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How To File Tax Return

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How To File Tax Return

How to file tax return 7. How to file tax return   Figuring Gross Profit Table of Contents Introduction Items To Check Testing Gross Profit AccuracyExample. How to file tax return Additions to Gross Profit Introduction After you have figured the gross receipts from your business (chapter 5) and the cost of goods sold (chapter 6), you are ready to figure your gross profit. How to file tax return You must determine gross profit before you can deduct any business expenses. How to file tax return These expenses are discussed in chapter 8. How to file tax return If you are filing Schedule C-EZ, your gross profit is your gross receipts plus certain other amounts, explained later under Additions to Gross Profit. How to file tax return Businesses that sell products. How to file tax return   If you are filing Schedule C, figure your gross profit by first figuring your net receipts. How to file tax return Figure net receipts (line 3) on Schedule C by subtracting any returns and allowances (line 2) from gross receipts (line 1). How to file tax return Returns and allowances include cash or credit refunds you make to customers, rebates, and other allowances off the actual sales price. How to file tax return   Next, subtract the cost of goods sold (line 4) from net receipts (line 3). How to file tax return The result is the gross profit from your business. How to file tax return Businesses that sell services. How to file tax return   You do not have to figure the cost of goods sold if the sale of merchandise is not an income-producing factor for your business. How to file tax return Your gross profit is the same as your net receipts (gross receipts minus any refunds, rebates, or other allowances). How to file tax return Most professions and businesses that sell services rather than products can figure gross profit directly from net receipts in this way. How to file tax return Illustration. How to file tax return   This illustration of the gross profit section of the income statement of a retail business shows how gross profit is figured. How to file tax return Income Statement Year Ended December 31, 2013 Gross receipts $400,000 Minus: Returns and allowances 14,940 Net receipts $385,060 Minus: Cost of goods sold 288,140 Gross profit $96,920   The cost of goods sold for this business is figured as follows: Inventory at beginning of year $37,845 Plus: Purchases $285,900   Minus: Items withdrawn for personal use 2,650 283,250 Goods available for sale $321,095 Minus: Inventory at end of year 32,955 Cost of goods sold $288,140 Items To Check Consider the following items before figuring your gross profit. How to file tax return Gross receipts. How to file tax return   At the end of each business day, make sure your records balance with your actual cash and credit receipts for the day. How to file tax return You may find it helpful to use cash registers to keep track of receipts. How to file tax return You should also use a proper invoicing system and keep a separate bank account for your business. How to file tax return Sales tax collected. How to file tax return   Check to make sure your records show the correct sales tax collected. How to file tax return   If you collect state and local sales taxes imposed on you as the seller of goods or services from the buyer, you must include the amount collected in gross receipts. How to file tax return   If you are required to collect state and local taxes imposed on the buyer and turn them over to state or local governments, you generally do not include these amounts in income. How to file tax return Inventory at beginning of year. How to file tax return   Compare this figure with last year's ending inventory. How to file tax return The two amounts should usually be the same. How to file tax return Purchases. How to file tax return   If you take any inventory items for your personal use (use them yourself, provide them to your family, or give them as personal gifts, etc. How to file tax return ) be sure to remove them from the cost of goods sold. How to file tax return For details on how to adjust cost of goods sold, see Merchandise withdrawn from sale in chapter 6. How to file tax return Inventory at end of year. How to file tax return   Check to make sure your procedures for taking inventory are adequate. How to file tax return These procedures should ensure all items have been included in inventory and proper pricing techniques have been used. How to file tax return   Use inventory forms and adding machine tapes as the only evidence for your inventory. How to file tax return Inventory forms are available at office supply stores. How to file tax return These forms have columns for recording the description, quantity, unit price, and value of each inventory item. How to file tax return Each page has space to record who made the physical count, who priced the items, who made the extensions, and who proofread the calculations. How to file tax return These forms will help satisfy you that the total inventory is accurate. How to file tax return They will also provide you with a permanent record to support its validity. How to file tax return   Inventories are discussed in chapter 2. How to file tax return Testing Gross Profit Accuracy If you are in a retail or wholesale business, you can check the accuracy of your gross profit figure. How to file tax return First, divide gross profit by net receipts. How to file tax return The resulting percentage measures the average spread between the merchandise cost of goods sold and the selling price. How to file tax return Next, compare this percentage to your markup policy. How to file tax return Little or no difference between these two percentages shows that your gross profit figure is accurate. How to file tax return A large difference between these percentages may show that you did not accurately figure sales, purchases, inventory, or other items of cost. How to file tax return You should determine the reason for the difference. How to file tax return Example. How to file tax return   Joe Able operates a retail business. How to file tax return On the average, he marks up his merchandise so that he will realize a gross profit of 331/3% on its sales. How to file tax return The net receipts (gross receipts minus returns and allowances) shown on his income statement is $300,000. How to file tax return His cost of goods sold is $200,000. How to file tax return This results in a gross profit of $100,000 ($300,000 − $200,000). How to file tax return To test the accuracy of this year's results, Joe divides gross profit ($100,000) by net receipts ($300,000). How to file tax return The resulting 331/3% confirms his markup percentage of 331/3%. How to file tax return Additions to Gross Profit If your business has income from a source other than its regular business operations, enter the income on line 6 of Schedule C and add it to gross profit. How to file tax return The result is gross business income. How to file tax return If you use Schedule C-EZ, include the income on line 1 of the schedule. How to file tax return Some examples include income from an interest-bearing checking account, income from scrap sales, income from certain fuel tax credits and refunds, and amounts recovered from bad debts. How to file tax return Prev  Up  Next   Home   More Online Publications
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Taxpayer Rights

Whether you file a Form 1040EZ or a complicated corporate return, you will benefit from knowing your rights as a taxpayer and being familiar with the IRS' obligations to protect them. The goal of the Taxpayer Rights Corner is to be your one-stop shop for taxpayer rights information during every step of your interaction with the IRS.


Know Your Rights

You have rights as a taxpayer when dealing with the IRS.


Your Civil Rights Are Protected

Under no circumstances will the Internal Revenue Service tolerate discrimination by its employees, grantees, contractors, and/or subcontractors. NO ONE shall be excluded from participating in, be denied the benefits of, or be subject to discrimination because of: race, color, sex, national origin, disability, reprisal, or age in programs or activities funded by the Department of Treasury - Internal Revenue Service.


Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an IRS program that provides an independent system to assure that tax problems, which have not been resolved through normal channels, are promptly and fairly handled.


Notices

What should you do if you receive a notice from the IRS?


Your Rights to Representation

Learn more about granting power of attorney.

You are entitled to similar protection of confidentiality with respect to tax advice given by a federally authorized tax practitioner as with an attorney.

Every taxpayer is entitled to have access to representation. The Low Income Tax Clinic grant program is designed to help accredited academic institutions and non-profit organizations provide low to no-cost tax assistance (such as representing the taxpayer during an audit or tax collection effort) and/or tax outreach to taxpayers for whom English is a second language. 

  • Frequently Asked Questions

Examination

We accept most taxpayer's returns as filed. If we inquire about your return or select it for examination, it does not suggest that you are dishonest. The inquiry or examination may or may not result in more tax. To learn about your rights during the examination process, and for information about how audits are conducted;


Appeal Rights

It is your right to appeal any action taken by the IRS to change your account.


Collection Process

Learn about the process IRS may follow to collect overdue taxes, including a summary of your rights and other important information about the collection process.


Innocent Spouse

The Reform Act of 1998, broadened the relief from joint liability available to spouses who file joint returns.


Refund Offset

If you are due a refund but have not paid certain amounts you owe, all or part of your refund may be used to pay all or part of the past-due amount. This includes past-due federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments.


Where To Go For 1040 Help?

The IRS sponsors volunteer assistance programs and offers help to taxpayers in many of its offices and other community locations.

Page Last Reviewed or Updated: 14-Mar-2014

The How To File Tax Return

How to file tax return Publication 547 - Additional Material Prev  Up  Next   Home   More Online Publications