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Freestatetaxfiling

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Freestatetaxfiling

Freestatetaxfiling Index Symbols "Hours of service" limits, Individuals subject to hours of service limits. Freestatetaxfiling Form 2106, Hours of service limits. Freestatetaxfiling 50% limit on meals, 50% limit on meals. Freestatetaxfiling A Accountable plans, Accountable Plans, Per diem allowance more than federal rate. Freestatetaxfiling Accounting to employer, Accountable Plans Adequate accounting, Adequate Accounting Independent contractors, Adequate accounting. Freestatetaxfiling Adequate records, What Are Adequate Records? Advertising Car display, Advertising display on car. Freestatetaxfiling Expenses, 3 - Advertising expenses. Freestatetaxfiling Signs, display racks, or other promotional material to be used on recipient's business premises, Exceptions. Freestatetaxfiling Airline clubs, Club dues and membership fees. Freestatetaxfiling Allocating costs, Separating costs. Freestatetaxfiling , Separating costs. Freestatetaxfiling , Allocating between business and nonbusiness. Freestatetaxfiling , Allocating total cost. Freestatetaxfiling Allowance (see Reimbursements) Armed forces Assigned overseas, Members of the Armed Forces. Freestatetaxfiling Assistance (see Tax help) Associated entertainment, Associated Test Athletic clubs, Club dues and membership fees. Freestatetaxfiling B Basis of car, Basis. Freestatetaxfiling (see also Depreciation of car) Bona fide business purpose, Bona fide business purpose. Freestatetaxfiling Box seats at entertainment events, Skyboxes and other private luxury boxes. Freestatetaxfiling Business travel, Trip Primarily for Business Outside U. Freestatetaxfiling S. Freestatetaxfiling , Travel Entirely for Business or Considered Entirely for Business Business use of car, Business and personal use. Freestatetaxfiling More-than-50%-use test. Freestatetaxfiling , More-than-50%-use test. Freestatetaxfiling Qualified business use, Qualified business use. Freestatetaxfiling C Canceled checks As evidence of business expenses, Canceled check. Freestatetaxfiling Car expenses, Car Expenses, Reporting inclusion amounts. Freestatetaxfiling Actual expenses, Actual Car Expenses Allowances for, Per Diem and Car Allowances, Allowance more than the federal rate. Freestatetaxfiling Business and personal use, Business and personal use. Freestatetaxfiling Combining expenses, Car expenses. Freestatetaxfiling Disposition of car, Disposition of a Car Fixed and variable rate (FAVR) allowance, Fixed and variable rate (FAVR). Freestatetaxfiling Form 2106, Car expenses. Freestatetaxfiling Leasing a car, truck, or van, Leasing a Car, Reporting inclusion amounts. Freestatetaxfiling Mileage rate (see Standard mileage rate) Taxes paid on car, Taxes paid on your car. Freestatetaxfiling Traffic tickets, Fines and collateral. Freestatetaxfiling Car pools, Car pools. Freestatetaxfiling Car rentals, Reporting inclusion amounts. Freestatetaxfiling Form 2106, Car rentals. Freestatetaxfiling Car, defined, Car defined. Freestatetaxfiling Car, truck, or van rentals, Leasing a Car, Reporting inclusion amounts. Freestatetaxfiling Casualty and theft losses Cars, Casualty and theft losses. Freestatetaxfiling Depreciation, Casualty or theft. Freestatetaxfiling Charitable organizations Benefit events for, Exception for events that benefit charitable organizations. Freestatetaxfiling Sports events to benefit, 5 - Charitable sports event. Freestatetaxfiling Club dues, Club dues and membership fees. Freestatetaxfiling Commuting expenses, Commuting expenses. Freestatetaxfiling Conventions, Conventions, Meetings at conventions. Freestatetaxfiling Country clubs, Club dues and membership fees. Freestatetaxfiling Cruise ships, Cruise Ships D Daily business mileage and expense log (Table 6-2), Table 5-2. Freestatetaxfiling Daily Business Mileage and Expense Log Name: Depreciation of car, Depreciation and section 179 deductions. Freestatetaxfiling (see also Section 179 deductions) Adjustment for using standard mileage rate, Depreciation adjustment when you used the standard mileage rate. Freestatetaxfiling Basis, Basis. Freestatetaxfiling Sales taxes, Sales taxes. Freestatetaxfiling Unrecovered basis, How to treat unrecovered basis. Freestatetaxfiling Casualty or theft, effect, Casualty or theft. Freestatetaxfiling Deduction, Depreciation and section 179 deductions. Freestatetaxfiling , Depreciation deduction for the year of disposition. Freestatetaxfiling Excess depreciation, Excess depreciation. Freestatetaxfiling Modified Accelerated Cost Recovery System (MACRS), Modified Accelerated Cost Recovery System (MACRS). Freestatetaxfiling Trade-in, effect, Car trade-in. Freestatetaxfiling , Trade-in. Freestatetaxfiling Trucks and vans, Trucks and vans. Freestatetaxfiling Depreciation of Car Section 179 deduction, Section 179 deduction. Freestatetaxfiling Directly-related entertainment, Directly-Related Test Disabled employees Impairment-related work expenses, Impairment-Related Work Expenses of Disabled Employees Documentary evidence, Documentary evidence. Freestatetaxfiling E Employer-provided vehicles, Employer-provided vehicle. Freestatetaxfiling Reporting requirements, Vehicle Provided by Your Employer Entertainment expenses, Entertainment, Individuals subject to hours of service limits. Freestatetaxfiling , Gift or entertainment. Freestatetaxfiling 50% limit, Directly before or after business discussion. Freestatetaxfiling Determination of applicability (Figure A), 50% Limit Associated test, Associated Test Deductible, What Entertainment Expenses Are Deductible?, Expenses for spouses. Freestatetaxfiling Summary (Table 2-1), Exception for events that benefit charitable organizations. Freestatetaxfiling Directly-related test, Directly-Related Test Entertainment, defined, Entertainment. Freestatetaxfiling Form 2106, Meal and entertainment expenses. Freestatetaxfiling Tickets (see Tickets) Entertainment facilities Expenses for use of, Entertainment facilities. Freestatetaxfiling Estimates of expenses, How To Prove Expenses Exceptions to the 50% Limit, Exceptions to the 50% Limit Excess reimbursements (see Reimbursements) Extravagant expenses, Lavish or extravagant. Freestatetaxfiling , Lavish or extravagant expenses. Freestatetaxfiling F Fair market value of car, Fair market value. Freestatetaxfiling Farmers Form 1040, Schedule F, Self-employed. Freestatetaxfiling Federal crime investigations or prosecutions Federal employees engaged in, Exception for federal crime investigations or prosecutions. Freestatetaxfiling Federal rate for per diem, Standard Meal Allowance, The federal rate. Freestatetaxfiling Fee-basis officials, Officials Paid on a Fee Basis Fees you pay, Parking fees. Freestatetaxfiling Fixed and variable rate (FAVR) allowance, Fixed and variable rate (FAVR). Freestatetaxfiling Form 1040, Schedule C, Self-employed. Freestatetaxfiling Form 1040, Schedule F, Self-employed. Freestatetaxfiling Form 2106, How to choose. Freestatetaxfiling , Employees. Freestatetaxfiling , Full value included in your income. Freestatetaxfiling , Reporting your expenses under a nonaccountable plan. Freestatetaxfiling , Completing Forms 2106 and 2106-EZ Form 2106-EZ, Form 2106-EZ. Freestatetaxfiling Form 4562, Self-employed. Freestatetaxfiling Form 4797, Excess depreciation. Freestatetaxfiling Form W-2 Employer-provided vehicles, Value reported on Form W-2. Freestatetaxfiling Reimbursement of personal expenses, Reimbursement for personal expenses. Freestatetaxfiling Statutory employees, Statutory employees. Freestatetaxfiling Free tax services, Free help with your tax return. Freestatetaxfiling G Gifts, Gift or entertainment. Freestatetaxfiling , Gifts $25 limit, $25 limit. Freestatetaxfiling Combining for recordkeeping purposes, Gift expenses. Freestatetaxfiling Reporting requirements, Gifts. Freestatetaxfiling Golf clubs, Club dues and membership fees. Freestatetaxfiling H Hauling tools, Hauling tools or instruments. Freestatetaxfiling Help (see Tax help) High-low method Introduction, High-low method. Freestatetaxfiling Transition rules, High-low method. Freestatetaxfiling High-low rate method, High-low rate. Freestatetaxfiling Home office, Office in the home. Freestatetaxfiling Hotel clubs, Club dues and membership fees. Freestatetaxfiling I Impairment-related work expenses, Impairment-Related Work Expenses of Disabled Employees Incidental expenses Defined, Incidental expenses. Freestatetaxfiling Gifts, Incidental costs. Freestatetaxfiling No meals, incidentals only, Incidental-expenses-only method. Freestatetaxfiling Income-producing property, Income-producing property. Freestatetaxfiling Incomplete records, What If I Have Incomplete Records? Indefinite job assignment, Temporary assignment vs. Freestatetaxfiling indefinite assignment. Freestatetaxfiling Independent contractors, Rules for Independent Contractors and Clients Interest on car loans, Interest on car loans. Freestatetaxfiling Itinerants, Tax Home L Lavish or extravagant expenses, Lavish or extravagant. Freestatetaxfiling , Lavish or extravagant expenses. Freestatetaxfiling Leasing a car, truck, or van, Leasing a Car, Reporting inclusion amounts. Freestatetaxfiling Luxury private boxes at entertainment events, Skyboxes and other private luxury boxes. Freestatetaxfiling Luxury water travel, Luxury Water Travel M MACRS (Modified Accelerated Cost Recovery System), Modified Accelerated Cost Recovery System (MACRS). Freestatetaxfiling 2011 chart (Table 4-1), Table 4-1. Freestatetaxfiling 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Freestatetaxfiling ) Main place of business or work, Main place of business or work. Freestatetaxfiling Married taxpayers Performing artists, Special rules for married persons. Freestatetaxfiling Meal expenses, Meals 50% limit, 50% Limit Determination of applicability (Figure A), 50% Limit Exceptions, Exceptions to the 50% Limit Actual cost method, Actual Cost Form 2106, Meal and entertainment expenses. Freestatetaxfiling Major cities with higher allowances, Amount of standard meal allowance. Freestatetaxfiling Standard meal allowance, Standard Meal Allowance, Who can use the standard meal allowance. Freestatetaxfiling , The standard meal allowance. Freestatetaxfiling Meals, entertainment-related, A meal as a form of entertainment. Freestatetaxfiling Mileage rate (see Standard mileage rate) Military (see Armed forces) Missing children, photographs of, Reminder Modified Accelerated Cost Recovery System (MACRS), Modified Accelerated Cost Recovery System (MACRS). Freestatetaxfiling 2011 chart (Table 4-1), Table 4-1. Freestatetaxfiling 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Freestatetaxfiling ) N Nonaccountable plans, Nonaccountable Plans O Office in the home, Office in the home. Freestatetaxfiling Officials paid on fee basis, Officials Paid on a Fee Basis Overseas travel Conventions, Conventions Held Outside the North American Area Meal allowance, Standard meal allowance for areas outside the continental United States. Freestatetaxfiling Part of trip outside U. Freestatetaxfiling S. Freestatetaxfiling , Part of Trip Outside the United States P Parking fees, Parking fees. Freestatetaxfiling , Parking fees and tolls. Freestatetaxfiling Per diem allowances, Per Diem and Car Allowances, Allowance more than the federal rate. Freestatetaxfiling Defined, Reimbursement, allowance, or advance. Freestatetaxfiling Federal rate for, The federal rate. Freestatetaxfiling Per diem rates High-cost localities, High-low method. Freestatetaxfiling High-low method, High-low method. Freestatetaxfiling Regular federal method, Regular federal per diem rate method. Freestatetaxfiling Standard rate for unlisted localities, High-low method. Freestatetaxfiling , Regular federal per diem rate method. Freestatetaxfiling Transition rules, High-low method. Freestatetaxfiling , Federal per diem rate method. Freestatetaxfiling Performing artists, Expenses of Certain Performing Artists Personal property taxes, Personal property taxes. Freestatetaxfiling , Taxes paid on your car. Freestatetaxfiling Personal trips, Trip Primarily for Personal Reasons Outside U. Freestatetaxfiling S. Freestatetaxfiling , Travel Primarily for Personal Reasons Placed in service, cars, Placed in service. Freestatetaxfiling Probationary work period, Probationary work period. Freestatetaxfiling Proving business purpose, Proving business purpose. Freestatetaxfiling Public transportation Outside of U. Freestatetaxfiling S. Freestatetaxfiling travel, Public transportation. Freestatetaxfiling Publications (see Tax help) R Recordkeeping requirements, Recordkeeping, Examples of Records Adequate records, What Are Adequate Records? Daily business mileage and expense log (Table 6-2), Table 5-2. Freestatetaxfiling Daily Business Mileage and Expense Log Name: Destroyed records, Destroyed records. Freestatetaxfiling How to prove expenses (Table 5-1), Table 5-1. Freestatetaxfiling How To Prove Certain Business Expenses Incomplete records, What If I Have Incomplete Records? Reimbursed expenses, Reimbursed for expenses. Freestatetaxfiling Sampling to prove expenses, Sampling. Freestatetaxfiling Separating and combining expenses, Separating and Combining Expenses, If your return is examined. Freestatetaxfiling Three-year period of retention, How Long To Keep Records and Receipts Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Regular federal method Introduction, Regular federal per diem rate method. Freestatetaxfiling Transition rules, Federal per diem rate method. Freestatetaxfiling Reimbursements, Less than full value included in your income. Freestatetaxfiling , Contractor does not adequately account. Freestatetaxfiling Accountable plans, Accountable Plans Excess, Returning Excess Reimbursements, Nonaccountable Plans Form 2106, Reimbursements. Freestatetaxfiling Nonaccountable plans, Nonaccountable Plans Nondeductible expenses, Reimbursement of nondeductible expenses. Freestatetaxfiling Personal expenses, Reimbursement for personal expenses. Freestatetaxfiling Recordkeeping, Reimbursed for expenses. Freestatetaxfiling Reporting (Table 6-1), Table 6-1. Freestatetaxfiling Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements Unclaimed, Where To Report Reporting requirements, How To Report Per diem or car allowance, Reporting your expenses with a per diem or car allowance. Freestatetaxfiling Reimbursements, Reimbursements, Contractor does not adequately account. Freestatetaxfiling Reservists Transportation expenses, Armed Forces reservists. Freestatetaxfiling Traveling more than 100 miles from home, Armed Forces Reservists Traveling More Than 100 Miles From Home Returning excess reimbursements, Returning Excess Reimbursements Rural mail carriers, Rural mail carriers. Freestatetaxfiling S Section 179 deduction Amended return, How to choose. Freestatetaxfiling Deduction, Section 179 Deduction Limits, Limits. Freestatetaxfiling Self-employed persons, 2 - Self-employed. Freestatetaxfiling Reporting requirements, Self-employed. Freestatetaxfiling Skyboxes, Skyboxes and other private luxury boxes. Freestatetaxfiling Spouse, expenses for, Travel expenses for another individual. Freestatetaxfiling , Expenses for spouses. Freestatetaxfiling Standard meal allowance, Standard Meal Allowance, Who can use the standard meal allowance. Freestatetaxfiling , The standard meal allowance. Freestatetaxfiling Standard mileage rate, What's New, Standard Mileage Rate, The standard mileage rate. Freestatetaxfiling Depreciation adjustment for using, Depreciation adjustment when you used the standard mileage rate. Freestatetaxfiling Form 2106, Standard mileage rate. Freestatetaxfiling Statutory employees, Statutory employees. Freestatetaxfiling T Tables and figures 50% limit determination (Figure A), 50% Limit Daily business mileage and expense log (Table 6-2), Table 5-2. Freestatetaxfiling Daily Business Mileage and Expense Log Name: Entertainment expenses, determination of deductibility (Table 2-1), Table 2-1. Freestatetaxfiling When Are Entertainment Expenses Deductible? Maximum depreciation deduction for cars table, Maximum Depreciation Deduction for Cars Modified Accelerated Cost Recovery System (MACRS) 2011 chart (Table 4-1), Table 4-1. Freestatetaxfiling 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Freestatetaxfiling ) Proving expenses (Table 5-1), Table 5-1. Freestatetaxfiling How To Prove Certain Business Expenses Reporting reimbursements (Table 6-1), Table 6-1. Freestatetaxfiling Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements Transportation expenses, determination of deductibility (Figure B), Gift or entertainment. Freestatetaxfiling , Illustration of transportation expenses. Freestatetaxfiling Travel expenses, determination of deductibility (Table 1-1), Table 1-1. Freestatetaxfiling Travel Expenses You Can Deduct Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Tax help, How To Get Tax Help Tax home, determination of, Tax Home Temporary job assignments, Temporary Assignment or Job Temporary work location, Temporary work location. Freestatetaxfiling Tickets, Entertainment tickets. Freestatetaxfiling , Gift or entertainment. Freestatetaxfiling Season or series tickets, Season or series tickets. Freestatetaxfiling Traffic violations, Fines and collateral. Freestatetaxfiling Tools Hauling tools, Hauling tools or instruments. Freestatetaxfiling Trade association meetings, Trade association meetings. Freestatetaxfiling Trade-in of car, Car trade-in. Freestatetaxfiling , Trade-in. Freestatetaxfiling Traffic tickets, Fines and collateral. Freestatetaxfiling Transients, Tax Home Transition rules, Transition Rules Example High-low method, High-low method. Freestatetaxfiling High-low method, High-low method. Freestatetaxfiling Regular federal method, Federal per diem rate method. Freestatetaxfiling Transportation expenses, Transportation, Depreciation deduction for the year of disposition. Freestatetaxfiling Car expenses, Car Expenses, Reporting inclusion amounts. Freestatetaxfiling Deductible (Figure B), Gift or entertainment. Freestatetaxfiling , Illustration of transportation expenses. Freestatetaxfiling five or more cars, Five or more cars. Freestatetaxfiling Form 2106, Transportation expenses. Freestatetaxfiling Transportation workers, Special rate for transportation workers. Freestatetaxfiling , Individuals subject to hours of service limits. Freestatetaxfiling Travel advance, Reimbursement, allowance, or advance. Freestatetaxfiling , Travel advance. Freestatetaxfiling (see also Reimbursements) Travel expenses, Travel, Cruise Ships Another individual accompanying taxpayer, Travel expenses for another individual. Freestatetaxfiling Away from home, Traveling Away From Home, Tax Home Deductible, What Travel Expenses Are Deductible?, Cruise Ships Summary of (Table 1-1), Table 1-1. Freestatetaxfiling Travel Expenses You Can Deduct Defined, Travel expenses defined. Freestatetaxfiling Going home on days off, Going home on days off. Freestatetaxfiling In U. Freestatetaxfiling S. Freestatetaxfiling , Travel in the United States Lodging, Standard Meal Allowance Luxury water travel, Luxury Water Travel Outside U. Freestatetaxfiling S. Freestatetaxfiling , Travel Outside the United States Travel to family home, Tax Home Different From Family Home Trucks and vans Depreciation, Trucks and vans. Freestatetaxfiling Transportation workers, Individuals subject to hours of service limits. Freestatetaxfiling Transportation workers' expenses, Special rate for transportation workers. Freestatetaxfiling Two places of work, Two places of work. Freestatetaxfiling U Unclaimed reimbursements, Where To Report Unions Trips from union hall to place of work, Union members' trips from a union hall. Freestatetaxfiling Unrecovered basis of car, How to treat unrecovered basis. Freestatetaxfiling V Volunteers, Volunteers. Freestatetaxfiling W Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Prev  Up     Home   More Online Publications
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Individual Shared Responsibility Provision - Exemptions

 

The individual shared responsibility provision requires you and each member of your family to have basic health insurance coverage (also known as minimum essential coverage), qualify for an exemption, or make an individual shared responsibility payment when you file your federal income tax return.

How you get the exemption depends upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace in the area where you live, others only from the IRS, and yet others from either the Marketplace or the IRS.

This chart shows the types of exemptions available and whether they must be granted by the Marketplace, claimed on an income tax return filed with the IRS, or either may be granted by the Marketplace or claimed on a tax return. For additional information about how to get exemptions that may be granted by the Marketplace, visit HealthCare.gov/exemptions.

Information will be made available later about how to report health insurance coverage and claim exemptions on your income tax return.

Exemptions May only be granted by Marketplace May be granted by Marketplace or claimed on tax return May only be claimed on tax return
Coverage is considered unaffordable - The amount you would have paid for employer-sponsored coverage or a bronze level health plan (depending on your circumstances) is more than eight percent of your actual household income for the year as computed on your tax return. Also see the second hardship listed below, which provides a prospective exemption granted by the Marketplace if the amount you would have paid for coverage is more than eight percent of your projected household income for the year.    
Short coverage gap - You went without coverage for less than three consecutive months during the year. For more information, see question 22 of our questions and answers.    
Household income below the return filing threshold - Your household income is below the minimum threshold for filing a tax return. Learn more about household income    
Certain noncitizens - You are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S.    
Members of a health care sharing ministry - You are a member of a health care sharing ministry, which is an organization described in section 501(c)(3) whose members share a common set of ethical or religious beliefs and have shared medical expenses in accordance with those beliefs continuously since at least December 31, 1999.  

 

 

 

 

 

Members of Federally-recognized Indian Tribes - You are a member of a federally-recognized Indian tribe.    
Incarceration - You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges.    
Members of certain religious sects - You are a member of a religious sect in existence since December 31, 1950, that is recognized by the Social Security Administration (SSA) as conscientiously opposed to accepting any insurance benefits, including Medicare and Social Security.    
Hardships:      
  • Your gross income is below the filing threshold. To find out if you are required to file, use our Interactive Tax Assistant.
   
  • Two or more family members' aggregate cost of self-only employer-sponsored coverage exceeds 8 percent of household income, as does the cost of any available employer-sponsored coverage for the entire family.
   
  • You purchased insurance through the Marketplace during the initial enrollment period but have a coverage gap at the beginning of 2014. See this HHS Question and Answer.
   
  • You are experiencing circumstances that prevent you from obtaining coverage under a qualified health plan. Learn more about the criteria for this exemption.
   
  • You do not have access to affordable coverage based on your projected household income.
   
  • You are ineligible for Medicaid solely because the State does not participate in the Medicaid expansion under the Affordable Care Act.
   
  • You are an American Indian, Alaska Native, or a spouse or descendant who is eligible for services through an Indian health care provider. Learn more.
   
  • You have been notified that your health insurance policy will not be renewed and you consider the other plans available unaffordable. See HHS guidance and HHS Questions and Answers for more information.
   

 

 

Page Last Reviewed or Updated: 24-Mar-2014

The Freestatetaxfiling

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