible. File 2005 taxes free A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. File 2005 taxes free For more information, see Form 8824. File 2005 taxes free Leasehold improvements. File 2005 taxes free   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. File 2005 taxes free However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. File 2005 taxes free Loans. File 2005 taxes free   Money borrowed through a bona fide loan is not income. File 2005 taxes free Sales tax. File 2005 taxes free   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. File 2005 taxes free Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). File 2005 taxes free Direct seller. File 2005 taxes free   You must report all income you receive as a direct seller on Schedule C or C-EZ. File 2005 taxes free This includes any of the following. File 2005 taxes free Income from sales—payments you receive from customers for products they buy from you. File 2005 taxes free Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. File 2005 taxes free Prizes, awards, and gifts you receive from your selling business. File 2005 taxes free You must report this income regardless of whether it is reported to you on an information return. File 2005 taxes free   You are a direct seller if you meet all the following conditions. File 2005 taxes free You are engaged in one of the following trades or businesses. File 2005 taxes free Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. File 2005 taxes free Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). File 2005 taxes free Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. File 2005 taxes free Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. File 2005 taxes free Executor or administrator. File 2005 taxes free   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. File 2005 taxes free A nonprofessional fiduciary (personal representative) and both of the following apply. File 2005 taxes free The estate includes an active trade or business in which you actively participate. File 2005 taxes free Your fees are related to the operation of that trade or business. File 2005 taxes free A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. File 2005 taxes free    If the fees do not meet the above requirements, report them on line 21 of Form 1040. File 2005 taxes free Fishing crew member. File 2005 taxes free    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . File 2005 taxes free Insurance agent, former. File 2005 taxes free   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. File 2005 taxes free You received payments after your agreement to perform services for the company ended. File 2005 taxes free You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. File 2005 taxes free You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. File 2005 taxes free The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. File 2005 taxes free The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). File 2005 taxes free Insurance agent, retired. File 2005 taxes free   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. File 2005 taxes free Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. File 2005 taxes free   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. File 2005 taxes free Newspaper carrier or distributor. File 2005 taxes free   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. File 2005 taxes free You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). File 2005 taxes free Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. File 2005 taxes free You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. File 2005 taxes free   This rule applies whether or not you hire others to help you make deliveries. File 2005 taxes free It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. File 2005 taxes free Newspaper or magazine vendor. File 2005 taxes free   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. File 2005 taxes free You sell newspapers or magazines to ultimate consumers. File 2005 taxes free You sell them at a fixed price. File 2005 taxes free Your earnings are based on the difference between the sales price and your cost of goods sold. File 2005 taxes free   This rule applies whether or not you are guaranteed a minimum amount of earnings. File 2005 taxes free It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. File 2005 taxes free Notary public. File 2005 taxes free   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. File 2005 taxes free These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). File 2005 taxes free Public official. File 2005 taxes free   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. File 2005 taxes free This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. File 2005 taxes free Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. File 2005 taxes free   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. File 2005 taxes free Real estate agent or direct seller. File 2005 taxes free   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. File 2005 taxes free Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. File 2005 taxes free You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. File 2005 taxes free Securities dealer. File 2005 taxes free   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. File 2005 taxes free For more information, see sections 1256 and 1402(i). File 2005 taxes free Securities trader. File 2005 taxes free   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. File 2005 taxes free As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. File 2005 taxes free However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. File 2005 taxes free For more information about securities traders, see Publication 550, Investment Income and Expenses. File 2005 taxes free Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. File 2005 taxes free This section discusses some of the more common differences that may affect business transactions. File 2005 taxes free Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). File 2005 taxes free If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. File 2005 taxes free Dealers in real estate are not allowed to use inventories. File 2005 taxes free For more information on inventories, see chapter 2. File 2005 taxes free Income paid to a third party. File 2005 taxes free   All income you earn is taxable to you. File 2005 taxes free You cannot avoid tax by having the income paid to a third party. File 2005 taxes free Example. File 2005 taxes free You rent out your property and the rental agreement directs the lessee to pay the rent to your son. File 2005 taxes free The amount paid to your son is gross income to you. File 2005 taxes free Cash discounts. File 2005 taxes free   These are amounts the seller permits you to deduct from the invoice price for prompt payment. File 2005 taxes free For income tax purposes, you can use either of the following two methods to account for cash discounts. File 2005 taxes free Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). File 2005 taxes free Credit the cash discount to a discount income account. File 2005 taxes free You must use the chosen method every year for all your purchase discounts. File 2005 taxes free   If you use the second method, the credit balance in the account at the end of your tax year is business income. File 2005 taxes free Under this method, you do not reduce the cost of goods sold by the cash discounts you received. File 2005 taxes free When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. File 2005 taxes free Trade discounts. File 2005 taxes free   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. File 2005 taxes free Do not enter these discounts on your books of account. File 2005 taxes free Instead, use only the net amount as the cost of the merchandise purchased. File 2005 taxes free For more information, see Trade discounts in chapter 6. File 2005 taxes free Payment placed in escrow. File 2005 taxes free   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. File 2005 taxes free However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. File 2005 taxes free Sales returns and allowances. File 2005 taxes free   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. File 2005 taxes free Advance payments. File 2005 taxes free   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. File 2005 taxes free Insurance proceeds. File 2005 taxes free   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. File 2005 taxes free You cannot deduct the reimbursed part of a casualty or theft loss. File 2005 taxes free   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. File 2005 taxes free Prev  Up  Next   Home   More Online Publications
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Understanding your CP259E Notice

We sent you this notice because our records indicate you did not file a required Form 990-N, e-Postcard.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).
 


What you need to do

  • Disregard this notice if you have filed the return within the last four weeks using the same name and EIN listed on the notice.
  • Otherwise, file your required Form 990-N, 990, or 990-EZ immediately according to the instructions on the notice.
    • If you don't think you need to file, complete the Response form enclosed with your notice and mail it to us using the envelope provided.
    • If you filed more than four weeks ago or used a different name or EIN, complete the Response form enclosed with your notice and mail it to us in the envelope provided along with a signed and dated copy of the return.

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Answers to Common Questions

Which organizations are eligible to file Form 990-N?
Small tax-exempt organizations whose annual gross receipts are $50,000 or less for 2010 ($25,000 or less for 2009) are eligible to electronically submit Form 990-N, also known as the e-Postcard. The organization may choose to file a complete Form 990 or Form 990-EZ instead.

When is Form 990-N due?
Form 990-N is due by the 15th day of the 5th month following the close of the organization's accounting period. Thus, for a calendar year taxpayer, Form 990-N is due on May 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the organization can file the return on the next business day.

Which organizations must file a Form 990 or 990-EZ?
Form 990 must be filed by an organization exempt from income tax under section 501(a) (including an organization that has not applied for recognition of exemption) if it has either (1) gross receipts greater than or equal to $500,000 or (2) total assets greater than or equal to $1,250,000 at the end of the tax year. This includes:

  • Organizations described in section 501 (c)(3) (other than private foundations), and
  • Organizations described in other 501 (c) subsections (other than black lung benefit trusts).

Other exempt organizations can file Form 990-EZ instead. If gross receipts are $50,000 or lower in 2010 ($25,000 for 2009), organizations are eligible to file Form 990-N.

When is Form 990 or 990-EZ due?
Form 990 or 990-EZ is due by the 15th day of the 5th month after the end of the tax year. Thus, for a calendar year taxpayer, Form 990 or Form 990-EZ is due on May 15 of the following year. If any due date falls on a Saturday, Sunday or legal holiday, the organization can file the return on the next business day.

More information can be found at Form 990 Resources and Tools for Exempt Organizations.

Can I get help over the phone?
If you have questions and/or need help completing the form, please call 1-877-829-5500. Personal assistance is available Monday through Friday, 7:00 a.m. to 7:00 p.m. CT.

Where can I go for more information about tax-exempt organizations?
For more information on tax-exempt organizations see Tax Information for Charities & Other Non-Profits.


Tips for next year

Review the tax-exempt organization resources at Form 990 Resources and Tools for Exempt Organizations.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP259E, Page 1

Notice CP259E, Page 2

Notice CP259E, Page 3

Notice CP259E, Page 4

Page Last Reviewed or Updated: 29-Mar-2014

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