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Free file state return only 5. Free file state return only   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. Free file state return only Short-term lease. Free file state return only Retail space. Free file state return only Qualified long-term real property. Free file state return only 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. Free file state return only If there is a connection between any income you receive and your business, the income is business income. Free file state return only A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Free file state return only You can have business income even if you are not involved in the activity on a regular full-time basis. Free file state return only Income from work you do on the side in addition to your regular job can be business income. Free file state return only You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Free file state return only 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. Free file state return only For information on selling business assets, see chapter 3. Free file state return only Nonemployee compensation. Free file state return only Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Free file state return only This includes amounts reported as nonemployee compensation in box 7 of the form. Free file state return only You can find more information in the instructions on the back of the Form 1099-MISC you received. Free file state return only Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Free file state return only In most cases, your business income will be in the form of cash, checks, and credit card charges. Free file state return only But business income can be in other forms, such as property or services. Free file state return only These and other types of income are explained next. Free file state return only If you are a U. Free file state return only S. Free file state return only 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. Free file state return only S. Free file state return only law. Free file state return only If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Free file state return only For details, see Publication 54, Tax Guide for U. Free file state return only S. Free file state return only Citizens and Resident Aliens Abroad. Free file state return only Bartering for Property or Services Bartering is an exchange of property or services. Free file state return only 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. Free file state return only 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. Free file state return only Example 1. Free file state return only You are a self-employed lawyer. Free file state return only You perform legal services for a client, a small corporation. Free file state return only In payment for your services, you receive shares of stock in the corporation. Free file state return only You must include the fair market value of the shares in income. Free file state return only Example 2. Free file state return only You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Free file state return only You must include the fair rental value of the apartment in your gross receipts. Free file state return only Your landlord must include the fair market value of the work of art in his or her rental income. Free file state return only Example 3. Free file state return only You are a self-employed accountant. Free file state return only 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. Free file state return only Members get in touch with other members directly and bargain for the value of the services to be performed. Free file state return only In return for accounting services you provided for the house painter's business, the house painter painted your home. Free file state return only You must include in gross receipts the fair market value of the services you received from the house painter. Free file state return only The house painter must include the fair market value of your accounting services in his or her gross receipts. Free file state return only Example 4. Free file state return only 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. Free file state return only 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. Free file state return only 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. Free file state return only 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. Free file state return only It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Free file state return only See Publication 15 (Circular E), Employer's Tax Guide. Free file state return only Example 5. Free file state return only You operate a plumbing business and use the cash method of accounting. Free file state return only You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Free file state return only Each member has access to a directory that lists the members of the club and the services available. Free file state return only Members contact each other directly and request services to be performed. Free file state return only 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. Free file state return only 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. Free file state return only Information returns. Free file state return only   If you are involved in a bartering transaction, you may have to file either of the following forms. Free file state return only Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Free file state return only Form 1099-MISC, Miscellaneous Income. Free file state return only For information about these forms, see the General Instructions for Certain Information Returns. Free file state return only 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. Free file state return only , who provides services (maid services, etc. Free file state return only ) for guests, report the rental income and expenses on Schedule C or C-EZ. Free file state return only 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. Free file state return only For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Free file state return only Real estate dealer. Free file state return only   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. Free file state return only Rent you receive from real estate held for sale to customers is subject to SE tax. Free file state return only However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Free file state return only Trailer park owner. Free file state return only   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. Free file state return only    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. Free file state return only Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Free file state return only   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. Free file state return only   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Free file state return only Hotels, boarding houses, and apartments. Free file state return only   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. Free file state return only   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. Free file state return only An example of a service that is not normally provided for the convenience of the occupants is maid service. Free file state return only However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Free file state return only Prepaid rent. Free file state return only   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. Free file state return only This is true no matter what accounting method or period you use. Free file state return only Lease bonus. Free file state return only   A bonus you receive from a lessee for granting a lease is an addition to the rent. Free file state return only Include it in your gross receipts in the year received. Free file state return only Lease cancellation payments. Free file state return only   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Free file state return only Payments to third parties. Free file state return only   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. Free file state return only A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Free file state return only Settlement payments. Free file state return only   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. Free file state return only Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Free file state return only ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Free file state return only Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Free file state return only If you receive any of those payments, include them in your gross receipts as explained in that discussion. Free file state return only Interest and Dividend Income Interest and dividends may be considered business income. Free file state return only Interest. Free file state return only   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Free file state return only Interest received on loans is business income if you are in the business of lending money. Free file state return only Uncollectible loans. Free file state return only   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. Free file state return only If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Free file state return only See Bad Debts in chapter 8. Free file state return only Unstated interest. Free file state return only   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Free file state return only See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Free file state return only Dividends. Free file state return only   Generally, dividends are business income to dealers in securities. Free file state return only For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Free file state return only If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Free file state return only   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. Free file state return only To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Free file state return only Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Free file state return only 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. Free file state return only Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Free file state return only If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Free file state return only Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Free file state return only Price reduced after purchase. Free file state return only   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. Free file state return only Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Free file state return only Deductible debt. Free file state return only   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Free file state return only Example. Free file state return only You get accounting services for your business on credit. Free file state return only Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Free file state return only Your accountant forgives part of the amount you owe for the accounting services. Free file state return only How you treat the canceled debt depends on your method of accounting. Free file state return only Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Free file state return only Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Free file state return only   For information on the cash and accrual methods of accounting, see chapter 2. Free file state return only Exclusions Do not include canceled debt in income in the following situations. Free file state return only However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Free file state return only For more information, see Form 982. Free file state return only The cancellation takes place in a bankruptcy case under title 11 of the U. Free file state return only S. Free file state return only Code (relating to bankruptcy). Free file state return only See Publication 908, Bankruptcy Tax Guide. Free file state return only The cancellation takes place when you are insolvent. Free file state return only You can exclude the canceled debt to the extent you are insolvent. Free file state return only See Publication 908. Free file state return only The canceled debt is a qualified farm debt owed to a qualified person. Free file state return only See chapter 3 in Publication 225, Farmer's Tax Guide. Free file state return only The canceled debt is a qualified real property business debt. Free file state return only This situation is explained later. Free file state return only The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Free file state return only See Form 982. Free file state return only 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. Free file state return only If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Free file state return only Debt. Free file state return only   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Free file state return only Qualified real property business debt. Free file state return only   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Free file state return only If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Free file state return only Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Free file state return only However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Free file state return only Cancellation of qualified real property business debt. Free file state return only   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Free file state return only It was incurred or assumed in connection with real property used in a trade or business. Free file state return only It was secured by such real property. Free file state return only It was incurred or assumed at either of the following times. Free file state return only Before January 1, 1993. Free file state return only After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Free file state return only It is debt to which you choose to apply these rules. Free file state return only   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. Free file state return only   You cannot exclude more than either of the following amounts. Free file state return only 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. Free file state return only The total adjusted bases of depreciable real property held by you immediately before the cancellation. Free file state return only These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Free file state return only Do not take into account depreciable real property acquired in contemplation of the cancellation. Free file state return only Election. Free file state return only   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Free file state return only You must file your return by the due date (including extensions). Free file state return only 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). Free file state return only For more information, see When To File in the form instructions. Free file state return only Other Income The following discussion explains how to treat other types of business income you may receive. Free file state return only Restricted property. Free file state return only   Restricted property is property that has certain restrictions that affect its value. Free file state return only 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. Free file state return only However, you can choose to be taxed in the year you receive the property. Free file state return only For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Free file state return only Gains and losses. Free file state return only   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. Free file state return only Instead, you must report these gains and losses on other forms. Free file state return only For more information, see chapter 3. Free file state return only Promissory notes. Free file state return only   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. Free file state return only In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Free file state return only Lost income payments. Free file state return only   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. Free file state return only Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Free file state return only Damages. Free file state return only   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. Free file state return only Patent infringement. Free file state return only Breach of contract or fiduciary duty. Free file state return only Antitrust injury. Free file state return only Economic injury. Free file state return only   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Free file state return only Your deduction is the smaller of the following amounts. Free file state return only 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. Free file state return only Your loss from the injury that you have not yet deducted. Free file state return only Punitive damages. Free file state return only   You must also include punitive damages in income. Free file state return only Kickbacks. Free file state return only   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Free file state return only 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. Free file state return only Recovery of items previously deducted. Free file state return only   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. Free file state return only 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. Free file state return only If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Free file state return only Example. Free file state return only Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Free file state return only He also had 2 personal exemptions for a total of $7,800. Free file state return only He would not pay income tax even if he did not deduct the bad debt. Free file state return only Therefore, he will not report as income any part of the $300 he may recover in any future year. Free file state return only Exception for depreciation. Free file state return only   This rule does not apply to depreciation. Free file state return only You recover depreciation using the rules explained next. Free file state return only Recapture of depreciation. Free file state return only   In the following situations, you have to recapture the depreciation deduction. Free file state return only This means you include in income part or all of the depreciation you deducted in previous years. Free file state return only Listed property. Free file state return only   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. Free file state return only You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Free file state return only Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Free file state return only For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Free file state return only That chapter explains how to determine whether property is used more than 50% in your business. Free file state return only Section 179 property. Free file state return only   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. Free file state return only You do this by including in income on Schedule C part of the deduction you took. Free file state return only Use Part IV of Form 4797 to figure the amount to include on Schedule C. Free file state return only See chapter 2 in Publication 946 to find out when you recapture the deduction. Free file state return only Sale or exchange of depreciable property. Free file state return only   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. Free file state return only You figure the income due to depreciation recapture in Part III of Form 4797. Free file state return only For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Free file state return only Items That Are Not Income In some cases the property or money you receive is not income. Free file state return only Appreciation. Free file state return only   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Free file state return only Consignments. Free file state return only   Consignments of merchandise to others to sell for you are not sales. Free file state return only The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Free file state return only Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Free file state return only Merchandise you have shipped out on consignment is included in your inventory until it is sold. Free file state return only   Do not include merchandise you receive on consignment in your inventory. Free file state return only 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. Free file state return only Construction allowances. Free file state return only   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. Free file state return only Under a short-term lease of retail space. Free file state return only For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Free file state return only Amount you can exclude. Free file state return only   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Free file state return only Short-term lease. Free file state return only   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Free file state return only The following rules apply in determining whether the lease is for 15 years or less. Free file state return only Take into account options to renew when figuring whether the lease is for 15 years or less. Free file state return only But do not take into account any option to renew at fair market value determined at the time of renewal. Free file state return only 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. Free file state return only Retail space. Free file state return only   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. Free file state return only Qualified long-term real property. Free file state return only   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. Free file state return only Exchange of like-kind property. Free file state return only   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. Free file state return only This means that the gain is not taxable and the loss is not deductible. Free file state return only A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Free file state return only For more information, see Form 8824. Free file state return only Leasehold improvements. Free file state return only   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. Free file state return only However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Free file state return only Loans. Free file state return only   Money borrowed through a bona fide loan is not income. Free file state return only Sales tax. Free file state return only   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. Free file state return only 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). Free file state return only Direct seller. Free file state return only   You must report all income you receive as a direct seller on Schedule C or C-EZ. Free file state return only This includes any of the following. Free file state return only Income from sales—payments you receive from customers for products they buy from you. Free file state return only Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Free file state return only Prizes, awards, and gifts you receive from your selling business. Free file state return only You must report this income regardless of whether it is reported to you on an information return. Free file state return only   You are a direct seller if you meet all the following conditions. Free file state return only You are engaged in one of the following trades or businesses. Free file state return only 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. Free file state return only Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Free file state return only 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. Free file state return only 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. Free file state return only Executor or administrator. Free file state return only   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. Free file state return only A nonprofessional fiduciary (personal representative) and both of the following apply. Free file state return only The estate includes an active trade or business in which you actively participate. Free file state return only Your fees are related to the operation of that trade or business. Free file state return only 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. Free file state return only    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Free file state return only Fishing crew member. Free file state return only    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 . Free file state return only Insurance agent, former. Free file state return only   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. Free file state return only You received payments after your agreement to perform services for the company ended. Free file state return only 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. Free file state return only 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. Free file state return only 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. Free file state return only 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). Free file state return only Insurance agent, retired. Free file state return only   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. Free file state return only Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Free file state return only   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Free file state return only Newspaper carrier or distributor. Free file state return only   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Free file state return only You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Free file state return only Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Free file state return only You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free file state return only   This rule applies whether or not you hire others to help you make deliveries. Free file state return only It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Free file state return only Newspaper or magazine vendor. Free file state return only   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. Free file state return only You sell newspapers or magazines to ultimate consumers. Free file state return only You sell them at a fixed price. Free file state return only Your earnings are based on the difference between the sales price and your cost of goods sold. Free file state return only   This rule applies whether or not you are guaranteed a minimum amount of earnings. Free file state return only It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Free file state return only Notary public. Free file state return only   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Free file state return only These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Free file state return only Public official. Free file state return only   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Free file state return only 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. Free file state return only 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. Free file state return only   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. Free file state return only Real estate agent or direct seller. Free file state return only   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. Free file state return only 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. Free file state return only You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Free file state return only Securities dealer. Free file state return only   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. Free file state return only For more information, see sections 1256 and 1402(i). Free file state return only Securities trader. Free file state return only   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Free file state return only As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Free file state return only However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Free file state return only For more information about securities traders, see Publication 550, Investment Income and Expenses. Free file state return only Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Free file state return only This section discusses some of the more common differences that may affect business transactions. Free file state return only Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Free file state return only 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. Free file state return only Dealers in real estate are not allowed to use inventories. Free file state return only For more information on inventories, see chapter 2. Free file state return only Income paid to a third party. Free file state return only   All income you earn is taxable to you. Free file state return only You cannot avoid tax by having the income paid to a third party. Free file state return only Example. Free file state return only You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Free file state return only The amount paid to your son is gross income to you. Free file state return only Cash discounts. Free file state return only   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Free file state return only For income tax purposes, you can use either of the following two methods to account for cash discounts. Free file state return only Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Free file state return only Credit the cash discount to a discount income account. Free file state return only You must use the chosen method every year for all your purchase discounts. Free file state return only   If you use the second method, the credit balance in the account at the end of your tax year is business income. Free file state return only Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Free file state return only 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. Free file state return only Trade discounts. Free file state return only   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Free file state return only Do not enter these discounts on your books of account. Free file state return only Instead, use only the net amount as the cost of the merchandise purchased. Free file state return only For more information, see Trade discounts in chapter 6. Free file state return only Payment placed in escrow. Free file state return only   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. Free file state return only 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. Free file state return only Sales returns and allowances. Free file state return only   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Free file state return only Advance payments. Free file state return only   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Free file state return only Insurance proceeds. Free file state return only   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. Free file state return only You cannot deduct the reimbursed part of a casualty or theft loss. Free file state return only   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Free file state return only Prev  Up  Next   Home   More Online Publications
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Power Administrations

There are four power administrations that market the hydroelectric power produced by the Army Corps of Engineers' dams.

The Free File State Return Only

Free file state return only Publication 80 - Additional Material Prev  Up  Next   Home   More Online Publications