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Filing Back Tax

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Filing Back Tax

Filing back tax Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Filing back tax More information. Filing back tax Exception—Community Income. Filing back tax Exception—Qualified joint venture. Filing back tax More information. Filing back tax More information. Filing back tax Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Filing back tax Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Filing back tax Table 1 can help you learn what those responsibilities are. Filing back tax Ask yourself each question listed in the table, then see the related discussion to find the answer. Filing back tax In addition to knowing about federal taxes, you need to make some basic business decisions. Filing back tax Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Filing back tax For information on how to contact the SBA, see How to Get More Information, later. Filing back tax Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Filing back tax When beginning a business, you must decide which form of business to use. Filing back tax Legal and tax considerations enter into this decision. Filing back tax Only tax considerations are discussed in this publication. Filing back tax Your form of business determines which income tax return form you have to file. Filing back tax See Table 2 to find out which form you have to file. Filing back tax Sole proprietorships. Filing back tax   A sole proprietorship is an unincorporated business that is owned by one individual. Filing back tax It is the simplest form of business organization to start and maintain. Filing back tax The business has no existence apart from you, the owner. Filing back tax Its liabilities are your personal liabilities. Filing back tax You undertake the risks of the business for all assets owned, whether or not used in the business. Filing back tax You include the income and expenses of the business on your personal tax return. Filing back tax More information. Filing back tax   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Filing back tax If you are a farmer, see Publication 225, Farmer's Tax Guide. Filing back tax Partnerships. Filing back tax   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Filing back tax Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Filing back tax   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Filing back tax , from its operations, but it does not pay income tax. Filing back tax Instead, it “passes through” any profits or losses to its partners. Filing back tax Each partner includes his or her share of the partnership's items on his or her tax return. Filing back tax More information. Filing back tax   For more information on partnerships, see Publication 541, Partnerships. Filing back tax Husband and wife business. Filing back tax   If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Filing back tax Do not use Schedule C or C-EZ. Filing back tax Instead, file Form 1065, U. Filing back tax S. Filing back tax Return of Partnership Income. Filing back tax For more information, see Publication 541, Partnerships. Filing back tax Exception—Community Income. Filing back tax   If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Filing back tax S. Filing back tax possession, you can treat the business either as a sole proprietorship or a partnership. Filing back tax The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Filing back tax A change in your reporting position will be treated as a conversion of the entity. Filing back tax Exception—Qualified joint venture. Filing back tax   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Filing back tax Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Filing back tax For an explanation of "material participation," see the Instructions for Schedule C, line G. Filing back tax   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Filing back tax Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Filing back tax For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Filing back tax Corporations. Filing back tax   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Filing back tax A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Filing back tax A corporation can also take special deductions. Filing back tax   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Filing back tax However, shareholders cannot deduct any loss of the corporation. Filing back tax More information. Filing back tax   For more information on corporations, see Publication 542, Corporations. Filing back tax S corporations. Filing back tax   An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Filing back tax Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Filing back tax On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Filing back tax More information. Filing back tax   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Filing back tax S. Filing back tax Income Tax Return for an S Corporation. Filing back tax Limited liability company. Filing back tax   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Filing back tax The members of an LLC are not personally liable for its debts. Filing back tax An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Filing back tax 7701-3. Filing back tax For more information, see the instructions for Form 8832, Entity Classification Election. Filing back tax Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Filing back tax The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Filing back tax An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Filing back tax An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Filing back tax You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Filing back tax You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Filing back tax This includes returns or documents filed to report the following information. Filing back tax Interest, dividends, royalties, etc. Filing back tax , paid to you. Filing back tax Any amount paid to you as a dependent care provider. Filing back tax Certain other amounts paid to you that total $600 or more for the year. Filing back tax If you do not furnish your identification number as required, you may be subject to penalties. Filing back tax See Penalties, later. Filing back tax Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Filing back tax If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Filing back tax Applying for an EIN. Filing back tax   You may apply for an EIN: Online—Click on the EIN link at www. Filing back tax irs. Filing back tax gov/businesses/small. Filing back tax The EIN is issued immediately once the application information is validated. Filing back tax By telephone at 1-800-829-4933. Filing back tax By mailing or faxing Form SS-4, Application for Employer Identification Number. Filing back tax When to apply. Filing back tax   You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Filing back tax If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Filing back tax If you apply by telephone or through the IRS website, you can get an EIN immediately. Filing back tax If you apply by fax, you can get an EIN within 4 business days. Filing back tax   If you do not receive your EIN by the time a return is due, file your return anyway. Filing back tax Write “Applied for” and the date you applied for the number in the space for the EIN. Filing back tax Do not use your social security number as a substitute for an EIN on your tax returns. Filing back tax More than one EIN. Filing back tax   You should have only one EIN. Filing back tax If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Filing back tax Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Filing back tax The IRS will tell you which number to use. Filing back tax More information. Filing back tax   For more information about EINs, see Publication 1635, Understanding Your EIN. Filing back tax Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Filing back tax The forms used to report these payments must include the payee's identification number. Filing back tax Employee. Filing back tax   If you have employees, you must get an SSN from each of them. Filing back tax Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Filing back tax If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Filing back tax This may occur, for example, if the employee's name has changed due to marriage or divorce. Filing back tax   If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Filing back tax This form is available at SSA offices or by calling 1-800-772-1213. Filing back tax It is also available from the SSA website at www. Filing back tax ssa. Filing back tax gov. Filing back tax Other payee. Filing back tax   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Filing back tax If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Filing back tax   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Filing back tax This form is available from IRS offices or by calling 1-800-829-3676. Filing back tax It is also available from the IRS website at IRS. Filing back tax gov. Filing back tax    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Filing back tax For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Filing back tax Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Filing back tax A tax year is usually 12 consecutive months. Filing back tax There are two kinds of tax years. Filing back tax Calendar tax year. Filing back tax A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Filing back tax Fiscal tax year. Filing back tax A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Filing back tax A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Filing back tax 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 get IRS approval to change it or are otherwise allowed to change it without IRS approval. Filing back tax You must use a calendar tax year if: You keep no books. Filing back tax You have no annual accounting period. Filing back tax Your present tax year does not qualify as a fiscal year. Filing back tax You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Filing back tax For more information, see Publication 538, Accounting Periods and Methods. Filing back tax First-time filer. Filing back tax   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Filing back tax You adopt a tax year by filing your first income tax return using that tax year. Filing back tax You have not adopted a tax year if you merely did any of the following. Filing back tax Filed an application for an extension of time to file an income tax return. Filing back tax Filed an application for an employer identification number. Filing back tax Paid estimated taxes for that tax year. Filing back tax Changing your tax year. Filing back tax   Once you have adopted your tax year, you may have to get IRS approval to change it. Filing back tax To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Filing back tax You may have to pay a fee. Filing back tax For more information, see Publication 538. Filing back tax Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Filing back tax You choose an accounting method for your business when you file your first income tax return. Filing back tax There are two basic accounting methods. Filing back tax Cash method. Filing back tax Under the cash method, you report income in the tax year you receive it. Filing back tax You usually deduct or capitalize expenses in the tax year you pay them. Filing back tax Accrual method. Filing back tax Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Filing back tax You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Filing back tax For other methods, see Publication 538. Filing back tax If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Filing back tax Inventories include goods held for sale in the normal course of business. Filing back tax They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Filing back tax Inventories are explained in Publication 538. Filing back tax Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Filing back tax For more information, see Publication 538. Filing back tax You must use the same accounting method to figure your taxable income and to keep your books. Filing back tax Also, you must use an accounting method that clearly shows your income. Filing back tax In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Filing back tax An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Filing back tax More than one business. Filing back tax   When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Filing back tax You must keep a complete and separate set of books and records for each business. Filing back tax Changing your method of accounting. Filing back tax   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Filing back tax A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Filing back tax For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Filing back tax Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Filing back tax The following are the four general kinds of business taxes. Filing back tax Income tax. Filing back tax Self-employment tax. Filing back tax Employment taxes. Filing back tax Excise taxes. Filing back tax See Table 2 for the forms you file to report these taxes. Filing back tax You may want to get Publication 509. Filing back tax It has tax calendars that tell you when to file returns and make tax payments. Filing back tax Income Tax All businesses except partnerships must file an annual income tax return. Filing back tax Partnerships file an information return. Filing back tax Which form you use depends on how your business is organized. Filing back tax See Table 2 to find out which return you have to file. Filing back tax The federal income tax is a pay-as-you-go tax. Filing back tax You must pay the tax as you earn or receive income during the year. Filing back tax An employee usually has income tax withheld from his or her pay. Filing back tax If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Filing back tax If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Filing back tax Table 2. Filing back tax Which Forms Must I File? IF you are a. Filing back tax . Filing back tax . Filing back tax   THEN you may be liable for. Filing back tax . Filing back tax . Filing back tax   Use Form. Filing back tax . Filing back tax . Filing back tax Sole proprietor   Income tax   1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business)     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES     Employment taxes:         • Social security and Medicare   taxes and income tax   withholding   941 or 944 (943 for farm employees)     • Federal unemployment (FUTA)   tax   940     Excise taxes   See Excise Taxes Partnership   Annual return of income   1065     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes Partner in a partnership (individual)   Income tax   1040 and Schedule E 2     Self-employment tax   1040 and Schedule SE     Estimated tax   1040-ES Corporation or S corporation   Income tax   1120 (corporation) 2  1120S (S corporation) 2     Estimated tax   1120-W (corporation only)     Employment taxes   Same as sole proprietor     Excise taxes   See Excise Taxes S corporation shareholder   Income tax   1040 and Schedule E 2     Estimated tax   1040-ES 1 File a separate schedule for each business. Filing back tax 2 Various other schedules may be needed. Filing back tax Estimated tax. Filing back tax   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Filing back tax Sole proprietors, partners, and S corporation shareholders. Filing back tax   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Filing back tax Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Filing back tax For more information, see Publication 505, Tax Withholding and Estimated Tax. Filing back tax Corporations. Filing back tax   You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Filing back tax Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Filing back tax You must deposit the payments as explained later under Depositing Taxes. Filing back tax For more information, see Publication 542. Filing back tax Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Filing back tax Your payments of SE tax contribute to your coverage under the social security system. Filing back tax Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Filing back tax You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Filing back tax Your net earnings from self-employment were $400 or more. Filing back tax You had church employee income of $108. Filing back tax 28 or more. Filing back tax Use Schedule SE (Form 1040) to figure your SE tax. Filing back tax For more information, see Publication 334, Tax Guide for Small Business. Filing back tax You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Filing back tax The Social Security Administration (SSA) time limit for posting self-employment income. Filing back tax   Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Filing back tax If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Filing back tax The SSA will not change its records to increase your self-employment income. Filing back tax Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Filing back tax Employment taxes include the following. Filing back tax Social security and Medicare taxes. Filing back tax Federal income tax withholding. Filing back tax Federal unemployment (FUTA) tax. Filing back tax If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Filing back tax If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Filing back tax These publications explain your tax responsibilities as an employer. Filing back tax If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Filing back tax That publication has information to help you determine whether an individual is an employee or an independent contractor. Filing back tax If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Filing back tax An independent contractor is someone who is self-employed. Filing back tax Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Filing back tax Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Filing back tax To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Filing back tax Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Filing back tax Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Filing back tax Medicare tax pays for benefits under the hospital insurance part of FICA. Filing back tax You withhold part of these taxes from your employee's wages and you pay a part yourself. Filing back tax To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Filing back tax Which form do I file?   Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Filing back tax (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Filing back tax ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Filing back tax You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Filing back tax You pay FUTA tax only from your own funds. Filing back tax Employees do not pay this tax or have it withheld from their pay. Filing back tax Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Filing back tax See Publication 15 to find out if you can use this form. Filing back tax Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Filing back tax Form I-9. Filing back tax   You must verify that each new employee is legally eligible to work in the United States. Filing back tax Both you and the employee must complete the U. Filing back tax S. Filing back tax Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Filing back tax You can get the form from USCIS offices or from the USCIS website at www. Filing back tax uscis. Filing back tax gov. Filing back tax Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Filing back tax Form W-4. Filing back tax   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Filing back tax You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Filing back tax For more information, see Publication 15. Filing back tax Employees claiming more than 10 withholding allowances. Filing back tax   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Filing back tax See section 16 of Publication 15. Filing back tax Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Filing back tax You must also send copies to the Social Security Administration. Filing back tax See Information Returns, later, for more information on Form W-2. Filing back tax Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Filing back tax Manufacture or sell certain products. Filing back tax Operate certain kinds of businesses. Filing back tax Use various kinds of equipment, facilities, or products. Filing back tax Receive payment for certain services. Filing back tax For more information on excise taxes, see Publication 510, Excise Taxes. Filing back tax Form 720. Filing back tax   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Filing back tax Environmental taxes. Filing back tax Communications and air transportation taxes. Filing back tax Fuel taxes. Filing back tax Tax on the first retail sale of heavy trucks, trailers, and tractors. Filing back tax Manufacturers taxes on the sale or use of a variety of different articles. Filing back tax Form 2290. Filing back tax   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Filing back tax The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Filing back tax Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Filing back tax For more information, see the instructions for Form 2290. Filing back tax Form 730. Filing back tax   If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Filing back tax Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Filing back tax Form 11-C. Filing back tax   Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Filing back tax Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Filing back tax Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Filing back tax Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Filing back tax Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Filing back tax Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Filing back tax The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Filing back tax You must give a copy of each information return you are required to file to the recipient or payer. Filing back tax In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Filing back tax For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Filing back tax Form 1099-MISC. Filing back tax   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Filing back tax These payments include the following items. Filing back tax Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Filing back tax Rent payments of $600 or more, other than rents paid to real estate agents. Filing back tax Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Filing back tax Royalty payments of $10 or more. Filing back tax Payments to certain crew members by operators of fishing boats. Filing back tax You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Filing back tax Form W-2. Filing back tax   You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Filing back tax For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Filing back tax Form 8300. Filing back tax   You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Filing back tax Cash includes U. Filing back tax S. Filing back tax and foreign coin and currency. Filing back tax It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Filing back tax For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Filing back tax Penalties The law provides penalties for not filing returns or paying taxes as required. Filing back tax Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Filing back tax Failure to file tax returns. Filing back tax   If you do not file your tax return by the due date, you may have to pay a penalty. Filing back tax The penalty is based on the tax not paid by the due date. Filing back tax See your tax return instructions for more information about this penalty. Filing back tax Failure to pay tax. Filing back tax   If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Filing back tax For more information, see your tax return instructions. Filing back tax Failure to withhold, deposit, or pay taxes. Filing back tax   If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Filing back tax You may also be subject to penalties if you deposit the taxes late. Filing back tax For more information, see Publication 15. Filing back tax Failure to follow information reporting requirements. Filing back tax   The following penalties apply if you are required to file information returns. Filing back tax For more information, see the General Instructions for Certain Information Returns. Filing back tax Failure to file information returns. Filing back tax A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Filing back tax Failure to furnish correct payee statements. Filing back tax A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Filing back tax Waiver of penalty. Filing back tax   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Filing back tax   In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Filing back tax (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Filing back tax ) Failure to supply taxpayer identification number. Filing back tax   If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Filing back tax You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Filing back tax Business Expenses You can deduct business expenses on your income tax return. Filing back tax These are the current operating costs of running your business. Filing back tax To be deductible, a business expense must be both ordinary and necessary. Filing back tax An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Filing back tax A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Filing back tax An expense does not have to be indispensable to be considered necessary. Filing back tax The following are brief explanations of some expenses that are of interest to people starting a business. Filing back tax There are many other expenses that you may be able to deduct. Filing back tax See your form instructions and Publication 535, Business Expenses. Filing back tax Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Filing back tax Your business start-up costs will depend on the type of business you are starting. Filing back tax They may include costs for advertising, travel, surveys, and training. Filing back tax These costs are generally capital expenses. Filing back tax You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Filing back tax You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Filing back tax The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Filing back tax Any remaining cost must be amortized. Filing back tax For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Filing back tax Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Filing back tax You must spread the cost over more than one tax year and deduct part of it each year. Filing back tax This method of deducting the cost of business property is called depreciation. Filing back tax Business property you must depreciate includes the following items. Filing back tax Office furniture. Filing back tax Buildings. Filing back tax Machinery and equipment. Filing back tax You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Filing back tax This deduction is known as the “section 179 deduction. Filing back tax ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Filing back tax Depreciation must be taken in the year it is allowable. Filing back tax Allowable depreciation not taken in a prior year cannot be taken in the current year. Filing back tax If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Filing back tax S. Filing back tax Individual Income Tax Return, or by changing your accounting method. Filing back tax For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Filing back tax Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Filing back tax Even then, your deduction may be limited. Filing back tax To qualify to claim expenses for business use of your home, you must meet both the following tests. Filing back tax Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Filing back tax Exclusive use. Filing back tax   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Filing back tax The area used for business can be a room or other separately identifiable space. Filing back tax The space does not need to be marked off by a permanent partition. Filing back tax   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Filing back tax Exceptions to exclusive use. Filing back tax   You do not have to meet the exclusive use test if either of the following applies. Filing back tax You use part of your home for the storage of inventory or product samples. Filing back tax You use part of your home as a daycare facility. Filing back tax For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Filing back tax Principal place of business. Filing back tax   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Filing back tax You use it exclusively and regularly for administrative or management activities of your trade or business. Filing back tax You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Filing back tax   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Filing back tax The relative importance of the activities performed at each location. Filing back tax If the relative importance factor does not determine your principal place of business, the time spent at each location. Filing back tax    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Filing back tax However, for other ways to qualify to deduct home office expenses, see Publication 587. Filing back tax Which form do I file?   If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Filing back tax If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Filing back tax More information. Filing back tax   For more information about business use of your home, see Publication 587. Filing back tax Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Filing back tax You generally can deduct either your actual expenses or the standard mileage rate. Filing back tax Actual expenses. Filing back tax   If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Filing back tax You can divide your expenses based on the miles driven for each purpose. Filing back tax Example. Filing back tax You are the sole proprietor of a flower shop. Filing back tax You drove your van 20,000 miles during the year. Filing back tax 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Filing back tax You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Filing back tax Standard mileage rate. Filing back tax   Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Filing back tax You can use the standard mileage rate for a vehicle you own or lease. Filing back tax The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Filing back tax It is announced annually by the IRS. Filing back tax To figure your deduction, multiply your business miles by the standard mileage rate for the year. Filing back tax    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Filing back tax However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Filing back tax Choosing the standard mileage rate. Filing back tax   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Filing back tax In later years, you can choose to use either the standard mileage rate or actual expenses. Filing back tax   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Filing back tax Additional information. Filing back tax   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Filing back tax Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Filing back tax It also explains how long you must keep your records for federal tax purposes. Filing back tax A sample recordkeeping system is illustrated at the end of this part. Filing back tax Why Keep Records? Everyone in business must keep records. Filing back tax Good records will help you do the following. Filing back tax Monitor the progress of your business. Filing back tax   You need good records to monitor the progress of your business. Filing back tax Records can show whether your business is improving, which items are selling, or what changes you need to make. Filing back tax Good records can increase the likelihood of business success. Filing back tax Prepare your financial statements. Filing back tax   You need good records to prepare accurate financial statements. Filing back tax These include income (profit and loss) statements and balance sheets. Filing back tax These statements can help you in dealing with your bank or creditors and help you manage your business. Filing back tax An income statement shows the income and expenses of the business for a given period of time. Filing back tax A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Filing back tax Identify source of receipts. Filing back tax   You will receive money or property from many sources. Filing back tax Your records can identify the source of your receipts. Filing back tax You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Filing back tax Keep track of deductible expenses. Filing back tax   You may forget expenses when you prepare your tax return unless you record them when they occur. Filing back tax Prepare your tax returns. Filing back tax   You need good records to prepare your tax returns. Filing back tax These records must support the income, expenses, and credits you report. Filing back tax Generally, these are the same records you use to monitor your business and prepare your financial statements. Filing back tax Support items reported on tax returns. Filing back tax   You must keep your business records available at all times for inspection by the IRS. Filing back tax If the IRS examines any of your tax returns, you may be asked to explain the items reported. Filing back tax A complete set of records will speed up the examination. Filing back tax Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Filing back tax You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Filing back tax The business you are in affects the type of records you need to keep for federal tax purposes. Filing back tax You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Filing back tax See Accounting Method, earlier. Filing back tax If you are in more than one business, you should keep a complete and separate set of records for each business. Filing back tax A corporation should keep minutes of board of directors' meetings. Filing back tax Your recordkeeping system should include a summary of your business transactions. Filing back tax This summary is ordinarily made in your books (for example, accounting journals and ledgers). Filing back tax Your books must show your gross income, as well as your deductions and credits. Filing back tax For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Filing back tax In addition, you must keep supporting documents, explained later. Filing back tax Electronic records. Filing back tax   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Filing back tax When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Filing back tax An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Filing back tax The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Filing back tax All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Filing back tax Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Filing back tax   The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Filing back tax You still have the responsibility of retaining any other books and records that are required to be retained. Filing back tax   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Filing back tax This test is not considered an examination and the results must be shared with you. Filing back tax If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Filing back tax If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Filing back tax For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Filing back tax Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Filing back tax Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Filing back tax These documents contain information you need to record in your books. Filing back tax It is important to keep these documents because they support the entries in your books and on your tax return. Filing back tax Keep them in an orderly fashion and in a safe place. Filing back tax For instance, organize them by year and type of income or expense. Filing back tax Gross receipts. Filing back tax   Gross receipts are the income you receive from your business. Filing back tax You should keep supporting documents that show the amounts and sources of your gross receipts. Filing back tax Documents that show gross receipts include the following. Filing back tax Cash register tapes. Filing back tax Bank deposit slips. Filing back tax Receipt books. Filing back tax Invoices. Filing back tax Credit card charge slips. Filing back tax Forms 1099-MISC. Filing back tax Purchases. Filing back tax   Purchases are the items you buy and resell to customers. Filing back tax If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Filing back tax Your supporting documents should show the amount paid and that the amount was for purchases. Filing back tax Documents for purchases include the following. Filing back tax Canceled checks. Filing back tax Cash register tape receipts. Filing back tax Credit card sales slips. Filing back tax Invoices. Filing back tax These records will help you determine the value of your inventory at the end of the year. Filing back tax See Publication 538 for information on methods for valuing inventory. Filing back tax Expenses. Filing back tax   Expenses are the costs you incur (other than purchases) to carry on your business. Filing back tax Your supporting documents should show the amount paid and that the amount was for a business expense. Filing back tax Documents for expenses include the following. Filing back tax Canceled checks. Filing back tax Cash register tapes. Filing back tax Account statements. Filing back tax Credit card sales slips. Filing back tax Invoices. Filing back tax Petty cash slips for small cash payments. Filing back tax    A petty cash fund allows you to make small payments without having to write checks for small amounts. Filing back tax Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Filing back tax Travel, transportation, entertainment, and gift expenses. Filing back tax   Specific recordkeeping rules apply to these expenses. Filing back tax For more information, see Publication 463. Filing back tax Employment taxes. Filing back tax   There are specific employment tax records you must keep. Filing back tax For a list, see Publication 15. Filing back tax Assets. Filing back tax   Assets are the property, such as machinery and furniture you own and use in your business. Filing back tax You must keep records to verify certain information about your business assets. Filing back tax You need records to figure the annual depreciation and the gain or loss when you sell the assets. Filing back tax Your records should show the following information. Filing back tax When and how you acquired the asset. Filing back tax Purchase price. Filing back tax Cost of any improvements. Filing back tax Section 179 deduction taken. Filing back tax Deductions taken for depreciation. Filing back tax Deductions taken for casualty losses, such as losses resulting from fires or storms. Filing back tax How you used the asset. Filing back tax When and how you disposed of the asset. Filing back tax Selling price. Filing back tax Expenses of sale. Filing back tax   The following documents may show this information. Filing back tax Purchase and sales invoices. Filing back tax Real estate closing statements. Filing back tax Canceled checks. Filing back tax What if I don't have a canceled check?   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Filing back tax These include account statements prepared for the financial institution by a third party. Filing back tax These account statements must be highly legible. Filing back tax The following table lists acceptable account statements. Filing back tax  IF payment is by. Filing back tax . Filing back tax . Filing back tax THEN the statement must show the. Filing back tax . Filing back tax . Filing back tax Check Check number. Filing back tax Amount. Filing back tax Payee's name. Filing back tax Date the check amount was posted to the account by the financial institution. Filing back tax Electronic funds transfer Amount transferred. Filing back tax Payee's name. Filing back tax Date the transfer was posted to the account by the financial institution. Filing back tax Credit card Amount charged. Filing back tax Payee's name. Filing back tax Transaction date. Filing back tax    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Filing back tax You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Filing back tax Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Filing back tax (Your business transactions are shown on the supporting documents just discussed. Filing back tax ) Business transactions are ordinarily summarized in books called journals and ledgers. Filing back tax You can buy them at your local stationery or office supply store. Filing back tax A journal is a book where you record each business transaction shown on your supporting documents. Filing back tax You may have to keep separate journals for transactions that occur frequently. Filing back tax A ledger is a book that contains the totals from all of your journals. Filing back tax It is organized into different accounts. Filing back tax Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Filing back tax For example, a recordkeeping system for a small business might include the following items. Filing back tax Business checkbook. Filing back tax Daily summary of cash receipts. Filing back tax Monthly summary of cash receipts. Filing back tax Check disbursements journal. Filing back tax Depreciation worksheet. Filing back tax Employee compensation record. Filing back tax The business checkbook is explained next. Filing back tax The other items are illustrated later under Sample Record System. Filing back tax The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Filing back tax For example, record expenses when they occur, and identify the source of recorded receipts. Filing back tax Generally, it is best to record transactions on a daily basis. Filing back tax Business checkbook. Filing back tax   One of the first things you should do when you start a business is open a business checking account. Filing back tax You should keep your business account separate from your personal checking account. Filing back tax   The business checkbook is your basic source of information for recording your business expenses. Filing back tax You should deposit all daily receipts in your business checking account. Filing back tax You should check your account for errors by reconciling it. Filing back tax See Reconciling the checking account, later. Filing back tax   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Filing back tax You should also note on the deposit slip the source of the deposit and keep copies of all slips. Filing back tax   You should make all payments by check to document business expenses. Filing back tax Write checks payable to yourself only when making withdrawals from your business for personal use. Filing back tax Avoid writing checks payable to cash. Filing back tax If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Filing back tax If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Filing back tax    Use the business account for business purposes only. Filing back tax Indicate the source of deposits and the type of expense in the checkbook. Filing back tax Reconciling the checking account. Filing back tax   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Filing back tax The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Filing back tax   By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Filing back tax    You should reconcile your checking account each month. Filing back tax     Before you reconcile your monthly bank statement, check your own figures. Filing back tax Begin with the balance shown in your checkbook at the end of the previous month. Filing back tax To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Filing back tax   After checking your figures, the result should agree with your checkbook balance at the end of the month. Filing back tax If the result does not agree, you may have made an error in recording a check or deposit. Filing back tax You can find the error by doing the following. Filing back tax Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Filing back tax If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Filing back tax Adding the deposit amounts in your checkbook. Filing back tax Compare that total with the monthly total in your cash receipt book, if you have one. Filing back tax If the totals do not agree, check the individual amounts to find any errors. Filing back tax   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Filing back tax   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Filing back tax Many banks print a reconciliation worksheet on the back of the statement. Filing back tax   To reconcile your account, follow these steps. Filing back tax Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Filing back tax Note all differences in the dollar amounts. Filing back tax Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Filing back tax Note all differences in the dollar amounts. Filing back tax Mark the check number in the checkbook as having cleared the bank. Filing back tax After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Filing back tax Prepare a bank reconciliation. Filing back tax One is illustrated later under Sample Record System. Filing back tax Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Filing back tax At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Filing back tax If you still have differences, check the previous steps to find the errors. Filing back tax   Table 3. Filing back tax Period of Limitations IF you. Filing back tax . Filing back tax . Filing back tax   THEN the period is. Filing back tax . Filing back tax . Filing back tax 1. Filing back tax Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Filing back tax Do not report income that you should report and it is more than 25% of the gross income shown on the return   6 years 3. Filing back tax File a fraudulent return   Not limited 4. Filing back tax Do not file a return   Not limited 5. Filing back tax File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Filing back tax File a claim for a loss from worthless securities or a bad debt deduction   7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Filing back tax The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Filing back tax You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Filing back tax Single-entry. Filing back tax   A single-entry system is based on the income statement (profit or loss statement). Filing back tax It can be a simple and practical system if you are starting a small business. Filing back tax The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Filing back tax Double-entry. Filing back tax   A double-entry bookkeeping system uses journals and ledgers. Filing back tax Transactions are first entered in a journal and then posted to ledger accounts. Filing back tax These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Filing back tax You close income and expense accounts at the end of each tax year. Filing back tax You keep asset, liability, and net worth accounts open on a permanent basis. Filing back tax   In the double-entry system, each account has a left side for debits and a right side for credits. Filing back tax It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Filing back tax   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Filing back tax If the amounts do not balance, you have made an error and you must find and correct it. Filing back tax   An example of a journal entry exhibiting a payment of rent in October is shown next. Filing back tax General Journal Date Description of Entry Debit  Credit Oct. Filing back tax 5 Rent expense 780. Filing back tax 00     Cash   780. Filing back tax 00                 Computerized System There are computer software packages you can use for recordkeeping. Filing back tax They can be purchased in many retail stores. Filing back tax These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Filing back tax If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Filing back tax To meet this qualification, the machine-sensible records must reconcile with your books and return. Filing back tax These records must provide enough detail to identify the underlying source documents. Filing back tax You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Filing back tax This documentation must be sufficiently detailed to show all of the following items. Filing back tax Functions being performed as the data flows through the system. Filing back tax Controls used to ensure accurate and reliable processing. Filing back tax Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Filing back tax Charts of accounts and detailed account descriptions. Filing back tax See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Filing back tax How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Filing back tax Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Filing back tax The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Filing back tax Table 3 contains the periods of limitations that apply to income tax returns. Filing back tax Unless otherwise stated, the years refer to the period after the return was filed. Filing back tax Returns filed before the due date are treated as filed on the due date. Filing back tax Keep copies of your filed tax returns. Filing back tax They help in preparing future tax returns and making computations if you file an amended return. Filing back tax Employment taxes. Filing back tax   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Filing back tax For more information about recordkeeping for employment taxes, see Publication 15. Filing back tax Assets. Filing back tax   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Filing back tax You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Filing back tax   Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Filing back tax You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Filing back tax Records for nontax purposes. Filing back tax   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Filing back tax For example, your insurance company or creditors may require you to keep them longer than the IRS does. Filing back tax Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Filing back tax Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Filing back tax These sample records should not be viewed as a recommendation of how to keep your records. Filing back tax They are intended only to show how one business keeps its records. Filing back tax 1. Filing back tax Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Filing back tax It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Filing back tax Henry takes the cash sales entry from his cash register tape. Filing back tax If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Filing back tax He carries the total receipts shown in this summary for January 3 ($267. Filing back tax 80), including cash sales ($263. Filing back tax 60) and sales tax ($4. Filing back tax 20), to the Monthly Summary of Cash Receipts. Filing back tax Petty cash fund. Filing back tax   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Filing back tax Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Filing back tax He sets up a fixed amount ($50) in his petty cash fund. Filing back tax The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Filing back tax When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Filing back tax (See the Check Disbursements Journal entry for check number 92. Filing back tax ) This restores the fund to its fixed amount of $50. Filing back tax He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Filing back tax 2. Filing back tax Monthly Summary of Cash Receipts This shows the income activity for the month. Filing back tax Henry carries the total monthly net sales shown in this summary for January ($4,865. Filing back tax 05) to his Annual Summary. Filing back tax To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Filing back tax He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Filing back tax He does not include the tax in his income. Filing back tax 3. Filing back tax Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Filing back tax All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Filing back tax Frequent expenses have their own headings across the sheet. Filing back tax He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Filing back tax Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Filing back tax Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Filing back tax If he did, he would record them in the journal, even though he could not deduct them as business expenses. Filing back tax Henry carries the January total of expenses for materials ($1,083. Filing back tax 50) to the Annual Summary. Filing back tax Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Filing back tax , in the appropriate columns of that summary. Filing back tax 4. Filing back tax Employee Compensation Record This record shows the following information. Filing back tax The number of hours Henry's employee worked in a pay period. Filing back tax The employee's total pay for the period. Filing back tax The deductions Henry withheld in figuring the employee's net pay. Filing back tax The monthly gross payroll. Filing back tax Henry carries the January gross payroll ($520) to the Annual Summary. Filing back tax 5. Filing back tax Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Filing back tax He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Filing back tax He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Filing back tax As in the journal, he keeps each major expense in a separate column. Filing back tax Henry carries the cash receipts total shown in the annual summary ($47,440. Filing back tax 9
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The Filing Back Tax

Filing back tax Publication 505 - Introductory Material Table of Contents IntroductionNonresident aliens. Filing back tax Ordering forms and publications. Filing back tax Tax questions. Filing back tax What's New for 2014 Reminders Introduction The federal income tax is a pay-as-you-go tax. Filing back tax You must pay the tax as you earn or receive income during the year. Filing back tax There are two ways to pay as you go. Filing back tax Withholding. Filing back tax If you are an employee, your employer probably withholds income tax from your pay. Filing back tax In addition, tax may be withheld from certain other income, such as pensions, bonuses, commissions, and gambling winnings. Filing back tax The amount withheld is paid to the Internal Revenue Service (IRS) in your name. Filing back tax Estimated tax. Filing back tax If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Filing back tax People who are in business for themselves generally will have to pay their tax this way. Filing back tax You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rents, and royalties. Filing back tax Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. Filing back tax This publication explains both of these methods. Filing back tax It also explains how to take credit on your return for the tax that was withheld and for your estimated tax payments. Filing back tax If you did not pay enough tax during the year, either through withholding or by making estimated tax payments, you may have to pay a penalty. Filing back tax Generally, the IRS can figure this penalty for you. Filing back tax This underpayment penalty, and the exceptions to it, are discussed in chapter 4. Filing back tax Nonresident aliens. Filing back tax    Before completing Form W-4, nonresident alien employees should see the Instructions for Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Filing back tax Also see chapter 8 of Publication 519, U. Filing back tax S. Filing back tax Tax Guide for Aliens, for important information on withholding. Filing back tax What's new for 2013 and 2014. Filing back tax   See What's New for 2014 in this Introduction, and What's New for 2013 in chapter 4. Filing back tax Comments and suggestions. Filing back tax   We welcome your comments about this publication and your suggestions for future editions. Filing back tax   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Filing back tax NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Filing back tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Filing back tax   You can send your comments from www. Filing back tax irs. Filing back tax gov/formspubs/. Filing back tax Click on “More Information” and then on Give us feedback on forms and publications. Filing back tax   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Filing back tax Ordering forms and publications. Filing back tax   Visit www. Filing back tax irs. Filing back tax gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 business days after your request is received. Filing back tax Internal Revenue Service 1201 N. Filing back tax Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Filing back tax   If you have a tax question, check the information available on IRS. Filing back tax gov or call 1-800-829-1040. Filing back tax We cannot answer tax questions sent to either of the above addresses. Filing back tax What's New for 2014 Use your 2013 tax return as a guide in figuring your 2014 estimated tax, but be sure to consider the following. Filing back tax Standard mileage rates. Filing back tax  The 2014 rate for business use of your vehicle is 56 cents per mile. Filing back tax The rate for use of your vehicle to get medical care or move is 23½ cents per mile. Filing back tax The rate of 14 cents per mile for charitable use is unchanged. Filing back tax Personal exemption increased for certain taxpayers. Filing back tax  For 2014, the personal exemption amount is increased to $3,950 for taxpayers with adjusted gross income at or below $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, or $152,525 if married filing separately. Filing back tax The personal exemption amount for taxpayers with adjusted gross income above these thresholds may be reduced. Filing back tax Limitation on itemized deductions. Filing back tax  For 2014, itemized deductions for taxpayers with adjusted gross income above $305,050 if married filing jointly or qualifying widow(er), $279,650 if head of household, $254,200 if single, and $152,525 if married filing separately may be reduced. Filing back tax Health care coverage. Filing back tax  When you file your 2014 tax return in 2015, you will need to either (1) indicate on your return that you and your family had health care coverage throughout 2014, (2) claim an exemption from the health care coverage requirement for some or all of 2014, or (3) make a payment if you do not have coverage or an exemption(s) for all 12 months of 2014. Filing back tax For examples on how this payment works, go to www. Filing back tax IRS. Filing back tax gov/aca and click under the “Individuals & Families” section. Filing back tax You may want to consider this when figuring your “Other taxes” on Line 12 of the 2014 Estimated Tax Worksheet (Worksheet 2-1). Filing back tax For general information on these requirements, go to www. Filing back tax IRS. Filing back tax gov/aca. Filing back tax Advance payments of the Premium Tax Credit. Filing back tax  If you buy health care insurance through the Health Insurance Marketplace, you may be eligible for advance payments of the Premium Tax Credit to help pay for your insurance coverage. Filing back tax Receiving too little or too much in advance will affect your refund or balance due. Filing back tax Promptly report changes in your income or family size to your Marketplace. Filing back tax You may want to consider this when figuring your estimated taxes for 2014. Filing back tax For more information, go to www. Filing back tax IRS. Filing back tax gov/aca and see Publication 5120 and Publication 5121. Filing back tax http://www. Filing back tax IRS. Filing back tax gov/pub5120 Alternative minimum tax (AMT) exemption amount increased. Filing back tax  The AMT exemption amount is increased to $52,800 ($82,100 if married filing jointly or qualifying widow(er); $41,050 if married filing separately). Filing back tax Lifetime learning credit income limits. Filing back tax  In order to claim a lifetime learning credit, your MAGI must be less than $54,000 ($108,000 if married filing jointly). Filing back tax Retirement savings contribution credit income limits increased. Filing back tax  In order to claim this credit for 2014, your MAGI must be less than $30,000 ($60,000 if married filing jointly; $45,000 if head of household). Filing back tax Adoption credit or exclusion. Filing back tax  The maximum adoption credit or exclusion for employer-provided adoption benefits has increased to $13,190. Filing back tax In order to claim either the credit or exclusion, your MAGI must be less than $237,880. Filing back tax Earned income credit (EIC). Filing back tax  You may be able to take the EIC in 2014 if: Three or more children lived with you and you earned less than $46,997 ($52,427 if married filing jointly), Two children lived with you and you earned less than $43,756 ($49,186 if married filing jointly), One child lived with you and you earned less than $38,511 ($43,941 if married filing jointly), or A child did not live with you and you earned less than $14,590 ($20,020 if married filing jointly). Filing back tax Also, the maximum MAGI you can have and still get the credit has increased. Filing back tax You may be able to take the credit if your MAGI is less than the amount in the above list that applies to you. Filing back tax The maximum investment income you can have and get the credit has increased to $3,350. Filing back tax Reminders Future developments. Filing back tax  The IRS has created a page on IRS. Filing back tax gov for information about Publication 505 at www. Filing back tax irs. Filing back tax gov/pub505. Filing back tax Information about any future developments affecting Publication 505 (such as legislation enacted after we release it) will be posted on that page. Filing back tax Social security tax. Filing back tax   Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit. Filing back tax The annual limit is $117,000 in 2014. Filing back tax Photographs of missing children. Filing back tax  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Filing back tax Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. Filing back tax You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Filing back tax Additional Medicare Tax. Filing back tax  Beginning in 2013, a 0. Filing back tax 9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income over a threshold amount based on your filing status. Filing back tax You may need to include this amount when figuring your estimated tax. Filing back tax See the instructions for line 12 of the 2014 Estimated Tax Worksheet. Filing back tax You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4, Employee's Withholding Allowance Certificate. Filing back tax For more information on Additional Medicare Tax, go to IRS. Filing back tax gov and enter “Additional Medicare Tax” in the search box. Filing back tax Net Investment Income Tax. Filing back tax  Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). Filing back tax NIIT is a 3. Filing back tax 8% tax on the lesser of net investment income or the excess of your modified adjusted gross income (MAGI) over the threshold amount. Filing back tax NIIT may need to be included when figuring estimated tax. Filing back tax See the instructions for line 12 of the 2014 Estimated Tax Worksheet. Filing back tax You may also request that your employer deduct and withhold an additional amount of income tax withholding from your wages on Form W-4. Filing back tax For more information on NIIT, go to IRS. Filing back tax gov and enter “Net Investment Income Tax” in the search box. Filing back tax Prev  Up  Next   Home   More Online Publications