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H R Block 2011 Return

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H R Block 2011 Return

H r block 2011 return Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. H r block 2011 return Proc. H r block 2011 return 2013-16 Table of Contents SECTION 1. H r block 2011 return PURPOSE SECTION 2. H r block 2011 return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. H r block 2011 return BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. H r block 2011 return FEDERAL INCOME TAX TREATMENT SECTION 5. H r block 2011 return INFORMATION-REPORTING OBLIGATIONS SECTION 6. H r block 2011 return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. H r block 2011 return PENALTY RELIEF FOR 2012 SECTION 8. H r block 2011 return SCOPE AND EFFECTIVE DATE SECTION 9. H r block 2011 return DRAFTING INFORMATION SECTION 1. H r block 2011 return PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). H r block 2011 return Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). H r block 2011 return In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. H r block 2011 return Current plans call for HAMP to continue accepting new borrowers through the end of 2013. H r block 2011 return The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. H r block 2011 return SECTION 2. H r block 2011 return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . H r block 2011 return 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). H r block 2011 return A description of the program can be found at www. H r block 2011 return makinghomeaffordable. H r block 2011 return gov. H r block 2011 return . H r block 2011 return 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. H r block 2011 return These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. H r block 2011 return . H r block 2011 return 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. H r block 2011 return The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. H r block 2011 return However, as noted in section 2. H r block 2011 return 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. H r block 2011 return (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. H r block 2011 return ”) . H r block 2011 return 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. H r block 2011 return . H r block 2011 return 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. H r block 2011 return The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. H r block 2011 return (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. H r block 2011 return ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). H r block 2011 return Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. H r block 2011 return Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. H r block 2011 return . H r block 2011 return 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. H r block 2011 return (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. H r block 2011 return ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. H r block 2011 return . H r block 2011 return 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). H r block 2011 return If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. H r block 2011 return These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. H r block 2011 return The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. H r block 2011 return The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. H r block 2011 return For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. H r block 2011 return ” . H r block 2011 return 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). H r block 2011 return . H r block 2011 return 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. H r block 2011 return 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. H r block 2011 return . H r block 2011 return 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. H r block 2011 return SECTION 3. H r block 2011 return BACKGROUND—APPLICABLE PROVISIONS OF LAW . H r block 2011 return 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. H r block 2011 return See § 61(a)(12). H r block 2011 return . H r block 2011 return 02 Under § 1. H r block 2011 return 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. H r block 2011 return In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. H r block 2011 return However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. H r block 2011 return See § 1. H r block 2011 return 1001-3(c)(6). H r block 2011 return . H r block 2011 return 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. H r block 2011 return 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. H r block 2011 return If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. H r block 2011 return See also § 1. H r block 2011 return 61-12(c). H r block 2011 return . H r block 2011 return 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. H r block 2011 return If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. H r block 2011 return See, e. H r block 2011 return g. H r block 2011 return , §§ 1. H r block 2011 return 1272-1(c)(5) and 1. H r block 2011 return 1274-2(d). H r block 2011 return . H r block 2011 return 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. H r block 2011 return Section 108(a)(1)(E) and 108(a)(1)(B). H r block 2011 return (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. H r block 2011 return ) . H r block 2011 return 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. H r block 2011 return . H r block 2011 return 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. H r block 2011 return See §§ 108(h) and 163(h)(3)(B)(i). H r block 2011 return . H r block 2011 return 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). H r block 2011 return Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. H r block 2011 return . H r block 2011 return 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. H r block 2011 return . H r block 2011 return 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. H r block 2011 return Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. H r block 2011 return . H r block 2011 return 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. H r block 2011 return See § 108(h)(1). H r block 2011 return If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). H r block 2011 return See § 108(b). H r block 2011 return For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). H r block 2011 return . H r block 2011 return 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). H r block 2011 return See Form 982 instructions and Publication 4681. H r block 2011 return This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. H r block 2011 return . H r block 2011 return 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. H r block 2011 return See Notice 2003-18, 2003-1 C. H r block 2011 return B. H r block 2011 return 699, and Rev. H r block 2011 return Rul. H r block 2011 return 79-356, 1979-2 C. H r block 2011 return B. H r block 2011 return 28. H r block 2011 return However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). H r block 2011 return See Rev. H r block 2011 return Rul. H r block 2011 return 2005-46, 2005-2 C. H r block 2011 return B. H r block 2011 return 120, and Rev. H r block 2011 return Rul. H r block 2011 return 75-246, 1975-1 C. H r block 2011 return B. H r block 2011 return 24. H r block 2011 return . H r block 2011 return 14 Under § 451 and § 1. H r block 2011 return 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. H r block 2011 return . H r block 2011 return 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. H r block 2011 return See § 6041(a) and (d) and § 1. H r block 2011 return 6041-1(a)(1) and (b). H r block 2011 return . H r block 2011 return 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. H r block 2011 return See § 6050P(a)-(c) and §§ 1. H r block 2011 return 6050P-1(a) and 1. H r block 2011 return 6050P-2(a) and (d). H r block 2011 return . H r block 2011 return 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. H r block 2011 return These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. H r block 2011 return Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. H r block 2011 return ” . H r block 2011 return 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. H r block 2011 return These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. H r block 2011 return Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. H r block 2011 return SECTION 4. H r block 2011 return FEDERAL INCOME TAX TREATMENT . H r block 2011 return 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. H r block 2011 return See § 1. H r block 2011 return 1001-3. H r block 2011 return At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. H r block 2011 return See also § 61(a)(12) and § 1. H r block 2011 return 61-12(c). H r block 2011 return . H r block 2011 return 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. H r block 2011 return Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. H r block 2011 return Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. H r block 2011 return . H r block 2011 return 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. H r block 2011 return Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. H r block 2011 return . H r block 2011 return 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. H r block 2011 return Therefore, for purposes of § 1. H r block 2011 return 1001-3, the date of the modification is the date of the permanent modification. H r block 2011 return . H r block 2011 return 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. H r block 2011 return 01 of this revenue procedure for the taxable year in which the permanent modification occurs. H r block 2011 return Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. H r block 2011 return The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. H r block 2011 return . H r block 2011 return 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. H r block 2011 return . H r block 2011 return 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. H r block 2011 return This is consistent with Rev. H r block 2011 return Rul. H r block 2011 return 2009-19, 2009-28 I. H r block 2011 return R. H r block 2011 return B. H r block 2011 return 111, which addressed the treatment of Pay-for-Performance Success Payments. H r block 2011 return . H r block 2011 return 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. H r block 2011 return If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. H r block 2011 return . H r block 2011 return 09 As described in section 2. H r block 2011 return 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. H r block 2011 return To the extent that the HAMP-PRA borrower is described in section 4. H r block 2011 return 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. H r block 2011 return To the extent that the HAMP-PRA borrower is described in section 4. H r block 2011 return 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. H r block 2011 return SECTION 5. H r block 2011 return INFORMATION-REPORTING OBLIGATIONS . H r block 2011 return 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. H r block 2011 return A copy of this form is required to be furnished to the borrower. H r block 2011 return . H r block 2011 return 02 As stated in sections 4. H r block 2011 return 01 and 4. H r block 2011 return 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. H r block 2011 return . H r block 2011 return 03 An investor is an applicable entity that is required under § 1. H r block 2011 return 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. H r block 2011 return Under § 1. H r block 2011 return 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. H r block 2011 return Identifiable events determine when Forms 1099-C have to be issued. H r block 2011 return Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. H r block 2011 return This rule under § 1. H r block 2011 return 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. H r block 2011 return . H r block 2011 return 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. H r block 2011 return That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). H r block 2011 return . H r block 2011 return 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. H r block 2011 return 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. H r block 2011 return Under § 6041, these payments are not subject to information reporting. H r block 2011 return See Notice 2011-14, 2011-11 I. H r block 2011 return R. H r block 2011 return B. H r block 2011 return 544, 546. H r block 2011 return . H r block 2011 return 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. H r block 2011 return 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. H r block 2011 return The payment is subject to the information reporting requirements of § 6041, as described in section 3. H r block 2011 return 15 of this revenue procedure. H r block 2011 return Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. H r block 2011 return SECTION 6. H r block 2011 return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . H r block 2011 return 01 In general. H r block 2011 return The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). H r block 2011 return As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. H r block 2011 return Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. H r block 2011 return A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. H r block 2011 return 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. H r block 2011 return Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. H r block 2011 return 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. H r block 2011 return . H r block 2011 return 02 HAMP-PRA borrower options. H r block 2011 return A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. H r block 2011 return 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. H r block 2011 return If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. H r block 2011 return 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. H r block 2011 return . H r block 2011 return 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. H r block 2011 return (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. H r block 2011 return (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. H r block 2011 return 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. H r block 2011 return This section 6. H r block 2011 return 03(2) applies only if the change to reporting the discharge using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. H r block 2011 return To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. H r block 2011 return (3) Example. H r block 2011 return The following example illustrates the application of section 6. H r block 2011 return 03(2) of this revenue procedure. H r block 2011 return In 2010, B’s basis in B’s principal residence was $330,000. H r block 2011 return In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. H r block 2011 return B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). H r block 2011 return The trial period plan effective date also fell in 2010. H r block 2011 return B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. H r block 2011 return 02(2) of this revenue procedure. H r block 2011 return That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. H r block 2011 return The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. H r block 2011 return For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure. H r block 2011 return Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). H r block 2011 return (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. H r block 2011 return 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. H r block 2011 return Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. H r block 2011 return 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. H r block 2011 return Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. H r block 2011 return (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. H r block 2011 return 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. H r block 2011 return The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. H r block 2011 return (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. H r block 2011 return The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). H r block 2011 return The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. H r block 2011 return . H r block 2011 return 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. H r block 2011 return (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. H r block 2011 return Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. H r block 2011 return Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. H r block 2011 return If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. H r block 2011 return (2) A HAMP-PRA borrower who has been using the method described in section 6. H r block 2011 return 02(1) of this revenue procedure may change to the method described in section 6. H r block 2011 return 02(2) but must comply with the consistency and open-year requirements described in section 6. H r block 2011 return 01 of this revenue procedure. H r block 2011 return SECTION 7. H r block 2011 return PENALTY RELIEF FOR 2012 . H r block 2011 return 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. H r block 2011 return 03 through 5. H r block 2011 return 04 and section 8. H r block 2011 return 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. H r block 2011 return 01 through 4. H r block 2011 return 04 of this revenue procedure) that is required to be reported for 2012. H r block 2011 return (2) Not later than March 28, 2013, a statement is sent to the Service. H r block 2011 return It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. H r block 2011 return 01(1) of this revenue procedure. H r block 2011 return The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . H r block 2011 return 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. H r block 2011 return 06 and 8. H r block 2011 return 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. H r block 2011 return . H r block 2011 return 03 Section 8. H r block 2011 return 03 and 8. H r block 2011 return 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. H r block 2011 return SECTION 8. H r block 2011 return SCOPE AND EFFECTIVE DATE . H r block 2011 return 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. H r block 2011 return . H r block 2011 return 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. H r block 2011 return . H r block 2011 return 03 Because of the effective date in section 8. H r block 2011 return 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. H r block 2011 return 03 through 5. H r block 2011 return 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. H r block 2011 return 03 through 5. H r block 2011 return 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. H r block 2011 return . H r block 2011 return 04 Because of the effective date in section 8. H r block 2011 return 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. H r block 2011 return 06 of this revenue procedure. H r block 2011 return SECTION 9. H r block 2011 return DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. H r block 2011 return Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. H r block 2011 return Pflanz and Sheldon A. H r block 2011 return Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. H r block 2011 return Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). H r block 2011 return For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). H r block 2011 return Prev  Up  Next   Home   More Internal Revenue Bulletins
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Page Last Reviewed or Updated: 31-Mar-2014

The H R Block 2011 Return

H r block 2011 return Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. H r block 2011 return More information. H r block 2011 return Exception—Community Income. H r block 2011 return Exception—Qualified joint venture. H r block 2011 return More information. H r block 2011 return More information. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return Table 1 can help you learn what those responsibilities are. H r block 2011 return Ask yourself each question listed in the table, then see the related discussion to find the answer. H r block 2011 return In addition to knowing about federal taxes, you need to make some basic business decisions. H r block 2011 return 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. H r block 2011 return For information on how to contact the SBA, see How to Get More Information, later. H r block 2011 return Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. H r block 2011 return When beginning a business, you must decide which form of business to use. H r block 2011 return Legal and tax considerations enter into this decision. H r block 2011 return Only tax considerations are discussed in this publication. H r block 2011 return Your form of business determines which income tax return form you have to file. H r block 2011 return See Table 2 to find out which form you have to file. H r block 2011 return Sole proprietorships. H r block 2011 return   A sole proprietorship is an unincorporated business that is owned by one individual. H r block 2011 return It is the simplest form of business organization to start and maintain. H r block 2011 return The business has no existence apart from you, the owner. H r block 2011 return Its liabilities are your personal liabilities. H r block 2011 return You undertake the risks of the business for all assets owned, whether or not used in the business. H r block 2011 return You include the income and expenses of the business on your personal tax return. H r block 2011 return More information. H r block 2011 return   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. H r block 2011 return If you are a farmer, see Publication 225, Farmer's Tax Guide. H r block 2011 return Partnerships. H r block 2011 return   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. H r block 2011 return Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. H r block 2011 return   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. H r block 2011 return , from its operations, but it does not pay income tax. H r block 2011 return Instead, it “passes through” any profits or losses to its partners. H r block 2011 return Each partner includes his or her share of the partnership's items on his or her tax return. H r block 2011 return More information. H r block 2011 return   For more information on partnerships, see Publication 541, Partnerships. H r block 2011 return Husband and wife business. H r block 2011 return   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. H r block 2011 return Do not use Schedule C or C-EZ. H r block 2011 return Instead, file Form 1065, U. H r block 2011 return S. H r block 2011 return Return of Partnership Income. H r block 2011 return For more information, see Publication 541, Partnerships. H r block 2011 return Exception—Community Income. H r block 2011 return   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. H r block 2011 return S. H r block 2011 return possession, you can treat the business either as a sole proprietorship or a partnership. H r block 2011 return The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. H r block 2011 return A change in your reporting position will be treated as a conversion of the entity. H r block 2011 return Exception—Qualified joint venture. H r block 2011 return   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. H r block 2011 return 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. H r block 2011 return For an explanation of "material participation," see the Instructions for Schedule C, line G. H r block 2011 return   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. H r block 2011 return Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. H r block 2011 return For more information, see Qualified Joint Venture in the Instructions for Schedule SE. H r block 2011 return Corporations. H r block 2011 return   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. H r block 2011 return A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. H r block 2011 return A corporation can also take special deductions. H r block 2011 return   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. H r block 2011 return However, shareholders cannot deduct any loss of the corporation. H r block 2011 return More information. H r block 2011 return   For more information on corporations, see Publication 542, Corporations. H r block 2011 return S corporations. H r block 2011 return   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. H r block 2011 return Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. H r block 2011 return 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. H r block 2011 return More information. H r block 2011 return   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. H r block 2011 return S. H r block 2011 return Income Tax Return for an S Corporation. H r block 2011 return Limited liability company. H r block 2011 return   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. H r block 2011 return The members of an LLC are not personally liable for its debts. H r block 2011 return 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. H r block 2011 return 7701-3. H r block 2011 return For more information, see the instructions for Form 8832, Entity Classification Election. H r block 2011 return Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. H r block 2011 return The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). H r block 2011 return An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. H r block 2011 return An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. H r block 2011 return You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. H r block 2011 return You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. H r block 2011 return This includes returns or documents filed to report the following information. H r block 2011 return Interest, dividends, royalties, etc. H r block 2011 return , paid to you. H r block 2011 return Any amount paid to you as a dependent care provider. H r block 2011 return Certain other amounts paid to you that total $600 or more for the year. H r block 2011 return If you do not furnish your identification number as required, you may be subject to penalties. H r block 2011 return See Penalties, later. H r block 2011 return Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. H r block 2011 return 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. H r block 2011 return Applying for an EIN. H r block 2011 return   You may apply for an EIN: Online—Click on the EIN link at www. H r block 2011 return irs. H r block 2011 return gov/businesses/small. H r block 2011 return The EIN is issued immediately once the application information is validated. H r block 2011 return By telephone at 1-800-829-4933. H r block 2011 return By mailing or faxing Form SS-4, Application for Employer Identification Number. H r block 2011 return When to apply. H r block 2011 return   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. H r block 2011 return If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. H r block 2011 return If you apply by telephone or through the IRS website, you can get an EIN immediately. H r block 2011 return If you apply by fax, you can get an EIN within 4 business days. H r block 2011 return   If you do not receive your EIN by the time a return is due, file your return anyway. H r block 2011 return Write “Applied for” and the date you applied for the number in the space for the EIN. H r block 2011 return Do not use your social security number as a substitute for an EIN on your tax returns. H r block 2011 return More than one EIN. H r block 2011 return   You should have only one EIN. H r block 2011 return 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. H r block 2011 return Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. H r block 2011 return The IRS will tell you which number to use. H r block 2011 return More information. H r block 2011 return   For more information about EINs, see Publication 1635, Understanding Your EIN. H r block 2011 return 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). H r block 2011 return The forms used to report these payments must include the payee's identification number. H r block 2011 return Employee. H r block 2011 return   If you have employees, you must get an SSN from each of them. H r block 2011 return Record the name and SSN of each employee exactly as they are shown on the employee's social security card. H r block 2011 return If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. H r block 2011 return This may occur, for example, if the employee's name has changed due to marriage or divorce. H r block 2011 return   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. H r block 2011 return This form is available at SSA offices or by calling 1-800-772-1213. H r block 2011 return It is also available from the SSA website at www. H r block 2011 return ssa. H r block 2011 return gov. H r block 2011 return Other payee. H r block 2011 return   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. H r block 2011 return If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. H r block 2011 return   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. H r block 2011 return This form is available from IRS offices or by calling 1-800-829-3676. H r block 2011 return It is also available from the IRS website at IRS. H r block 2011 return gov. H r block 2011 return    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. H r block 2011 return For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. H r block 2011 return Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. H r block 2011 return A tax year is usually 12 consecutive months. H r block 2011 return There are two kinds of tax years. H r block 2011 return Calendar tax year. H r block 2011 return A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. H r block 2011 return Fiscal tax year. H r block 2011 return A fiscal tax year is 12 consecutive months ending on the last day of any month except December. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return You must use a calendar tax year if: You keep no books. H r block 2011 return You have no annual accounting period. H r block 2011 return Your present tax year does not qualify as a fiscal year. H r block 2011 return You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. H r block 2011 return For more information, see Publication 538, Accounting Periods and Methods. H r block 2011 return First-time filer. H r block 2011 return   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. H r block 2011 return You adopt a tax year by filing your first income tax return using that tax year. H r block 2011 return You have not adopted a tax year if you merely did any of the following. H r block 2011 return Filed an application for an extension of time to file an income tax return. H r block 2011 return Filed an application for an employer identification number. H r block 2011 return Paid estimated taxes for that tax year. H r block 2011 return Changing your tax year. H r block 2011 return   Once you have adopted your tax year, you may have to get IRS approval to change it. H r block 2011 return To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. H r block 2011 return You may have to pay a fee. H r block 2011 return For more information, see Publication 538. H r block 2011 return Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. H r block 2011 return You choose an accounting method for your business when you file your first income tax return. H r block 2011 return There are two basic accounting methods. H r block 2011 return Cash method. H r block 2011 return Under the cash method, you report income in the tax year you receive it. H r block 2011 return You usually deduct or capitalize expenses in the tax year you pay them. H r block 2011 return Accrual method. H r block 2011 return 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. H r block 2011 return You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. H r block 2011 return For other methods, see Publication 538. H r block 2011 return If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. H r block 2011 return Inventories include goods held for sale in the normal course of business. H r block 2011 return They also include raw materials and supplies that will physically become a part of merchandise intended for sale. H r block 2011 return Inventories are explained in Publication 538. H r block 2011 return 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. H r block 2011 return For more information, see Publication 538. H r block 2011 return You must use the same accounting method to figure your taxable income and to keep your books. H r block 2011 return Also, you must use an accounting method that clearly shows your income. H r block 2011 return In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. H r block 2011 return An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. H r block 2011 return More than one business. H r block 2011 return   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. H r block 2011 return You must keep a complete and separate set of books and records for each business. H r block 2011 return Changing your method of accounting. H r block 2011 return   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. H r block 2011 return 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. H r block 2011 return For examples of changes that require approval and information on how to get approval for the change, see Publication 538. H r block 2011 return Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. H r block 2011 return The following are the four general kinds of business taxes. H r block 2011 return Income tax. H r block 2011 return Self-employment tax. H r block 2011 return Employment taxes. H r block 2011 return Excise taxes. H r block 2011 return See Table 2 for the forms you file to report these taxes. H r block 2011 return You may want to get Publication 509. H r block 2011 return It has tax calendars that tell you when to file returns and make tax payments. H r block 2011 return Income Tax All businesses except partnerships must file an annual income tax return. H r block 2011 return Partnerships file an information return. H r block 2011 return Which form you use depends on how your business is organized. H r block 2011 return See Table 2 to find out which return you have to file. H r block 2011 return The federal income tax is a pay-as-you-go tax. H r block 2011 return You must pay the tax as you earn or receive income during the year. H r block 2011 return An employee usually has income tax withheld from his or her pay. H r block 2011 return If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. H r block 2011 return If you are not required to make estimated tax payments, you may pay any tax due when you file your return. H r block 2011 return Table 2. H r block 2011 return Which Forms Must I File? IF you are a. H r block 2011 return . H r block 2011 return . H r block 2011 return   THEN you may be liable for. H r block 2011 return . H r block 2011 return . H r block 2011 return   Use Form. H r block 2011 return . H r block 2011 return . H r block 2011 return 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. H r block 2011 return 2 Various other schedules may be needed. H r block 2011 return Estimated tax. H r block 2011 return   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. H r block 2011 return Sole proprietors, partners, and S corporation shareholders. H r block 2011 return   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. H r block 2011 return Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. H r block 2011 return For more information, see Publication 505, Tax Withholding and Estimated Tax. H r block 2011 return Corporations. H r block 2011 return   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. H r block 2011 return Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. H r block 2011 return You must deposit the payments as explained later under Depositing Taxes. H r block 2011 return For more information, see Publication 542. H r block 2011 return Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. H r block 2011 return Your payments of SE tax contribute to your coverage under the social security system. H r block 2011 return Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. H r block 2011 return You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. H r block 2011 return Your net earnings from self-employment were $400 or more. H r block 2011 return You had church employee income of $108. H r block 2011 return 28 or more. H r block 2011 return Use Schedule SE (Form 1040) to figure your SE tax. H r block 2011 return For more information, see Publication 334, Tax Guide for Small Business. H r block 2011 return You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. H r block 2011 return The Social Security Administration (SSA) time limit for posting self-employment income. H r block 2011 return   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. H r block 2011 return 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. H r block 2011 return The SSA will not change its records to increase your self-employment income. H r block 2011 return 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. H r block 2011 return Employment taxes include the following. H r block 2011 return Social security and Medicare taxes. H r block 2011 return Federal income tax withholding. H r block 2011 return Federal unemployment (FUTA) tax. H r block 2011 return If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. H r block 2011 return If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. H r block 2011 return These publications explain your tax responsibilities as an employer. H r block 2011 return If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. H r block 2011 return That publication has information to help you determine whether an individual is an employee or an independent contractor. H r block 2011 return If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. H r block 2011 return An independent contractor is someone who is self-employed. H r block 2011 return Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. H r block 2011 return Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. H r block 2011 return 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. H r block 2011 return Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). H r block 2011 return Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. H r block 2011 return Medicare tax pays for benefits under the hospital insurance part of FICA. H r block 2011 return You withhold part of these taxes from your employee's wages and you pay a part yourself. H r block 2011 return To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. H r block 2011 return 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. H r block 2011 return (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. H r block 2011 return ) 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. H r block 2011 return You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. H r block 2011 return You pay FUTA tax only from your own funds. H r block 2011 return Employees do not pay this tax or have it withheld from their pay. H r block 2011 return Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. H r block 2011 return See Publication 15 to find out if you can use this form. H r block 2011 return Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. H r block 2011 return Form I-9. H r block 2011 return   You must verify that each new employee is legally eligible to work in the United States. H r block 2011 return Both you and the employee must complete the U. H r block 2011 return S. H r block 2011 return Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. H r block 2011 return You can get the form from USCIS offices or from the USCIS website at www. H r block 2011 return uscis. H r block 2011 return gov. H r block 2011 return Call the USCIS at 1-800-375-5283 for more information about your responsibilities. H r block 2011 return Form W-4. H r block 2011 return   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. H r block 2011 return 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. H r block 2011 return For more information, see Publication 15. H r block 2011 return Employees claiming more than 10 withholding allowances. H r block 2011 return   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. H r block 2011 return See section 16 of Publication 15. H r block 2011 return 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. H r block 2011 return You must also send copies to the Social Security Administration. H r block 2011 return See Information Returns, later, for more information on Form W-2. H r block 2011 return 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. H r block 2011 return Manufacture or sell certain products. H r block 2011 return Operate certain kinds of businesses. H r block 2011 return Use various kinds of equipment, facilities, or products. H r block 2011 return Receive payment for certain services. H r block 2011 return For more information on excise taxes, see Publication 510, Excise Taxes. H r block 2011 return Form 720. H r block 2011 return   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. H r block 2011 return Environmental taxes. H r block 2011 return Communications and air transportation taxes. H r block 2011 return Fuel taxes. H r block 2011 return Tax on the first retail sale of heavy trucks, trailers, and tractors. H r block 2011 return Manufacturers taxes on the sale or use of a variety of different articles. H r block 2011 return Form 2290. H r block 2011 return   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. H r block 2011 return The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. H r block 2011 return Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. H r block 2011 return For more information, see the instructions for Form 2290. H r block 2011 return Form 730. H r block 2011 return   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. H r block 2011 return Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. H r block 2011 return Form 11-C. H r block 2011 return   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. H r block 2011 return Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. H r block 2011 return Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). H r block 2011 return Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. H r block 2011 return Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. H r block 2011 return Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. H r block 2011 return 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. H r block 2011 return You must give a copy of each information return you are required to file to the recipient or payer. H r block 2011 return In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. H r block 2011 return For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. H r block 2011 return Form 1099-MISC. H r block 2011 return   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. H r block 2011 return These payments include the following items. H r block 2011 return 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. H r block 2011 return Rent payments of $600 or more, other than rents paid to real estate agents. H r block 2011 return Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. H r block 2011 return Royalty payments of $10 or more. H r block 2011 return Payments to certain crew members by operators of fishing boats. H r block 2011 return 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. H r block 2011 return Form W-2. H r block 2011 return   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. H r block 2011 return For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. H r block 2011 return Form 8300. H r block 2011 return   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. H r block 2011 return Cash includes U. H r block 2011 return S. H r block 2011 return and foreign coin and currency. H r block 2011 return It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. H r block 2011 return For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). H r block 2011 return Penalties The law provides penalties for not filing returns or paying taxes as required. H r block 2011 return Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. H r block 2011 return Failure to file tax returns. H r block 2011 return   If you do not file your tax return by the due date, you may have to pay a penalty. H r block 2011 return The penalty is based on the tax not paid by the due date. H r block 2011 return See your tax return instructions for more information about this penalty. H r block 2011 return Failure to pay tax. H r block 2011 return   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. H r block 2011 return For more information, see your tax return instructions. H r block 2011 return Failure to withhold, deposit, or pay taxes. H r block 2011 return   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. H r block 2011 return You may also be subject to penalties if you deposit the taxes late. H r block 2011 return For more information, see Publication 15. H r block 2011 return Failure to follow information reporting requirements. H r block 2011 return   The following penalties apply if you are required to file information returns. H r block 2011 return For more information, see the General Instructions for Certain Information Returns. H r block 2011 return Failure to file information returns. H r block 2011 return 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. H r block 2011 return Failure to furnish correct payee statements. H r block 2011 return 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. H r block 2011 return Waiver of penalty. H r block 2011 return   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. H r block 2011 return   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. H r block 2011 return (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. H r block 2011 return ) Failure to supply taxpayer identification number. H r block 2011 return   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. H r block 2011 return 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. H r block 2011 return Business Expenses You can deduct business expenses on your income tax return. H r block 2011 return These are the current operating costs of running your business. H r block 2011 return To be deductible, a business expense must be both ordinary and necessary. H r block 2011 return An ordinary expense is one that is common and accepted in your field of business, trade, or profession. H r block 2011 return A necessary expense is one that is helpful and appropriate for your business, trade, or profession. H r block 2011 return An expense does not have to be indispensable to be considered necessary. H r block 2011 return The following are brief explanations of some expenses that are of interest to people starting a business. H r block 2011 return There are many other expenses that you may be able to deduct. H r block 2011 return See your form instructions and Publication 535, Business Expenses. H r block 2011 return Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. H r block 2011 return Your business start-up costs will depend on the type of business you are starting. H r block 2011 return They may include costs for advertising, travel, surveys, and training. H r block 2011 return These costs are generally capital expenses. H r block 2011 return You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). H r block 2011 return 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. H r block 2011 return The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. H r block 2011 return Any remaining cost must be amortized. H r block 2011 return For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. H r block 2011 return 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. H r block 2011 return You must spread the cost over more than one tax year and deduct part of it each year. H r block 2011 return This method of deducting the cost of business property is called depreciation. H r block 2011 return Business property you must depreciate includes the following items. H r block 2011 return Office furniture. H r block 2011 return Buildings. H r block 2011 return Machinery and equipment. H r block 2011 return You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. H r block 2011 return This deduction is known as the “section 179 deduction. H r block 2011 return ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. H r block 2011 return Depreciation must be taken in the year it is allowable. H r block 2011 return Allowable depreciation not taken in a prior year cannot be taken in the current year. H r block 2011 return If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. H r block 2011 return S. H r block 2011 return Individual Income Tax Return, or by changing your accounting method. H r block 2011 return For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. H r block 2011 return Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. H r block 2011 return Even then, your deduction may be limited. H r block 2011 return To qualify to claim expenses for business use of your home, you must meet both the following tests. H r block 2011 return 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. H r block 2011 return Exclusive use. H r block 2011 return   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. H r block 2011 return The area used for business can be a room or other separately identifiable space. H r block 2011 return The space does not need to be marked off by a permanent partition. H r block 2011 return   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. H r block 2011 return Exceptions to exclusive use. H r block 2011 return   You do not have to meet the exclusive use test if either of the following applies. H r block 2011 return You use part of your home for the storage of inventory or product samples. H r block 2011 return You use part of your home as a daycare facility. H r block 2011 return For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). H r block 2011 return Principal place of business. H r block 2011 return   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. H r block 2011 return You use it exclusively and regularly for administrative or management activities of your trade or business. H r block 2011 return You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. H r block 2011 return   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. H r block 2011 return The relative importance of the activities performed at each location. H r block 2011 return If the relative importance factor does not determine your principal place of business, the time spent at each location. H r block 2011 return    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. H r block 2011 return However, for other ways to qualify to deduct home office expenses, see Publication 587. H r block 2011 return 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. H r block 2011 return If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. H r block 2011 return More information. H r block 2011 return   For more information about business use of your home, see Publication 587. H r block 2011 return Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. H r block 2011 return You generally can deduct either your actual expenses or the standard mileage rate. H r block 2011 return Actual expenses. H r block 2011 return   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. H r block 2011 return You can divide your expenses based on the miles driven for each purpose. H r block 2011 return Example. H r block 2011 return You are the sole proprietor of a flower shop. H r block 2011 return You drove your van 20,000 miles during the year. H r block 2011 return 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. H r block 2011 return You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. H r block 2011 return Standard mileage rate. H r block 2011 return   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. H r block 2011 return You can use the standard mileage rate for a vehicle you own or lease. H r block 2011 return The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. H r block 2011 return It is announced annually by the IRS. H r block 2011 return To figure your deduction, multiply your business miles by the standard mileage rate for the year. H r block 2011 return    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. H r block 2011 return However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. H r block 2011 return Choosing the standard mileage rate. H r block 2011 return   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. H r block 2011 return In later years, you can choose to use either the standard mileage rate or actual expenses. H r block 2011 return   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). H r block 2011 return Additional information. H r block 2011 return   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. H r block 2011 return Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. H r block 2011 return It also explains how long you must keep your records for federal tax purposes. H r block 2011 return A sample recordkeeping system is illustrated at the end of this part. H r block 2011 return Why Keep Records? Everyone in business must keep records. H r block 2011 return Good records will help you do the following. H r block 2011 return Monitor the progress of your business. H r block 2011 return   You need good records to monitor the progress of your business. H r block 2011 return Records can show whether your business is improving, which items are selling, or what changes you need to make. H r block 2011 return Good records can increase the likelihood of business success. H r block 2011 return Prepare your financial statements. H r block 2011 return   You need good records to prepare accurate financial statements. H r block 2011 return These include income (profit and loss) statements and balance sheets. H r block 2011 return These statements can help you in dealing with your bank or creditors and help you manage your business. H r block 2011 return An income statement shows the income and expenses of the business for a given period of time. H r block 2011 return A balance sheet shows the assets, liabilities, and your equity in the business on a given date. H r block 2011 return Identify source of receipts. H r block 2011 return   You will receive money or property from many sources. H r block 2011 return Your records can identify the source of your receipts. H r block 2011 return You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. H r block 2011 return Keep track of deductible expenses. H r block 2011 return   You may forget expenses when you prepare your tax return unless you record them when they occur. H r block 2011 return Prepare your tax returns. H r block 2011 return   You need good records to prepare your tax returns. H r block 2011 return These records must support the income, expenses, and credits you report. H r block 2011 return Generally, these are the same records you use to monitor your business and prepare your financial statements. H r block 2011 return Support items reported on tax returns. H r block 2011 return   You must keep your business records available at all times for inspection by the IRS. H r block 2011 return If the IRS examines any of your tax returns, you may be asked to explain the items reported. H r block 2011 return A complete set of records will speed up the examination. H r block 2011 return Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. H r block 2011 return You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. H r block 2011 return The business you are in affects the type of records you need to keep for federal tax purposes. H r block 2011 return You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. H r block 2011 return See Accounting Method, earlier. H r block 2011 return If you are in more than one business, you should keep a complete and separate set of records for each business. H r block 2011 return A corporation should keep minutes of board of directors' meetings. H r block 2011 return Your recordkeeping system should include a summary of your business transactions. H r block 2011 return This summary is ordinarily made in your books (for example, accounting journals and ledgers). H r block 2011 return Your books must show your gross income, as well as your deductions and credits. H r block 2011 return For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. H r block 2011 return In addition, you must keep supporting documents, explained later. H r block 2011 return Electronic records. H r block 2011 return   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. H r block 2011 return All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. H r block 2011 return Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. H r block 2011 return   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. H r block 2011 return You still have the responsibility of retaining any other books and records that are required to be retained. H r block 2011 return   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. H r block 2011 return This test is not considered an examination and the results must be shared with you. H r block 2011 return If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. H r block 2011 return 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. H r block 2011 return For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. H r block 2011 return Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. H r block 2011 return Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. H r block 2011 return These documents contain information you need to record in your books. H r block 2011 return It is important to keep these documents because they support the entries in your books and on your tax return. H r block 2011 return Keep them in an orderly fashion and in a safe place. H r block 2011 return For instance, organize them by year and type of income or expense. H r block 2011 return Gross receipts. H r block 2011 return   Gross receipts are the income you receive from your business. H r block 2011 return You should keep supporting documents that show the amounts and sources of your gross receipts. H r block 2011 return Documents that show gross receipts include the following. H r block 2011 return Cash register tapes. H r block 2011 return Bank deposit slips. H r block 2011 return Receipt books. H r block 2011 return Invoices. H r block 2011 return Credit card charge slips. H r block 2011 return Forms 1099-MISC. H r block 2011 return Purchases. H r block 2011 return   Purchases are the items you buy and resell to customers. H r block 2011 return If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. H r block 2011 return Your supporting documents should show the amount paid and that the amount was for purchases. H r block 2011 return Documents for purchases include the following. H r block 2011 return Canceled checks. H r block 2011 return Cash register tape receipts. H r block 2011 return Credit card sales slips. H r block 2011 return Invoices. H r block 2011 return These records will help you determine the value of your inventory at the end of the year. H r block 2011 return See Publication 538 for information on methods for valuing inventory. H r block 2011 return Expenses. H r block 2011 return   Expenses are the costs you incur (other than purchases) to carry on your business. H r block 2011 return Your supporting documents should show the amount paid and that the amount was for a business expense. H r block 2011 return Documents for expenses include the following. H r block 2011 return Canceled checks. H r block 2011 return Cash register tapes. H r block 2011 return Account statements. H r block 2011 return Credit card sales slips. H r block 2011 return Invoices. H r block 2011 return Petty cash slips for small cash payments. H r block 2011 return    A petty cash fund allows you to make small payments without having to write checks for small amounts. H r block 2011 return 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. H r block 2011 return Travel, transportation, entertainment, and gift expenses. H r block 2011 return   Specific recordkeeping rules apply to these expenses. H r block 2011 return For more information, see Publication 463. H r block 2011 return Employment taxes. H r block 2011 return   There are specific employment tax records you must keep. H r block 2011 return For a list, see Publication 15. H r block 2011 return Assets. H r block 2011 return   Assets are the property, such as machinery and furniture you own and use in your business. H r block 2011 return You must keep records to verify certain information about your business assets. H r block 2011 return You need records to figure the annual depreciation and the gain or loss when you sell the assets. H r block 2011 return Your records should show the following information. H r block 2011 return When and how you acquired the asset. H r block 2011 return Purchase price. H r block 2011 return Cost of any improvements. H r block 2011 return Section 179 deduction taken. H r block 2011 return Deductions taken for depreciation. H r block 2011 return Deductions taken for casualty losses, such as losses resulting from fires or storms. H r block 2011 return How you used the asset. H r block 2011 return When and how you disposed of the asset. H r block 2011 return Selling price. H r block 2011 return Expenses of sale. H r block 2011 return   The following documents may show this information. H r block 2011 return Purchase and sales invoices. H r block 2011 return Real estate closing statements. H r block 2011 return Canceled checks. H r block 2011 return 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. H r block 2011 return These include account statements prepared for the financial institution by a third party. H r block 2011 return These account statements must be highly legible. H r block 2011 return The following table lists acceptable account statements. H r block 2011 return  IF payment is by. H r block 2011 return . H r block 2011 return . H r block 2011 return THEN the statement must show the. H r block 2011 return . H r block 2011 return . H r block 2011 return Check Check number. H r block 2011 return Amount. H r block 2011 return Payee's name. H r block 2011 return Date the check amount was posted to the account by the financial institution. H r block 2011 return Electronic funds transfer Amount transferred. H r block 2011 return Payee's name. H r block 2011 return Date the transfer was posted to the account by the financial institution. H r block 2011 return Credit card Amount charged. H r block 2011 return Payee's name. H r block 2011 return Transaction date. H r block 2011 return    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. H r block 2011 return You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. H r block 2011 return Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. H r block 2011 return (Your business transactions are shown on the supporting documents just discussed. H r block 2011 return ) Business transactions are ordinarily summarized in books called journals and ledgers. H r block 2011 return You can buy them at your local stationery or office supply store. H r block 2011 return A journal is a book where you record each business transaction shown on your supporting documents. H r block 2011 return You may have to keep separate journals for transactions that occur frequently. H r block 2011 return A ledger is a book that contains the totals from all of your journals. H r block 2011 return It is organized into different accounts. H r block 2011 return Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. H r block 2011 return For example, a recordkeeping system for a small business might include the following items. H r block 2011 return Business checkbook. H r block 2011 return Daily summary of cash receipts. H r block 2011 return Monthly summary of cash receipts. H r block 2011 return Check disbursements journal. H r block 2011 return Depreciation worksheet. H r block 2011 return Employee compensation record. H r block 2011 return The business checkbook is explained next. H r block 2011 return The other items are illustrated later under Sample Record System. H r block 2011 return The system you use to record business transactions will be more effective if you follow good recordkeeping practices. H r block 2011 return For example, record expenses when they occur, and identify the source of recorded receipts. H r block 2011 return Generally, it is best to record transactions on a daily basis. H r block 2011 return Business checkbook. H r block 2011 return   One of the first things you should do when you start a business is open a business checking account. H r block 2011 return You should keep your business account separate from your personal checking account. H r block 2011 return   The business checkbook is your basic source of information for recording your business expenses. H r block 2011 return You should deposit all daily receipts in your business checking account. H r block 2011 return You should check your account for errors by reconciling it. H r block 2011 return See Reconciling the checking account, later. H r block 2011 return   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. H r block 2011 return You should also note on the deposit slip the source of the deposit and keep copies of all slips. H r block 2011 return   You should make all payments by check to document business expenses. H r block 2011 return Write checks payable to yourself only when making withdrawals from your business for personal use. H r block 2011 return Avoid writing checks payable to cash. H r block 2011 return If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. H r block 2011 return If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. H r block 2011 return    Use the business account for business purposes only. H r block 2011 return Indicate the source of deposits and the type of expense in the checkbook. H r block 2011 return Reconciling the checking account. H r block 2011 return   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. H r block 2011 return 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. H r block 2011 return   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. H r block 2011 return    You should reconcile your checking account each month. H r block 2011 return     Before you reconcile your monthly bank statement, check your own figures. H r block 2011 return Begin with the balance shown in your checkbook at the end of the previous month. H r block 2011 return To this balance, add the total cash deposited during the month and subtract the total cash disbursements. H r block 2011 return   After checking your figures, the result should agree with your checkbook balance at the end of the month. H r block 2011 return If the result does not agree, you may have made an error in recording a check or deposit. H r block 2011 return You can find the error by doing the following. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return Adding the deposit amounts in your checkbook. H r block 2011 return Compare that total with the monthly total in your cash receipt book, if you have one. H r block 2011 return If the totals do not agree, check the individual amounts to find any errors. H r block 2011 return   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. H r block 2011 return   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. H r block 2011 return Many banks print a reconciliation worksheet on the back of the statement. H r block 2011 return   To reconcile your account, follow these steps. H r block 2011 return Compare the deposits listed on the bank statement with the deposits shown in your checkbook. H r block 2011 return Note all differences in the dollar amounts. H r block 2011 return Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. H r block 2011 return Note all differences in the dollar amounts. H r block 2011 return Mark the check number in the checkbook as having cleared the bank. H r block 2011 return After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. H r block 2011 return Prepare a bank reconciliation. H r block 2011 return One is illustrated later under Sample Record System. H r block 2011 return Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. H r block 2011 return At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. H r block 2011 return If you still have differences, check the previous steps to find the errors. H r block 2011 return   Table 3. H r block 2011 return Period of Limitations IF you. H r block 2011 return . H r block 2011 return . H r block 2011 return   THEN the period is. H r block 2011 return . H r block 2011 return . H r block 2011 return 1. H r block 2011 return Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. H r block 2011 return 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. H r block 2011 return File a fraudulent return   Not limited 4. H r block 2011 return Do not file a return   Not limited 5. H r block 2011 return File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. H r block 2011 return 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. H r block 2011 return The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. H r block 2011 return You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. H r block 2011 return Single-entry. H r block 2011 return   A single-entry system is based on the income statement (profit or loss statement). H r block 2011 return It can be a simple and practical system if you are starting a small business. H r block 2011 return 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. H r block 2011 return Double-entry. H r block 2011 return   A double-entry bookkeeping system uses journals and ledgers. H r block 2011 return Transactions are first entered in a journal and then posted to ledger accounts. H r block 2011 return These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). H r block 2011 return You close income and expense accounts at the end of each tax year. H r block 2011 return You keep asset, liability, and net worth accounts open on a permanent basis. H r block 2011 return   In the double-entry system, each account has a left side for debits and a right side for credits. H r block 2011 return It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. H r block 2011 return   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. H r block 2011 return If the amounts do not balance, you have made an error and you must find and correct it. H r block 2011 return   An example of a journal entry exhibiting a payment of rent in October is shown next. H r block 2011 return General Journal Date Description of Entry Debit  Credit Oct. H r block 2011 return 5 Rent expense 780. H r block 2011 return 00     Cash   780. H r block 2011 return 00                 Computerized System There are computer software packages you can use for recordkeeping. H r block 2011 return They can be purchased in many retail stores. H r block 2011 return These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. H r block 2011 return 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. H r block 2011 return To meet this qualification, the machine-sensible records must reconcile with your books and return. H r block 2011 return These records must provide enough detail to identify the underlying source documents. H r block 2011 return You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. H r block 2011 return This documentation must be sufficiently detailed to show all of the following items. H r block 2011 return Functions being performed as the data flows through the system. H r block 2011 return Controls used to ensure accurate and reliable processing. H r block 2011 return Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. H r block 2011 return Charts of accounts and detailed account descriptions. H r block 2011 return See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return 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. H r block 2011 return Table 3 contains the periods of limitations that apply to income tax returns. H r block 2011 return Unless otherwise stated, the years refer to the period after the return was filed. H r block 2011 return Returns filed before the due date are treated as filed on the due date. H r block 2011 return Keep copies of your filed tax returns. H r block 2011 return They help in preparing future tax returns and making computations if you file an amended return. H r block 2011 return Employment taxes. H r block 2011 return   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. H r block 2011 return For more information about recordkeeping for employment taxes, see Publication 15. H r block 2011 return Assets. H r block 2011 return   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. H r block 2011 return 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. H r block 2011 return   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. H r block 2011 return 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. H r block 2011 return Records for nontax purposes. H r block 2011 return   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. H r block 2011 return For example, your insurance company or creditors may require you to keep them longer than the IRS does. H r block 2011 return 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. H r block 2011 return Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. H r block 2011 return These sample records should not be viewed as a recommendation of how to keep your records. H r block 2011 return They are intended only to show how one business keeps its records. H r block 2011 return 1. H r block 2011 return Daily Summary of Cash Receipts This summary is a record of cash sales for the day. H r block 2011 return 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. H r block 2011 return Henry takes the cash sales entry from his cash register tape. H r block 2011 return If he had no cash register, he would simply total his cash sale slips and any other cash received that day. H r block 2011 return He carries the total receipts shown in this summary for January 3 ($267. H r block 2011 return 80), including cash sales ($263. H r block 2011 return 60) and sales tax ($4. H r block 2011 return 20), to the Monthly Summary of Cash Receipts. H r block 2011 return Petty cash fund. H r block 2011 return   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. H r block 2011 return 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. H r block 2011 return He sets up a fixed amount ($50) in his petty cash fund. H r block 2011 return The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. H r block 2011 return 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. H r block 2011 return (See the Check Disbursements Journal entry for check number 92. H r block 2011 return ) This restores the fund to its fixed amount of $50. H r block 2011 return He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. H r block 2011 return 2. H r block 2011 return Monthly Summary of Cash Receipts This shows the income activity for the month. H r block 2011 return Henry carries the total monthly net sales shown in this summary for January ($4,865. H r block 2011 return 05) to his Annual Summary. H r block 2011 return 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. H r block 2011 return He cannot take a deduction for sales tax turned over to the state because he only collected the tax. H r block 2011 return He does not include the tax in his income. H r block 2011 return 3. H r block 2011 return Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. H r block 2011 return All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. H r block 2011 return Frequent expenses have their own headings across the sheet. H r block 2011 return He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. H r block 2011 return Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. H r block 2011 return Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. H r block 2011 return If he did, he would record them in the journal, even though he could not deduct them as business expenses. H r block 2011 return Henry carries the January total of expenses for materials ($1,083. H r block 2011 return 50) to the Annual Summary. H r block 2011 return Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. H r block 2011 return , in the appropriate columns of that summary. H r block 2011 return 4. H r block 2011 return Employee Compensation Record This record shows the following information. H r block 2011 return The number of hours Henry's employee worked in a pay period. H r block 2011 return The employee's total pay for the period. H r block 2011 return The deductions Henry withheld in figuring the employee's net pay. H r block 2011 return The monthly gross payroll. H r block 2011 return Henry carries the January gross payroll ($520) to the Annual Summary. H r block 2011 return 5. H r block 2011 return Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. H r block 2011 return He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. H r block 2011 return He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. H r block 2011 return As in the journal, he keeps each major expense in a separate column. H r block 2011 return Henry carries the cash receipts total shown in the annual summary ($47,440. H r block 2011 return 9