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H&r Block Free For Military

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

H&r block free for military 33. H&r block free for military   Credit for the Elderly or the Disabled Table of Contents Introduction Useful Items - You may want to see: Are You Eligible for the Credit?Qualified Individual Income Limits How to Claim the CreditCredit Figured for You Credit Figured by You Introduction If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled which is figured on Schedule R (Form 1040A or 1040). H&r block free for military This chapter explains the following. H&r block free for military Who qualifies for the credit for the elderly or the disabled. H&r block free for military How to claim the credit. H&r block free for military You may be able to take the credit for the elderly or the disabled if: You are age 65 or older at the end of 2013, or You retired on permanent and total disability and have taxable disability income. H&r block free for military Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 554 Tax Guide for Seniors Form (and Instruction) Schedule R (Form 1040A or 1040) Credit for the Elderly or the Disabled Are You Eligible for the Credit? You can take the credit for the elderly or the disabled if you meet both of the following requirements. H&r block free for military You are a qualified individual. H&r block free for military Your income is not more than certain limits. H&r block free for military You can use Figure 33-A and Table 33-1 as guides to see if you are eligible for the credit. H&r block free for military Use Figure 33-A first to see if you are a qualified individual. H&r block free for military If you are, go to Table 33-1 to make sure your income is not too high to take the credit. H&r block free for military You can take the credit only if you file Form 1040 or Form 1040A. H&r block free for military You cannot take the credit if you file Form 1040EZ. H&r block free for military Qualified Individual You are a qualified individual for this credit if you are a U. H&r block free for military S. H&r block free for military citizen or resident alien, and either of the following applies. H&r block free for military You were age 65 or older at the end of 2013. H&r block free for military You were under age 65 at the end of 2013 and all three of the following statements are true. H&r block free for military You retired on permanent and total disability (explained later). H&r block free for military You received taxable disability income for 2013. H&r block free for military On January 1, 2013, you had not reached mandatory retirement age (defined later under Disability income ). H&r block free for military Age 65. H&r block free for military   You are considered to be age 65 on the day before your 65th birthday. H&r block free for military Therefore, if you were born on January 1, 1949, you are considered to be age 65 at the end of 2013. H&r block free for military U. H&r block free for military S. H&r block free for military Citizen or Resident Alien You must be a U. H&r block free for military S. H&r block free for military citizen or resident alien (or be treated as a resident alien) to take the credit. H&r block free for military Generally, you cannot take the credit if you were a nonresident alien at any time during the tax year. H&r block free for military Exceptions. H&r block free for military   You may be able to take the credit if you are a nonresident alien who is married to a U. H&r block free for military S. H&r block free for military citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U. H&r block free for military S. H&r block free for military resident alien. H&r block free for military If you make that choice, both you and your spouse are taxed on your worldwide incomes. H&r block free for military If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U. H&r block free for military S. H&r block free for military citizen or resident alien at the end of the year, you may be able to choose to be treated as a U. H&r block free for military S. H&r block free for military resident alien for the entire year. H&r block free for military In that case, you may be allowed to take the credit. H&r block free for military For information on these choices, see chapter 1 of Publication 519, U. H&r block free for military S. H&r block free for military Tax Guide for Aliens. H&r block free for military Married Persons Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. H&r block free for military However, if you and your spouse did not live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit. H&r block free for military Head of household. H&r block free for military   You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet certain tests. H&r block free for military See Head of Household in chapter 2 for the tests you must meet. H&r block free for military Under Age 65 If you are under age 65 at the end of 2013, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). H&r block free for military You are retired on permanent and total disability if: You were permanently and totally disabled when you retired, and You retired on disability before the close of the tax year. H&r block free for military Even if you do not retire formally, you may be considered retired on disability when you have stopped working because of your disability. H&r block free for military If you retired on disability before 1977, and were not permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977. H&r block free for military Permanent and total disability. H&r block free for military    You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. H&r block free for military A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. H&r block free for military See Physician's statement , later. H&r block free for military Substantial gainful activity. H&r block free for military   Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. H&r block free for military Full-time work (or part-time work done at your employer's convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity. H&r block free for military   Substantial gainful activity is not work you do to take care of yourself or your home. H&r block free for military It is not unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. H&r block free for military However, doing this kind of work may show that you are able to engage in substantial gainful activity. H&r block free for military    The fact that you have not worked for some time is not, of itself, conclusive evidence that you cannot engage in substantial gainful activity. H&r block free for military Sheltered employment. H&r block free for military   Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. H&r block free for military These qualified locations are in sheltered workshops, hospitals, and similar institutions, homebound programs, and Department of Veterans Affairs (VA) sponsored homes. H&r block free for military   Compared to commercial employment, pay is lower for sheltered employment. H&r block free for military Therefore, one usually does not look for sheltered employment if he or she can get other employment. H&r block free for military The fact that one has accepted sheltered employment is not proof of the person's ability to engage in substantial gainful activity. H&r block free for military Physician's statement. H&r block free for military   If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. H&r block free for military You can use the statement in the Instructions for Schedule R. H&r block free for military    Figure 33-A. H&r block free for military Are You a Qualified Individual? This image is too large to be displayed in the current screen. H&r block free for military Please click the link to view the image. H&r block free for military Figure 33-A Are You a Qualified Individual?   You do not have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records. H&r block free for military Veterans. H&r block free for military   If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician's statement you are required to keep. H&r block free for military VA Form 21-0172 must be signed by a person authorized by the VA to do so. H&r block free for military You can get this form from your local VA regional office. H&r block free for military Physician's statement obtained in earlier year. H&r block free for military   If you got a physician's statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2013, you may not need to get another physician's statement for 2013. H&r block free for military For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. H&r block free for military If you meet the required conditions, check the box on your Schedule R, Part II, line 2. H&r block free for military   If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked. H&r block free for military Table 33-1. H&r block free for military Income Limits IF your filing status is . H&r block free for military . H&r block free for military . H&r block free for military THEN, even if you qualify (see Figure 33-A ), you CANNOT take the credit if. H&r block free for military . H&r block free for military . H&r block free for military   Your adjusted gross income (AGI)* is equal to or more than. H&r block free for military . H&r block free for military . H&r block free for military     OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than. H&r block free for military . H&r block free for military . H&r block free for military   single, head of household, or qualifying widow(er) with dependent child   $17,500     $5,000   married filing jointly and only one spouse qualifies in Figure 33-A   $20,000     $5,000   married filing jointly and both spouses qualify in Figure 33-A   $25,000     $7,500   married filing separately and you lived apart from your spouse for all of 2013   $12,500     $3,750   * AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. H&r block free for military Disability income. H&r block free for military   If you are under age 65, you must also have taxable disability income to qualify for the credit. H&r block free for military Disability income must meet both of the following requirements. H&r block free for military It must be paid under your employer's accident or health plan or pension plan. H&r block free for military It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability. H&r block free for military Payments that are not disability income. H&r block free for military   Any payment you receive from a plan that does not provide for disability retirement is not disability income. H&r block free for military Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and is not disability income. H&r block free for military   For purposes of the credit for the elderly or the disabled, disability income does not include amounts you receive after you reach mandatory retirement age. H&r block free for military Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled. H&r block free for military Income Limits To determine if you can claim the credit, you must consider two income limits. H&r block free for military The first limit is the amount of your adjusted gross income (AGI). H&r block free for military The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. H&r block free for military The limits are shown in Table 33-1. H&r block free for military If your AGI and nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. H&r block free for military See How to Claim the Credit , later. H&r block free for military If either your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you cannot take the credit. H&r block free for military How to Claim the Credit You can figure the credit yourself or the Internal Revenue Service will figure it for you. H&r block free for military Credit Figured for You If you choose to have the IRS figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A). H&r block free for military If you want the IRS to figure your tax, see chapter 30. H&r block free for military Form 1040. H&r block free for military   If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30. H&r block free for military Form 1040A. H&r block free for military   If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30. H&r block free for military Credit Figured by You If you choose to figure the credit yourself, fill out the front of Schedule R. H&r block free for military Next, fill out Schedule R, Part III. H&r block free for military If you file Form 1040A, enter the amount from Schedule R, line 22, on Form 1040A, line 30. H&r block free for military If you file Form 1040, include the amount from Schedule R, line 22, on line 53; check box c, and enter “Sch R” on the line next to that box. H&r block free for military For a step-by-step discussion about filling out Part III of Schedule R, see Figuring the Credit Yourself in Publication 524. H&r block free for military Limit on credit. H&r block free for military   The amount of the credit you can claim is generally limited to the amount of your tax. H&r block free for military Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited. H&r block free for military Prev  Up  Next   Home   More Online Publications