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Irs 1040x 2012

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Irs 1040x 2012

Irs 1040x 2012 Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). Irs 1040x 2012 Low Income Taxpayer Clinics (LITCs). Irs 1040x 2012 Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. Irs 1040x 2012 All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Irs 1040x 2012 The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). Irs 1040x 2012 After notice and hearing, the bankruptcy court may extend the period for another 30 days. Irs 1040x 2012 Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. Irs 1040x 2012 Note. Irs 1040x 2012 Individual debtors should use their home address when filing Form 1040 with the IRS. Irs 1040x 2012 Returns should not be filed “in care of” the trustee's address. Irs 1040x 2012 Ordering tax transcripts and copies of returns. Irs 1040x 2012   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Irs 1040x 2012 The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. Irs 1040x 2012 If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Irs 1040x 2012 Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. Irs 1040x 2012 Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Irs 1040x 2012 A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Irs 1040x 2012 To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Irs 1040x 2012 It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. Irs 1040x 2012 00 per tax return for copies of the returns. Irs 1040x 2012 Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. Irs 1040x 2012 If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. Irs 1040x 2012 Tax returns and payment of taxes in chapter 11 cases. Irs 1040x 2012   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. Irs 1040x 2012 Disclosure of debtor's return information to trustee. Irs 1040x 2012   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. Irs 1040x 2012 If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. Irs 1040x 2012    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. Irs 1040x 2012 Material interest is generally defined as a financial or monetary interest. Irs 1040x 2012 Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Irs 1040x 2012   However, the U. Irs 1040x 2012 S. Irs 1040x 2012 Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. Irs 1040x 2012 Disclosure of bankruptcy estate's return information to debtor. Irs 1040x 2012    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. Irs 1040x 2012 Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. Irs 1040x 2012 Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Irs 1040x 2012 Chapter 13 relief is not available to corporations or partnerships. Irs 1040x 2012 The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. Irs 1040x 2012 In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. Irs 1040x 2012 S. Irs 1040x 2012 Individual Income Tax Return. Irs 1040x 2012 On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Irs 1040x 2012 Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Irs 1040x 2012 To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. Irs 1040x 2012 See Debt Cancellation, later. Irs 1040x 2012 Interest on trust accounts in chapter 13 cases. Irs 1040x 2012   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. Irs 1040x 2012 This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Irs 1040x 2012 S. Irs 1040x 2012 Trustee system. Irs 1040x 2012 The interest is also not taxable to the trustee as income. Irs 1040x 2012 Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. Irs 1040x 2012 The bankruptcy estate in a chapter 7 case is represented by a trustee. Irs 1040x 2012 The trustee is appointed to administer the estate and liquidate any nonexempt assets. Irs 1040x 2012 In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Irs 1040x 2012 However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Irs 1040x 2012 During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Irs 1040x 2012 The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Irs 1040x 2012 However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). Irs 1040x 2012 Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. Irs 1040x 2012 Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Irs 1040x 2012 For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Irs 1040x 2012 Debtor's Election To End Tax Year – Form 1040 Short tax years. Irs 1040x 2012   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. Irs 1040x 2012 If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Irs 1040x 2012 The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Irs 1040x 2012   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. Irs 1040x 2012 Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Irs 1040x 2012    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. Irs 1040x 2012 Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. Irs 1040x 2012 Note. Irs 1040x 2012 The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Irs 1040x 2012 Making the Election - Filing Requirements First short tax year. Irs 1040x 2012   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Irs 1040x 2012 The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Irs 1040x 2012 Second short tax year. Irs 1040x 2012   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. Irs 1040x 2012   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. Irs 1040x 2012 To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Irs 1040x 2012 Example. Irs 1040x 2012 Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Irs 1040x 2012 If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. Irs 1040x 2012 Jane's second short year runs from May 8, 2012, through December 31, 2012. Irs 1040x 2012 To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. Irs 1040x 2012 To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Irs 1040x 2012 The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Irs 1040x 2012 S. Irs 1040x 2012 Individual Tax Return. Irs 1040x 2012 The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. Irs 1040x 2012 The debtor must file Form 4868 by the due date of the return for the first short tax year. Irs 1040x 2012 The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Irs 1040x 2012 Election by debtor's spouse. Irs 1040x 2012   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Irs 1040x 2012 If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Irs 1040x 2012 The debtor must elect by the due date for filing the return for the first short tax year. Irs 1040x 2012 Once the election is made, it cannot be revoked for the first short tax year. Irs 1040x 2012 However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Irs 1040x 2012 Later bankruptcy of spouse. Irs 1040x 2012    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. Irs 1040x 2012   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Irs 1040x 2012 If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. Irs 1040x 2012 However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. Irs 1040x 2012 The debtor and the spouse are precluded from this election because they have different tax years. Irs 1040x 2012 This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. Irs 1040x 2012 Example 1. Irs 1040x 2012 Paul and Mary Harris are calendar-year taxpayers. Irs 1040x 2012 Paul's voluntary chapter 7 bankruptcy case begins on March 4. Irs 1040x 2012 If Paul does not make an election, his tax year does not end on March 3. Irs 1040x 2012 If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Irs 1040x 2012 Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Irs 1040x 2012 They must make the election by July 15, the due date for filing the joint return. Irs 1040x 2012 Example 2. Irs 1040x 2012 Fred and Ethel Barnes are calendar-year taxpayers. Irs 1040x 2012 Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Irs 1040x 2012 Ethel could elect to end her tax year on October 31. Irs 1040x 2012 If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. Irs 1040x 2012 Her first tax year is January 1–October 31, and her second year is November 1–December 31. Irs 1040x 2012 If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. Irs 1040x 2012 If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. Irs 1040x 2012 Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Irs 1040x 2012 Example 3. Irs 1040x 2012 Jack and Karen Thomas are calendar-year taxpayers. Irs 1040x 2012 Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. Irs 1040x 2012 Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Irs 1040x 2012 Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. Irs 1040x 2012 The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Irs 1040x 2012 Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Irs 1040x 2012 If Karen does join in, she would have the same 3 short tax years as Jack. Irs 1040x 2012 Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. Irs 1040x 2012 Annualizing taxable income. Irs 1040x 2012   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. Irs 1040x 2012 See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. Irs 1040x 2012 Dismissal of bankruptcy case. Irs 1040x 2012   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. Irs 1040x 2012 It is as if no bankruptcy estate was created for tax purposes. Irs 1040x 2012 In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. Irs 1040x 2012 Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Irs 1040x 2012 Attach a statement to the amended returns explaining why the debtor is filing an amended return. Irs 1040x 2012 Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Irs 1040x 2012   At the commencement of a bankruptcy case a bankruptcy estate is created. Irs 1040x 2012 Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Irs 1040x 2012 This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Irs 1040x 2012 However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Irs 1040x 2012 Note. Irs 1040x 2012 Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Irs 1040x 2012 Excluded property is never included in the estate. Irs 1040x 2012 Transfer of assets between debtor and bankruptcy estate. Irs 1040x 2012   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. Irs 1040x 2012 The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Irs 1040x 2012 For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Irs 1040x 2012 The estate assumes the same basis, holding period, and character of the transferred assets. Irs 1040x 2012 Also, the estate generally accounts for the transferred assets in the same manner as debtor. Irs 1040x 2012   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. Irs 1040x 2012 The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Irs 1040x 2012 Abandoned property. Irs 1040x 2012    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Irs 1040x 2012 If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Irs 1040x 2012 Separate taxable entity. Irs 1040x 2012   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. Irs 1040x 2012 The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. Irs 1040x 2012 S. Irs 1040x 2012 Income Tax Return for Estates and Trusts, and paying its taxes. Irs 1040x 2012 The debtor remains responsible for filing his or her own returns on Form 1040, U. Irs 1040x 2012 S. Irs 1040x 2012 Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Irs 1040x 2012 Employer identification number. Irs 1040x 2012   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Irs 1040x 2012 The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Irs 1040x 2012 See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Irs 1040x 2012    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Irs 1040x 2012 Income, deductions, and credits – Form 1040. Irs 1040x 2012   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). Irs 1040x 2012 Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Irs 1040x 2012 The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. Irs 1040x 2012 See Debt Cancellation, below. Irs 1040x 2012 Note. Irs 1040x 2012 The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Irs 1040x 2012 Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. Irs 1040x 2012 However, other exclusions, such as the insolvency exclusion, may apply. Irs 1040x 2012 Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Irs 1040x 2012    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Irs 1040x 2012 Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Irs 1040x 2012   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Irs 1040x 2012 Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. Irs 1040x 2012 Income of the estate in individual chapter 11 cases. Irs 1040x 2012    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. Irs 1040x 2012 Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. Irs 1040x 2012 S. Irs 1040x 2012 C. Irs 1040x 2012 section 1115). Irs 1040x 2012 Note. Irs 1040x 2012 A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. Irs 1040x 2012 Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Irs 1040x 2012 Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. Irs 1040x 2012 See Administrative expenses, below. Irs 1040x 2012 Conversion or dismissal of chapter 11 cases. Irs 1040x 2012   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. Irs 1040x 2012 If the chapter 11 case is converted to a chapter 7 case, 11 U. Irs 1040x 2012 S. Irs 1040x 2012 C. Irs 1040x 2012 section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. Irs 1040x 2012 Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Irs 1040x 2012 If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. Irs 1040x 2012 Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. Irs 1040x 2012 Note. Irs 1040x 2012 Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). Irs 1040x 2012 Administrative expenses. Irs 1040x 2012   Allowable expenses include administrative expenses. Irs 1040x 2012    Administrative expenses can only be deducted by the estate, never by the debtor. Irs 1040x 2012   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Irs 1040x 2012 These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. Irs 1040x 2012 See IRC section 67(e). Irs 1040x 2012 Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. Irs 1040x 2012 Note. Irs 1040x 2012 The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Irs 1040x 2012 See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Irs 1040x 2012 Administrative expense loss. Irs 1040x 2012   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. Irs 1040x 2012 The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Irs 1040x 2012 The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. Irs 1040x 2012 For a discussion of NOLs, see Publication 536. Irs 1040x 2012 Attribute carryovers. Irs 1040x 2012   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Irs 1040x 2012 These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Irs 1040x 2012 The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. Irs 1040x 2012   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. Irs 1040x 2012 See Debt Cancellation, later. Irs 1040x 2012   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. Irs 1040x 2012 The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Irs 1040x 2012 Note. Irs 1040x 2012 The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Irs 1040x 2012 See Administrative expense loss, above. Irs 1040x 2012 Passive and at-risk activities. Irs 1040x 2012   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. Irs 1040x 2012 Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. Irs 1040x 2012 These transfers include the return of exempt property and abandonment of estate property to the debtor. Irs 1040x 2012 Carrybacks from the debtor's activities. Irs 1040x 2012   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. Irs 1040x 2012 Carrybacks from the bankruptcy estate. Irs 1040x 2012   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. Irs 1040x 2012 The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Irs 1040x 2012 Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Irs 1040x 2012    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. Irs 1040x 2012 The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. Irs 1040x 2012 These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. Irs 1040x 2012 The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Irs 1040x 2012 The same method must be used to allocate the income and the withheld tax. Irs 1040x 2012 Example. Irs 1040x 2012 If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. Irs 1040x 2012 Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. Irs 1040x 2012 See IRC section 31(a). Irs 1040x 2012   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. Irs 1040x 2012 In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. Irs 1040x 2012    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. Irs 1040x 2012 The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. Irs 1040x 2012 Note. Irs 1040x 2012 The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Irs 1040x 2012   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Irs 1040x 2012 Self-employment taxes in individual chapter 11 cases. Irs 1040x 2012   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Irs 1040x 2012 Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. Irs 1040x 2012   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. Irs 1040x 2012 Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. Irs 1040x 2012 This schedule includes self-employment income earned post-petition and the attributable deductions. Irs 1040x 2012 The debtor must pay any self-employment tax imposed by IRC section 1401. Irs 1040x 2012 Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Irs 1040x 2012   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Irs 1040x 2012 However, section 1115 of the Bankruptcy Code (11 U. Irs 1040x 2012 S. Irs 1040x 2012 C. Irs 1040x 2012 section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. Irs 1040x 2012 See Notice 2006-83. Irs 1040x 2012   The reporting and withholding obligations of a debtor's employer also do not change. Irs 1040x 2012 An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. Irs 1040x 2012 Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Irs 1040x 2012   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. Irs 1040x 2012 See IRC section 6109(a)(2). Irs 1040x 2012 As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). Irs 1040x 2012   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. Irs 1040x 2012 See Notice 2006-83. Irs 1040x 2012 An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. Irs 1040x 2012   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. Irs 1040x 2012 However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. Irs 1040x 2012 See Employment Tax Regulations section 31. Irs 1040x 2012 3402(f)(2)-1. Irs 1040x 2012 Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. Irs 1040x 2012 See IRC section 6654(a). Irs 1040x 2012 Notice required in converted and dismissed cases. Irs 1040x 2012   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. Irs 1040x 2012 The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Irs 1040x 2012 This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. Irs 1040x 2012   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Irs 1040x 2012 Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. Irs 1040x 2012 However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Irs 1040x 2012 After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. Irs 1040x 2012 Employment taxes. Irs 1040x 2012   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Irs 1040x 2012 See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Irs 1040x 2012   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Irs 1040x 2012 For a further discussion of employment taxes, see Employment Taxes, later. Irs 1040x 2012 Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . Irs 1040x 2012 The bankruptcy court case number is . Irs 1040x 2012 Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. Irs 1040x 2012   Year Taxpayer   Estate 1. Irs 1040x 2012 Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Irs 1040x 2012 Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Irs 1040x 2012 Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Irs 1040x 2012 Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. Irs 1040x 2012   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. Irs 1040x 2012 This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Irs 1040x 2012   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). Irs 1040x 2012   These amounts are generally adjusted annually. Irs 1040x 2012 See the present year Form 1041 Instructions at www. Irs 1040x 2012 irs. Irs 1040x 2012 gov/form1041 for the current dollar amounts. Irs 1040x 2012 Accounting period. Irs 1040x 2012   A bankruptcy estate may have a fiscal year. Irs 1040x 2012 However, this period cannot be longer than 12 months. Irs 1040x 2012 Change of accounting period. Irs 1040x 2012   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Irs 1040x 2012 This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Irs 1040x 2012 The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Irs 1040x 2012 Employer identification number. Irs 1040x 2012   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Irs 1040x 2012 The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Irs 1040x 2012    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Irs 1040x 2012   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Irs 1040x 2012 irs. Irs 1040x 2012 gov/businesses/small. Irs 1040x 2012 The EIN is issued immediately once the application information is validated. Irs 1040x 2012 By telephone at 1-800-829-4933 from 7:00 a. Irs 1040x 2012 m. Irs 1040x 2012 to 7:00 p. Irs 1040x 2012 m. Irs 1040x 2012 in the trustee's or debtor-in-possession's local time zone. Irs 1040x 2012 Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. Irs 1040x 2012   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. Irs 1040x 2012 For more details, see Pub. Irs 1040x 2012 583, Starting a Business and Keeping Records. Irs 1040x 2012   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. Irs 1040x 2012 Figuring tax due. Irs 1040x 2012   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Irs 1040x 2012 However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Irs 1040x 2012 The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. Irs 1040x 2012 The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Irs 1040x 2012 Tax rate schedule. Irs 1040x 2012 The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. Irs 1040x 2012 When to file. Irs 1040x 2012   Calendar year bankruptcy estates must file Form 1041 by April 15th. Irs 1040x 2012 Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Irs 1040x 2012 For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. Irs 1040x 2012 If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Irs 1040x 2012 Note. Irs 1040x 2012 The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Irs 1040x 2012 Transmittal for Form 1040. Irs 1040x 2012   Form 1041 is used as a transmittal for Form 1040. Irs 1040x 2012 If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. Irs 1040x 2012   Prepare the bankruptcy estate's return by completing Form 1040. Irs 1040x 2012 In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Irs 1040x 2012 ” Then, attach Form 1040 to the Form 1041 transmittal. Irs 1040x 2012 Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Irs 1040x 2012 An example of a bankruptcy estate's tax return is prepared below. Irs 1040x 2012 Note. Irs 1040x 2012 The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. Irs 1040x 2012 Payment of Tax Due Payment methods. Irs 1040x 2012   Payment of tax due may be made by check or money order or by credit or debit card. Irs 1040x 2012 For information on how to make payments electronically by credit or debit card, go to irs. Irs 1040x 2012 gov/e-pay. Irs 1040x 2012      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. Irs 1040x 2012 To enroll in EFTPS, go to eftps. Irs 1040x 2012 gov or call 1-800-555-4477. Irs 1040x 2012 For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Irs 1040x 2012 Payment voucher – Form 1041-V. Irs 1040x 2012   Form 1041-V accompanies payments made by check or money order for Form 1041. Irs 1040x 2012 The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Irs 1040x 2012 Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Irs 1040x 2012 We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Irs 1040x 2012 Estimated tax – Form 1041-ES. Irs 1040x 2012   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Irs 1040x 2012 See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. Irs 1040x 2012 Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Irs 1040x 2012 Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. Irs 1040x 2012 If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Irs 1040x 2012   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Irs 1040x 2012 Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. Irs 1040x 2012 The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Irs 1040x 2012 If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Irs 1040x 2012 , with their individual income tax returns. Irs 1040x 2012 Tax Return Example – Form 1041 This publication is not revised annually. Irs 1040x 2012 Future changes to the forms and their instructions may not be reflected in this example. Irs 1040x 2012 Note. Irs 1040x 2012 The following return was prepared for tax year 2011. Irs 1040x 2012 In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). Irs 1040x 2012 Facts and circumstances. Irs 1040x 2012   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Irs 1040x 2012 Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Irs 1040x 2012   The estate received the following assets from Mr. Irs 1040x 2012 Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. Irs 1040x 2012   Also, the estate received a $251,500 capital loss carryover. Irs 1040x 2012   Mr. Irs 1040x 2012 Smith's bankruptcy case was closed on December 31, 2011. Irs 1040x 2012 During 2011, Mr. Irs 1040x 2012 Smith was relieved of $70,000 of debt by the bankruptcy court. Irs 1040x 2012 The estate chose a calendar year as its tax year. Irs 1040x 2012 Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Irs 1040x 2012 Schedule B (Form 1040). Irs 1040x 2012    The certificate of deposit earned $5,500 of interest during 2011. Irs 1040x 2012 Joan reports this interest on Schedule B. Irs 1040x 2012 She completes this schedule and enters the result on Form 1040. Irs 1040x 2012 Form 4562. Irs 1040x 2012   Joan enters the depreciation allowed on Form 4562. Irs 1040x 2012 She completes the form and enters the result on Schedule E. Irs 1040x 2012 Schedule E (Form 1040). Irs 1040x 2012   The commercial real estate was rented through the date of sale. Irs 1040x 2012 Joan reports the income and expenses on Schedule E. Irs 1040x 2012 She enters the net income on Form 1040. Irs 1040x 2012 Form 4797. Irs 1040x 2012   The commercial real estate was sold on July 1, 2011, for $280,000. Irs 1040x 2012 The property was purchased in 2001 at a cost of $250,000. Irs 1040x 2012 The total depreciation allowable as of the date of sale was $120,000. Irs 1040x 2012 Additionally, $25,000 of selling expenses were incurred. Irs 1040x 2012 Joan reports the gain or loss from the sale on Form 4797. Irs 1040x 2012 She completes the form and enters the gain on Schedule D (Form 1040). Irs 1040x 2012   Mr. Irs 1040x 2012 Smith's former residence was sold on September 30, 2011. Irs 1040x 2012 The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Irs 1040x 2012 This sale is excluded from gross income under IRC section 121. Irs 1040x 2012 Note. Irs 1040x 2012 Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). Irs 1040x 2012 Bankruptcy estates succeed to this exclusion at the commencement of the case. Irs 1040x 2012 See Regulation section 1. Irs 1040x 2012 1398-3. Irs 1040x 2012 Schedule D (Form 1040). Irs 1040x 2012   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). Irs 1040x 2012 She enters the results on Form 1040. Irs 1040x 2012 Form 1040, page 1. Irs 1040x 2012   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Irs 1040x 2012 Schedule A (Form 1040). Irs 1040x 2012   During 2011, the estate paid mortgage interest and real property tax on Mr. Irs 1040x 2012 Smith's former residence. Irs 1040x 2012 It also paid income tax to the state. Irs 1040x 2012 Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Irs 1040x 2012 Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Irs 1040x 2012 She completes the Schedule A and enters the result on page 2 of Form 1040. Irs 1040x 2012 Form 1040, page 2. Irs 1040x 2012   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Irs 1040x 2012 She then enters the estate's estimated tax payments and figures the amount the estate still owes. Irs 1040x 2012 Form 982. Irs 1040x 2012   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Irs 1040x 2012 Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Irs 1040x 2012 See Debt Cancellation, later. Irs 1040x 2012 After the bankruptcy case ends, Mr. Irs 1040x 2012 Smith will assume the estate's tax attributes. Irs 1040x 2012 Mr. Irs 1040x 2012 Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). Irs 1040x 2012 Note. Irs 1040x 2012 If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Irs 1040x 2012 Form 1041. Irs 1040x 2012   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Irs 1040x 2012 She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. Irs 1040x 2012 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Schedule A This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Schedule B This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Schedule D This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Schedule E This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 2119 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 4562 This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Irs 1040x 2012 Please click the link to view the image. Irs 1040x 2012 Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. Irs 1040x 2012 Otherwise, you do not have any carryovers. Irs 1040x 2012 1. Irs 1040x 2012 Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Irs 1040x 2012 If a loss, enclose the amount in parentheses 1. Irs 1040x 2012 19,880   2. Irs 1040x 2012 Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Irs 1040x 2012 1,500   3. Irs 1040x 2012 Combine lines 1 and 2. Irs 1040x 2012 If zero or less, enter -0- 3. Irs 1040x 2012 21,380   4. Irs 1040x 2012 Enter the smaller of line 2 or line 3 4. Irs 1040x 2012 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. Irs 1040x 2012       5. Irs 1040x 2012 Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Irs 1040x 2012 0   6. Irs 1040x 2012 Enter any gain from your 2010 Schedule D, line 15. Irs 1040x 2012 If a loss, enter -0- 6. Irs 1040x 2012         7. Irs 1040x 2012 Add lines 4 and 6 7. Irs 1040x 2012 1,500   8. Irs 1040x 2012 Short-term capital loss carryover for 2011. Irs 1040x 2012 Subtract line 7 from line 5. Irs 1040x 2012 If zero or less, enter -0-. Irs 1040x 2012 If more than zero, also enter this amount on Schedule D, line 6 8. Irs 1040x 2012 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Irs 1040x 2012       9. Irs 1040x 2012 Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Irs 1040x 2012 251,500   10. Irs 1040x 2012 Enter any gain from your 2010 Schedule D, line 7. Irs 1040x 2012 If a loss, enter -0- 10. Irs 1040x 2012 0       11. Irs 1040x 2012 Subtract line 5 from line 4. Irs 1040x 2012 If zero or less, enter -0- 11. Irs 1040x 2012 1,500       12. Irs 1040x 2012 Add lines 10 and 11 12. Irs 1040x 2012 1,500   13. Irs 1040x 2012 Long-term capital loss carryover for 2011. Irs 1040x 2012 Subtract line 12 from line 9. Irs 1040x 2012 If zero or less, enter -0-. Irs 1040x 2012 If more than zero, also enter this amount on Schedule D, line 14 13. Irs 1040x 2012 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. Irs 1040x 2012 The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. Irs 1040x 2012 In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. Irs 1040x 2012 The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. Irs 1040x 2012 Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Irs 1040x 2012 However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Irs 1040x 2012 A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Irs 1040x 2012 However, It may or may not be included in the individual partners' income. Irs 1040x 2012 See Partnerships, below under Debt Cancellation. Irs 1040x 2012 Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Irs 1040x 2012 A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. Irs 1040x 2012 The following discussion only highlights bankruptcy tax rules applying to corporations. Irs 1040x 2012 The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Irs 1040x 2012 Therefore, you may wish to seek the help of a professional tax advisor. Irs 1040x 2012 See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Irs 1040x 2012 Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. Irs 1040x 2012 However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. Irs 1040x 2012 A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Irs 1040x 2012 In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. Irs 1040x 2012 In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Irs 1040x 2012 Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. Irs 1040x 2012 In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. Irs 1040x 2012 IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. Irs 1040x 2012 IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. Irs 1040x 2012 In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. Irs 1040x 2012 No loss is recognized in this situation. Irs 1040x 2012 Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. Irs 1040x 2012 To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Irs 1040x 2012 The exemption request must be submitted to the local IRS Insolvency Office handling the case. Irs 1040x 2012 The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. Irs 1040x 2012 The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. Irs 1040x 2012 ” The statement must be signed by the trustee, receiver or assignee. Irs 1040x 2012 The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). Irs 1040x 2012 The IRS will act on your request within 90 days. Irs 1040x 2012 Disclosure of return information to trustee. Irs 1040x 2012   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Irs 1040x 2012 However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. Irs 1040x 2012 Material interest is generally defined as a financial or monetary interest. Irs 1040x 2012 Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Irs 1040x 2012 Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Irs 1040x 2012 Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Irs 1040x 2012 QSFs are required to file an annual income tax return, Form 1120-SF, U. Irs 1040x 2012 S. Irs 1040x 2012 Income Tax Return for Settlement Funds. Irs 1040x 2012 More information about QSFs may be found in Treasury Regulation sections 1. Irs 1040x 2012 468B-1 through -5. Irs 1040x 2012 Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. Irs 1040x 2012 After a return is filed, the IRS will either accept the return as filed or select the return for examination. Irs 1040x 2012 Under examination the IRS may redetermine the tax liability shown on the return. Irs 1040x 2012 If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. Irs 1040x 2012 See Court Jurisdiction over Tax Matters, later. Irs 1040x 2012 Prompt Determination Requests Pursuant to Rev. Irs 1040x 2012 Proc. Irs 1040x 2012 2006-24, 2006-22 I. Irs 1040x 2012 R. Irs 1040x 2012 B. Irs 1040x 2012 943, www. Irs 1040x 2012 irs. Irs 1040x 2012 gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Irs 1040x 2012 irs. Irs 1040x 2012 gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. Irs 1040x 2012 Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). Irs 1040x 2012 Making the request for determination. Irs 1040x 2012   As detailed in Rev. Irs 1040x 2012 Proc. Irs 1040x 2012 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. Irs 1040x 2012 O. Irs 1040x 2012 Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Irs 1040x 2012   The request must be submitted in duplicate and must be executed under penalties of perjury. Irs 1040x 2012 In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. Irs 1040x 2012 The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. Irs 1040x 2012 The name and location of the office where the return was filed. Irs 1040x 2012 The name of the debtor. Irs 1040x 2012 Debtor's social security number, TIN, or EIN. Irs 1040x 2012 Type of bankruptcy estate. Irs 1040x 2012 Bankruptcy case number. Irs 1040x 2012 Court where the bankruptcy case is pending. Irs 1040x 2012   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Irs 1040x 2012 A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. Irs 1040x 2012    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Irs 1040x 2012 A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Irs 1040x 2012 Examination of return. Irs 1040x 2012   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. Irs 1040x 2012 If the return is selected for examination, it will be examined as soon as possible. Irs 1040x 2012 The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. Irs 1040x 2012   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. Irs 1040x 2012   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. Irs 1040x 2012   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. Irs 1040x 2012 Note. Irs 1040x 2012 An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Irs 1040x 2012   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei
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The Irs 1040x 2012

Irs 1040x 2012 Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Irs 1040x 2012 More information. Irs 1040x 2012 Exception—Community Income. Irs 1040x 2012 Exception—Qualified joint venture. Irs 1040x 2012 More information. Irs 1040x 2012 More information. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 Table 1 can help you learn what those responsibilities are. Irs 1040x 2012 Ask yourself each question listed in the table, then see the related discussion to find the answer. Irs 1040x 2012 In addition to knowing about federal taxes, you need to make some basic business decisions. Irs 1040x 2012 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. Irs 1040x 2012 For information on how to contact the SBA, see How to Get More Information, later. Irs 1040x 2012 Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Irs 1040x 2012 When beginning a business, you must decide which form of business to use. Irs 1040x 2012 Legal and tax considerations enter into this decision. Irs 1040x 2012 Only tax considerations are discussed in this publication. Irs 1040x 2012 Your form of business determines which income tax return form you have to file. Irs 1040x 2012 See Table 2 to find out which form you have to file. Irs 1040x 2012 Sole proprietorships. Irs 1040x 2012   A sole proprietorship is an unincorporated business that is owned by one individual. Irs 1040x 2012 It is the simplest form of business organization to start and maintain. Irs 1040x 2012 The business has no existence apart from you, the owner. Irs 1040x 2012 Its liabilities are your personal liabilities. Irs 1040x 2012 You undertake the risks of the business for all assets owned, whether or not used in the business. Irs 1040x 2012 You include the income and expenses of the business on your personal tax return. Irs 1040x 2012 More information. Irs 1040x 2012   For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Irs 1040x 2012 If you are a farmer, see Publication 225, Farmer's Tax Guide. Irs 1040x 2012 Partnerships. Irs 1040x 2012   A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Irs 1040x 2012 Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Irs 1040x 2012   A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Irs 1040x 2012 , from its operations, but it does not pay income tax. Irs 1040x 2012 Instead, it “passes through” any profits or losses to its partners. Irs 1040x 2012 Each partner includes his or her share of the partnership's items on his or her tax return. Irs 1040x 2012 More information. Irs 1040x 2012   For more information on partnerships, see Publication 541, Partnerships. Irs 1040x 2012 Husband and wife business. Irs 1040x 2012   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. Irs 1040x 2012 Do not use Schedule C or C-EZ. Irs 1040x 2012 Instead, file Form 1065, U. Irs 1040x 2012 S. Irs 1040x 2012 Return of Partnership Income. Irs 1040x 2012 For more information, see Publication 541, Partnerships. Irs 1040x 2012 Exception—Community Income. Irs 1040x 2012   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. Irs 1040x 2012 S. Irs 1040x 2012 possession, you can treat the business either as a sole proprietorship or a partnership. Irs 1040x 2012 The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Irs 1040x 2012 A change in your reporting position will be treated as a conversion of the entity. Irs 1040x 2012 Exception—Qualified joint venture. Irs 1040x 2012   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. Irs 1040x 2012 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. Irs 1040x 2012 For an explanation of "material participation," see the Instructions for Schedule C, line G. Irs 1040x 2012   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. Irs 1040x 2012 Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Irs 1040x 2012 For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Irs 1040x 2012 Corporations. Irs 1040x 2012   In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Irs 1040x 2012 A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Irs 1040x 2012 A corporation can also take special deductions. Irs 1040x 2012   The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Irs 1040x 2012 However, shareholders cannot deduct any loss of the corporation. Irs 1040x 2012 More information. Irs 1040x 2012   For more information on corporations, see Publication 542, Corporations. Irs 1040x 2012 S corporations. Irs 1040x 2012   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. Irs 1040x 2012 Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Irs 1040x 2012 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. Irs 1040x 2012 More information. Irs 1040x 2012   For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Irs 1040x 2012 S. Irs 1040x 2012 Income Tax Return for an S Corporation. Irs 1040x 2012 Limited liability company. Irs 1040x 2012   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Irs 1040x 2012 The members of an LLC are not personally liable for its debts. Irs 1040x 2012 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. Irs 1040x 2012 7701-3. Irs 1040x 2012 For more information, see the instructions for Form 8832, Entity Classification Election. Irs 1040x 2012 Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Irs 1040x 2012 The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Irs 1040x 2012 An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Irs 1040x 2012 An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Irs 1040x 2012 You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Irs 1040x 2012 You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Irs 1040x 2012 This includes returns or documents filed to report the following information. Irs 1040x 2012 Interest, dividends, royalties, etc. Irs 1040x 2012 , paid to you. Irs 1040x 2012 Any amount paid to you as a dependent care provider. Irs 1040x 2012 Certain other amounts paid to you that total $600 or more for the year. Irs 1040x 2012 If you do not furnish your identification number as required, you may be subject to penalties. Irs 1040x 2012 See Penalties, later. Irs 1040x 2012 Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Irs 1040x 2012 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. Irs 1040x 2012 Applying for an EIN. Irs 1040x 2012   You may apply for an EIN: Online—Click on the EIN link at www. Irs 1040x 2012 irs. Irs 1040x 2012 gov/businesses/small. Irs 1040x 2012 The EIN is issued immediately once the application information is validated. Irs 1040x 2012 By telephone at 1-800-829-4933. Irs 1040x 2012 By mailing or faxing Form SS-4, Application for Employer Identification Number. Irs 1040x 2012 When to apply. Irs 1040x 2012   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. Irs 1040x 2012 If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Irs 1040x 2012 If you apply by telephone or through the IRS website, you can get an EIN immediately. Irs 1040x 2012 If you apply by fax, you can get an EIN within 4 business days. Irs 1040x 2012   If you do not receive your EIN by the time a return is due, file your return anyway. Irs 1040x 2012 Write “Applied for” and the date you applied for the number in the space for the EIN. Irs 1040x 2012 Do not use your social security number as a substitute for an EIN on your tax returns. Irs 1040x 2012 More than one EIN. Irs 1040x 2012   You should have only one EIN. Irs 1040x 2012 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. Irs 1040x 2012 Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Irs 1040x 2012 The IRS will tell you which number to use. Irs 1040x 2012 More information. Irs 1040x 2012   For more information about EINs, see Publication 1635, Understanding Your EIN. Irs 1040x 2012 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). Irs 1040x 2012 The forms used to report these payments must include the payee's identification number. Irs 1040x 2012 Employee. Irs 1040x 2012   If you have employees, you must get an SSN from each of them. Irs 1040x 2012 Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Irs 1040x 2012 If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Irs 1040x 2012 This may occur, for example, if the employee's name has changed due to marriage or divorce. Irs 1040x 2012   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. Irs 1040x 2012 This form is available at SSA offices or by calling 1-800-772-1213. Irs 1040x 2012 It is also available from the SSA website at www. Irs 1040x 2012 ssa. Irs 1040x 2012 gov. Irs 1040x 2012 Other payee. Irs 1040x 2012   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. Irs 1040x 2012 If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Irs 1040x 2012   To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Irs 1040x 2012 This form is available from IRS offices or by calling 1-800-829-3676. Irs 1040x 2012 It is also available from the IRS website at IRS. Irs 1040x 2012 gov. Irs 1040x 2012    If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Irs 1040x 2012 For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Irs 1040x 2012 Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Irs 1040x 2012 A tax year is usually 12 consecutive months. Irs 1040x 2012 There are two kinds of tax years. Irs 1040x 2012 Calendar tax year. Irs 1040x 2012 A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Irs 1040x 2012 Fiscal tax year. Irs 1040x 2012 A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 You must use a calendar tax year if: You keep no books. Irs 1040x 2012 You have no annual accounting period. Irs 1040x 2012 Your present tax year does not qualify as a fiscal year. Irs 1040x 2012 You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Irs 1040x 2012 For more information, see Publication 538, Accounting Periods and Methods. Irs 1040x 2012 First-time filer. Irs 1040x 2012   If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Irs 1040x 2012 You adopt a tax year by filing your first income tax return using that tax year. Irs 1040x 2012 You have not adopted a tax year if you merely did any of the following. Irs 1040x 2012 Filed an application for an extension of time to file an income tax return. Irs 1040x 2012 Filed an application for an employer identification number. Irs 1040x 2012 Paid estimated taxes for that tax year. Irs 1040x 2012 Changing your tax year. Irs 1040x 2012   Once you have adopted your tax year, you may have to get IRS approval to change it. Irs 1040x 2012 To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Irs 1040x 2012 You may have to pay a fee. Irs 1040x 2012 For more information, see Publication 538. Irs 1040x 2012 Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Irs 1040x 2012 You choose an accounting method for your business when you file your first income tax return. Irs 1040x 2012 There are two basic accounting methods. Irs 1040x 2012 Cash method. Irs 1040x 2012 Under the cash method, you report income in the tax year you receive it. Irs 1040x 2012 You usually deduct or capitalize expenses in the tax year you pay them. Irs 1040x 2012 Accrual method. Irs 1040x 2012 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. Irs 1040x 2012 You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Irs 1040x 2012 For other methods, see Publication 538. Irs 1040x 2012 If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Irs 1040x 2012 Inventories include goods held for sale in the normal course of business. Irs 1040x 2012 They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Irs 1040x 2012 Inventories are explained in Publication 538. Irs 1040x 2012 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. Irs 1040x 2012 For more information, see Publication 538. Irs 1040x 2012 You must use the same accounting method to figure your taxable income and to keep your books. Irs 1040x 2012 Also, you must use an accounting method that clearly shows your income. Irs 1040x 2012 In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Irs 1040x 2012 An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Irs 1040x 2012 More than one business. Irs 1040x 2012   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. Irs 1040x 2012 You must keep a complete and separate set of books and records for each business. Irs 1040x 2012 Changing your method of accounting. Irs 1040x 2012   Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Irs 1040x 2012 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. Irs 1040x 2012 For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Irs 1040x 2012 Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Irs 1040x 2012 The following are the four general kinds of business taxes. Irs 1040x 2012 Income tax. Irs 1040x 2012 Self-employment tax. Irs 1040x 2012 Employment taxes. Irs 1040x 2012 Excise taxes. Irs 1040x 2012 See Table 2 for the forms you file to report these taxes. Irs 1040x 2012 You may want to get Publication 509. Irs 1040x 2012 It has tax calendars that tell you when to file returns and make tax payments. Irs 1040x 2012 Income Tax All businesses except partnerships must file an annual income tax return. Irs 1040x 2012 Partnerships file an information return. Irs 1040x 2012 Which form you use depends on how your business is organized. Irs 1040x 2012 See Table 2 to find out which return you have to file. Irs 1040x 2012 The federal income tax is a pay-as-you-go tax. Irs 1040x 2012 You must pay the tax as you earn or receive income during the year. Irs 1040x 2012 An employee usually has income tax withheld from his or her pay. Irs 1040x 2012 If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Irs 1040x 2012 If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Irs 1040x 2012 Table 2. Irs 1040x 2012 Which Forms Must I File? IF you are a. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012   THEN you may be liable for. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012   Use Form. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012 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. Irs 1040x 2012 2 Various other schedules may be needed. Irs 1040x 2012 Estimated tax. Irs 1040x 2012   Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Irs 1040x 2012 Sole proprietors, partners, and S corporation shareholders. Irs 1040x 2012   You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Irs 1040x 2012 Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Irs 1040x 2012 For more information, see Publication 505, Tax Withholding and Estimated Tax. Irs 1040x 2012 Corporations. Irs 1040x 2012   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. Irs 1040x 2012 Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Irs 1040x 2012 You must deposit the payments as explained later under Depositing Taxes. Irs 1040x 2012 For more information, see Publication 542. Irs 1040x 2012 Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Irs 1040x 2012 Your payments of SE tax contribute to your coverage under the social security system. Irs 1040x 2012 Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Irs 1040x 2012 You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Irs 1040x 2012 Your net earnings from self-employment were $400 or more. Irs 1040x 2012 You had church employee income of $108. Irs 1040x 2012 28 or more. Irs 1040x 2012 Use Schedule SE (Form 1040) to figure your SE tax. Irs 1040x 2012 For more information, see Publication 334, Tax Guide for Small Business. Irs 1040x 2012 You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Irs 1040x 2012 The Social Security Administration (SSA) time limit for posting self-employment income. Irs 1040x 2012   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. Irs 1040x 2012 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. Irs 1040x 2012 The SSA will not change its records to increase your self-employment income. Irs 1040x 2012 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. Irs 1040x 2012 Employment taxes include the following. Irs 1040x 2012 Social security and Medicare taxes. Irs 1040x 2012 Federal income tax withholding. Irs 1040x 2012 Federal unemployment (FUTA) tax. Irs 1040x 2012 If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Irs 1040x 2012 If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Irs 1040x 2012 These publications explain your tax responsibilities as an employer. Irs 1040x 2012 If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Irs 1040x 2012 That publication has information to help you determine whether an individual is an employee or an independent contractor. Irs 1040x 2012 If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Irs 1040x 2012 An independent contractor is someone who is self-employed. Irs 1040x 2012 Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Irs 1040x 2012 Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Irs 1040x 2012 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. Irs 1040x 2012 Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Irs 1040x 2012 Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Irs 1040x 2012 Medicare tax pays for benefits under the hospital insurance part of FICA. Irs 1040x 2012 You withhold part of these taxes from your employee's wages and you pay a part yourself. Irs 1040x 2012 To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Irs 1040x 2012 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. Irs 1040x 2012 (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Irs 1040x 2012 ) 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. Irs 1040x 2012 You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Irs 1040x 2012 You pay FUTA tax only from your own funds. Irs 1040x 2012 Employees do not pay this tax or have it withheld from their pay. Irs 1040x 2012 Which form do I file?   Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Irs 1040x 2012 See Publication 15 to find out if you can use this form. Irs 1040x 2012 Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Irs 1040x 2012 Form I-9. Irs 1040x 2012   You must verify that each new employee is legally eligible to work in the United States. Irs 1040x 2012 Both you and the employee must complete the U. Irs 1040x 2012 S. Irs 1040x 2012 Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Irs 1040x 2012 You can get the form from USCIS offices or from the USCIS website at www. Irs 1040x 2012 uscis. Irs 1040x 2012 gov. Irs 1040x 2012 Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Irs 1040x 2012 Form W-4. Irs 1040x 2012   Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Irs 1040x 2012 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. Irs 1040x 2012 For more information, see Publication 15. Irs 1040x 2012 Employees claiming more than 10 withholding allowances. Irs 1040x 2012   An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Irs 1040x 2012 See section 16 of Publication 15. Irs 1040x 2012 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. Irs 1040x 2012 You must also send copies to the Social Security Administration. Irs 1040x 2012 See Information Returns, later, for more information on Form W-2. Irs 1040x 2012 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. Irs 1040x 2012 Manufacture or sell certain products. Irs 1040x 2012 Operate certain kinds of businesses. Irs 1040x 2012 Use various kinds of equipment, facilities, or products. Irs 1040x 2012 Receive payment for certain services. Irs 1040x 2012 For more information on excise taxes, see Publication 510, Excise Taxes. Irs 1040x 2012 Form 720. Irs 1040x 2012   The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Irs 1040x 2012 Environmental taxes. Irs 1040x 2012 Communications and air transportation taxes. Irs 1040x 2012 Fuel taxes. Irs 1040x 2012 Tax on the first retail sale of heavy trucks, trailers, and tractors. Irs 1040x 2012 Manufacturers taxes on the sale or use of a variety of different articles. Irs 1040x 2012 Form 2290. Irs 1040x 2012   There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Irs 1040x 2012 The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Irs 1040x 2012 Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Irs 1040x 2012 For more information, see the instructions for Form 2290. Irs 1040x 2012 Form 730. Irs 1040x 2012   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. Irs 1040x 2012 Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Irs 1040x 2012 Form 11-C. Irs 1040x 2012   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. Irs 1040x 2012 Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Irs 1040x 2012 Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Irs 1040x 2012 Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Irs 1040x 2012 Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Irs 1040x 2012 Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Irs 1040x 2012 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. Irs 1040x 2012 You must give a copy of each information return you are required to file to the recipient or payer. Irs 1040x 2012 In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Irs 1040x 2012 For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Irs 1040x 2012 Form 1099-MISC. Irs 1040x 2012   Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Irs 1040x 2012 These payments include the following items. Irs 1040x 2012 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. Irs 1040x 2012 Rent payments of $600 or more, other than rents paid to real estate agents. Irs 1040x 2012 Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Irs 1040x 2012 Royalty payments of $10 or more. Irs 1040x 2012 Payments to certain crew members by operators of fishing boats. Irs 1040x 2012 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. Irs 1040x 2012 Form W-2. Irs 1040x 2012   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. Irs 1040x 2012 For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Irs 1040x 2012 Form 8300. Irs 1040x 2012   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. Irs 1040x 2012 Cash includes U. Irs 1040x 2012 S. Irs 1040x 2012 and foreign coin and currency. Irs 1040x 2012 It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Irs 1040x 2012 For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Irs 1040x 2012 Penalties The law provides penalties for not filing returns or paying taxes as required. Irs 1040x 2012 Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Irs 1040x 2012 Failure to file tax returns. Irs 1040x 2012   If you do not file your tax return by the due date, you may have to pay a penalty. Irs 1040x 2012 The penalty is based on the tax not paid by the due date. Irs 1040x 2012 See your tax return instructions for more information about this penalty. Irs 1040x 2012 Failure to pay tax. Irs 1040x 2012   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. Irs 1040x 2012 For more information, see your tax return instructions. Irs 1040x 2012 Failure to withhold, deposit, or pay taxes. Irs 1040x 2012   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. Irs 1040x 2012 You may also be subject to penalties if you deposit the taxes late. Irs 1040x 2012 For more information, see Publication 15. Irs 1040x 2012 Failure to follow information reporting requirements. Irs 1040x 2012   The following penalties apply if you are required to file information returns. Irs 1040x 2012 For more information, see the General Instructions for Certain Information Returns. Irs 1040x 2012 Failure to file information returns. Irs 1040x 2012 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. Irs 1040x 2012 Failure to furnish correct payee statements. Irs 1040x 2012 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. Irs 1040x 2012 Waiver of penalty. Irs 1040x 2012   These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Irs 1040x 2012   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. Irs 1040x 2012 (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. Irs 1040x 2012 ) Failure to supply taxpayer identification number. Irs 1040x 2012   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. Irs 1040x 2012 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. Irs 1040x 2012 Business Expenses You can deduct business expenses on your income tax return. Irs 1040x 2012 These are the current operating costs of running your business. Irs 1040x 2012 To be deductible, a business expense must be both ordinary and necessary. Irs 1040x 2012 An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Irs 1040x 2012 A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Irs 1040x 2012 An expense does not have to be indispensable to be considered necessary. Irs 1040x 2012 The following are brief explanations of some expenses that are of interest to people starting a business. Irs 1040x 2012 There are many other expenses that you may be able to deduct. Irs 1040x 2012 See your form instructions and Publication 535, Business Expenses. Irs 1040x 2012 Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Irs 1040x 2012 Your business start-up costs will depend on the type of business you are starting. Irs 1040x 2012 They may include costs for advertising, travel, surveys, and training. Irs 1040x 2012 These costs are generally capital expenses. Irs 1040x 2012 You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Irs 1040x 2012 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. Irs 1040x 2012 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Irs 1040x 2012 Any remaining cost must be amortized. Irs 1040x 2012 For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Irs 1040x 2012 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. Irs 1040x 2012 You must spread the cost over more than one tax year and deduct part of it each year. Irs 1040x 2012 This method of deducting the cost of business property is called depreciation. Irs 1040x 2012 Business property you must depreciate includes the following items. Irs 1040x 2012 Office furniture. Irs 1040x 2012 Buildings. Irs 1040x 2012 Machinery and equipment. Irs 1040x 2012 You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Irs 1040x 2012 This deduction is known as the “section 179 deduction. Irs 1040x 2012 ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Irs 1040x 2012 Depreciation must be taken in the year it is allowable. Irs 1040x 2012 Allowable depreciation not taken in a prior year cannot be taken in the current year. Irs 1040x 2012 If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Irs 1040x 2012 S. Irs 1040x 2012 Individual Income Tax Return, or by changing your accounting method. Irs 1040x 2012 For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Irs 1040x 2012 Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Irs 1040x 2012 Even then, your deduction may be limited. Irs 1040x 2012 To qualify to claim expenses for business use of your home, you must meet both the following tests. Irs 1040x 2012 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. Irs 1040x 2012 Exclusive use. Irs 1040x 2012   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Irs 1040x 2012 The area used for business can be a room or other separately identifiable space. Irs 1040x 2012 The space does not need to be marked off by a permanent partition. Irs 1040x 2012   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. Irs 1040x 2012 Exceptions to exclusive use. Irs 1040x 2012   You do not have to meet the exclusive use test if either of the following applies. Irs 1040x 2012 You use part of your home for the storage of inventory or product samples. Irs 1040x 2012 You use part of your home as a daycare facility. Irs 1040x 2012 For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Irs 1040x 2012 Principal place of business. Irs 1040x 2012   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Irs 1040x 2012 You use it exclusively and regularly for administrative or management activities of your trade or business. Irs 1040x 2012 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Irs 1040x 2012   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. Irs 1040x 2012 The relative importance of the activities performed at each location. Irs 1040x 2012 If the relative importance factor does not determine your principal place of business, the time spent at each location. Irs 1040x 2012    If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Irs 1040x 2012 However, for other ways to qualify to deduct home office expenses, see Publication 587. Irs 1040x 2012 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. Irs 1040x 2012 If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Irs 1040x 2012 More information. Irs 1040x 2012   For more information about business use of your home, see Publication 587. Irs 1040x 2012 Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Irs 1040x 2012 You generally can deduct either your actual expenses or the standard mileage rate. Irs 1040x 2012 Actual expenses. Irs 1040x 2012   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. Irs 1040x 2012 You can divide your expenses based on the miles driven for each purpose. Irs 1040x 2012 Example. Irs 1040x 2012 You are the sole proprietor of a flower shop. Irs 1040x 2012 You drove your van 20,000 miles during the year. Irs 1040x 2012 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Irs 1040x 2012 You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Irs 1040x 2012 Standard mileage rate. Irs 1040x 2012   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. Irs 1040x 2012 You can use the standard mileage rate for a vehicle you own or lease. Irs 1040x 2012 The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Irs 1040x 2012 It is announced annually by the IRS. Irs 1040x 2012 To figure your deduction, multiply your business miles by the standard mileage rate for the year. Irs 1040x 2012    Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Irs 1040x 2012 However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Irs 1040x 2012 Choosing the standard mileage rate. Irs 1040x 2012   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. Irs 1040x 2012 In later years, you can choose to use either the standard mileage rate or actual expenses. Irs 1040x 2012   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). Irs 1040x 2012 Additional information. Irs 1040x 2012   For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Irs 1040x 2012 Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Irs 1040x 2012 It also explains how long you must keep your records for federal tax purposes. Irs 1040x 2012 A sample recordkeeping system is illustrated at the end of this part. Irs 1040x 2012 Why Keep Records? Everyone in business must keep records. Irs 1040x 2012 Good records will help you do the following. Irs 1040x 2012 Monitor the progress of your business. Irs 1040x 2012   You need good records to monitor the progress of your business. Irs 1040x 2012 Records can show whether your business is improving, which items are selling, or what changes you need to make. Irs 1040x 2012 Good records can increase the likelihood of business success. Irs 1040x 2012 Prepare your financial statements. Irs 1040x 2012   You need good records to prepare accurate financial statements. Irs 1040x 2012 These include income (profit and loss) statements and balance sheets. Irs 1040x 2012 These statements can help you in dealing with your bank or creditors and help you manage your business. Irs 1040x 2012 An income statement shows the income and expenses of the business for a given period of time. Irs 1040x 2012 A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Irs 1040x 2012 Identify source of receipts. Irs 1040x 2012   You will receive money or property from many sources. Irs 1040x 2012 Your records can identify the source of your receipts. Irs 1040x 2012 You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Irs 1040x 2012 Keep track of deductible expenses. Irs 1040x 2012   You may forget expenses when you prepare your tax return unless you record them when they occur. Irs 1040x 2012 Prepare your tax returns. Irs 1040x 2012   You need good records to prepare your tax returns. Irs 1040x 2012 These records must support the income, expenses, and credits you report. Irs 1040x 2012 Generally, these are the same records you use to monitor your business and prepare your financial statements. Irs 1040x 2012 Support items reported on tax returns. Irs 1040x 2012   You must keep your business records available at all times for inspection by the IRS. Irs 1040x 2012 If the IRS examines any of your tax returns, you may be asked to explain the items reported. Irs 1040x 2012 A complete set of records will speed up the examination. Irs 1040x 2012 Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Irs 1040x 2012 You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Irs 1040x 2012 The business you are in affects the type of records you need to keep for federal tax purposes. Irs 1040x 2012 You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Irs 1040x 2012 See Accounting Method, earlier. Irs 1040x 2012 If you are in more than one business, you should keep a complete and separate set of records for each business. Irs 1040x 2012 A corporation should keep minutes of board of directors' meetings. Irs 1040x 2012 Your recordkeeping system should include a summary of your business transactions. Irs 1040x 2012 This summary is ordinarily made in your books (for example, accounting journals and ledgers). Irs 1040x 2012 Your books must show your gross income, as well as your deductions and credits. Irs 1040x 2012 For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Irs 1040x 2012 In addition, you must keep supporting documents, explained later. Irs 1040x 2012 Electronic records. Irs 1040x 2012   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Irs 1040x 2012 All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Irs 1040x 2012 Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Irs 1040x 2012   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. Irs 1040x 2012 You still have the responsibility of retaining any other books and records that are required to be retained. Irs 1040x 2012   The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Irs 1040x 2012 This test is not considered an examination and the results must be shared with you. Irs 1040x 2012 If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Irs 1040x 2012 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. Irs 1040x 2012 For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Irs 1040x 2012 Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Irs 1040x 2012 Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Irs 1040x 2012 These documents contain information you need to record in your books. Irs 1040x 2012 It is important to keep these documents because they support the entries in your books and on your tax return. Irs 1040x 2012 Keep them in an orderly fashion and in a safe place. Irs 1040x 2012 For instance, organize them by year and type of income or expense. Irs 1040x 2012 Gross receipts. Irs 1040x 2012   Gross receipts are the income you receive from your business. Irs 1040x 2012 You should keep supporting documents that show the amounts and sources of your gross receipts. Irs 1040x 2012 Documents that show gross receipts include the following. Irs 1040x 2012 Cash register tapes. Irs 1040x 2012 Bank deposit slips. Irs 1040x 2012 Receipt books. Irs 1040x 2012 Invoices. Irs 1040x 2012 Credit card charge slips. Irs 1040x 2012 Forms 1099-MISC. Irs 1040x 2012 Purchases. Irs 1040x 2012   Purchases are the items you buy and resell to customers. Irs 1040x 2012 If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Irs 1040x 2012 Your supporting documents should show the amount paid and that the amount was for purchases. Irs 1040x 2012 Documents for purchases include the following. Irs 1040x 2012 Canceled checks. Irs 1040x 2012 Cash register tape receipts. Irs 1040x 2012 Credit card sales slips. Irs 1040x 2012 Invoices. Irs 1040x 2012 These records will help you determine the value of your inventory at the end of the year. Irs 1040x 2012 See Publication 538 for information on methods for valuing inventory. Irs 1040x 2012 Expenses. Irs 1040x 2012   Expenses are the costs you incur (other than purchases) to carry on your business. Irs 1040x 2012 Your supporting documents should show the amount paid and that the amount was for a business expense. Irs 1040x 2012 Documents for expenses include the following. Irs 1040x 2012 Canceled checks. Irs 1040x 2012 Cash register tapes. Irs 1040x 2012 Account statements. Irs 1040x 2012 Credit card sales slips. Irs 1040x 2012 Invoices. Irs 1040x 2012 Petty cash slips for small cash payments. Irs 1040x 2012    A petty cash fund allows you to make small payments without having to write checks for small amounts. Irs 1040x 2012 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. Irs 1040x 2012 Travel, transportation, entertainment, and gift expenses. Irs 1040x 2012   Specific recordkeeping rules apply to these expenses. Irs 1040x 2012 For more information, see Publication 463. Irs 1040x 2012 Employment taxes. Irs 1040x 2012   There are specific employment tax records you must keep. Irs 1040x 2012 For a list, see Publication 15. Irs 1040x 2012 Assets. Irs 1040x 2012   Assets are the property, such as machinery and furniture you own and use in your business. Irs 1040x 2012 You must keep records to verify certain information about your business assets. Irs 1040x 2012 You need records to figure the annual depreciation and the gain or loss when you sell the assets. Irs 1040x 2012 Your records should show the following information. Irs 1040x 2012 When and how you acquired the asset. Irs 1040x 2012 Purchase price. Irs 1040x 2012 Cost of any improvements. Irs 1040x 2012 Section 179 deduction taken. Irs 1040x 2012 Deductions taken for depreciation. Irs 1040x 2012 Deductions taken for casualty losses, such as losses resulting from fires or storms. Irs 1040x 2012 How you used the asset. Irs 1040x 2012 When and how you disposed of the asset. Irs 1040x 2012 Selling price. Irs 1040x 2012 Expenses of sale. Irs 1040x 2012   The following documents may show this information. Irs 1040x 2012 Purchase and sales invoices. Irs 1040x 2012 Real estate closing statements. Irs 1040x 2012 Canceled checks. Irs 1040x 2012 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. Irs 1040x 2012 These include account statements prepared for the financial institution by a third party. Irs 1040x 2012 These account statements must be highly legible. Irs 1040x 2012 The following table lists acceptable account statements. Irs 1040x 2012  IF payment is by. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012 THEN the statement must show the. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012 Check Check number. Irs 1040x 2012 Amount. Irs 1040x 2012 Payee's name. Irs 1040x 2012 Date the check amount was posted to the account by the financial institution. Irs 1040x 2012 Electronic funds transfer Amount transferred. Irs 1040x 2012 Payee's name. Irs 1040x 2012 Date the transfer was posted to the account by the financial institution. Irs 1040x 2012 Credit card Amount charged. Irs 1040x 2012 Payee's name. Irs 1040x 2012 Transaction date. Irs 1040x 2012    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Irs 1040x 2012 You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Irs 1040x 2012 Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Irs 1040x 2012 (Your business transactions are shown on the supporting documents just discussed. Irs 1040x 2012 ) Business transactions are ordinarily summarized in books called journals and ledgers. Irs 1040x 2012 You can buy them at your local stationery or office supply store. Irs 1040x 2012 A journal is a book where you record each business transaction shown on your supporting documents. Irs 1040x 2012 You may have to keep separate journals for transactions that occur frequently. Irs 1040x 2012 A ledger is a book that contains the totals from all of your journals. Irs 1040x 2012 It is organized into different accounts. Irs 1040x 2012 Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Irs 1040x 2012 For example, a recordkeeping system for a small business might include the following items. Irs 1040x 2012 Business checkbook. Irs 1040x 2012 Daily summary of cash receipts. Irs 1040x 2012 Monthly summary of cash receipts. Irs 1040x 2012 Check disbursements journal. Irs 1040x 2012 Depreciation worksheet. Irs 1040x 2012 Employee compensation record. Irs 1040x 2012 The business checkbook is explained next. Irs 1040x 2012 The other items are illustrated later under Sample Record System. Irs 1040x 2012 The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Irs 1040x 2012 For example, record expenses when they occur, and identify the source of recorded receipts. Irs 1040x 2012 Generally, it is best to record transactions on a daily basis. Irs 1040x 2012 Business checkbook. Irs 1040x 2012   One of the first things you should do when you start a business is open a business checking account. Irs 1040x 2012 You should keep your business account separate from your personal checking account. Irs 1040x 2012   The business checkbook is your basic source of information for recording your business expenses. Irs 1040x 2012 You should deposit all daily receipts in your business checking account. Irs 1040x 2012 You should check your account for errors by reconciling it. Irs 1040x 2012 See Reconciling the checking account, later. Irs 1040x 2012   Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Irs 1040x 2012 You should also note on the deposit slip the source of the deposit and keep copies of all slips. Irs 1040x 2012   You should make all payments by check to document business expenses. Irs 1040x 2012 Write checks payable to yourself only when making withdrawals from your business for personal use. Irs 1040x 2012 Avoid writing checks payable to cash. Irs 1040x 2012 If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Irs 1040x 2012 If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Irs 1040x 2012    Use the business account for business purposes only. Irs 1040x 2012 Indicate the source of deposits and the type of expense in the checkbook. Irs 1040x 2012 Reconciling the checking account. Irs 1040x 2012   When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Irs 1040x 2012 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. Irs 1040x 2012   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. Irs 1040x 2012    You should reconcile your checking account each month. Irs 1040x 2012     Before you reconcile your monthly bank statement, check your own figures. Irs 1040x 2012 Begin with the balance shown in your checkbook at the end of the previous month. Irs 1040x 2012 To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Irs 1040x 2012   After checking your figures, the result should agree with your checkbook balance at the end of the month. Irs 1040x 2012 If the result does not agree, you may have made an error in recording a check or deposit. Irs 1040x 2012 You can find the error by doing the following. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 Adding the deposit amounts in your checkbook. Irs 1040x 2012 Compare that total with the monthly total in your cash receipt book, if you have one. Irs 1040x 2012 If the totals do not agree, check the individual amounts to find any errors. Irs 1040x 2012   If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Irs 1040x 2012   When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Irs 1040x 2012 Many banks print a reconciliation worksheet on the back of the statement. Irs 1040x 2012   To reconcile your account, follow these steps. Irs 1040x 2012 Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Irs 1040x 2012 Note all differences in the dollar amounts. Irs 1040x 2012 Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Irs 1040x 2012 Note all differences in the dollar amounts. Irs 1040x 2012 Mark the check number in the checkbook as having cleared the bank. Irs 1040x 2012 After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Irs 1040x 2012 Prepare a bank reconciliation. Irs 1040x 2012 One is illustrated later under Sample Record System. Irs 1040x 2012 Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Irs 1040x 2012 At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Irs 1040x 2012 If you still have differences, check the previous steps to find the errors. Irs 1040x 2012   Table 3. Irs 1040x 2012 Period of Limitations IF you. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012   THEN the period is. Irs 1040x 2012 . Irs 1040x 2012 . Irs 1040x 2012 1. Irs 1040x 2012 Owe additional tax and situations (2), (3), and (4), below, do not apply to you   3 years 2. Irs 1040x 2012 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. Irs 1040x 2012 File a fraudulent return   Not limited 4. Irs 1040x 2012 Do not file a return   Not limited 5. Irs 1040x 2012 File a claim for credit or refund after you filed your return   Later of: 3 years or  2 years after tax   was paid 6. Irs 1040x 2012 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. Irs 1040x 2012 The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Irs 1040x 2012 You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Irs 1040x 2012 Single-entry. Irs 1040x 2012   A single-entry system is based on the income statement (profit or loss statement). Irs 1040x 2012 It can be a simple and practical system if you are starting a small business. Irs 1040x 2012 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. Irs 1040x 2012 Double-entry. Irs 1040x 2012   A double-entry bookkeeping system uses journals and ledgers. Irs 1040x 2012 Transactions are first entered in a journal and then posted to ledger accounts. Irs 1040x 2012 These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Irs 1040x 2012 You close income and expense accounts at the end of each tax year. Irs 1040x 2012 You keep asset, liability, and net worth accounts open on a permanent basis. Irs 1040x 2012   In the double-entry system, each account has a left side for debits and a right side for credits. Irs 1040x 2012 It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Irs 1040x 2012   Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Irs 1040x 2012 If the amounts do not balance, you have made an error and you must find and correct it. Irs 1040x 2012   An example of a journal entry exhibiting a payment of rent in October is shown next. Irs 1040x 2012 General Journal Date Description of Entry Debit  Credit Oct. Irs 1040x 2012 5 Rent expense 780. Irs 1040x 2012 00     Cash   780. Irs 1040x 2012 00                 Computerized System There are computer software packages you can use for recordkeeping. Irs 1040x 2012 They can be purchased in many retail stores. Irs 1040x 2012 These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Irs 1040x 2012 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. Irs 1040x 2012 To meet this qualification, the machine-sensible records must reconcile with your books and return. Irs 1040x 2012 These records must provide enough detail to identify the underlying source documents. Irs 1040x 2012 You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Irs 1040x 2012 This documentation must be sufficiently detailed to show all of the following items. Irs 1040x 2012 Functions being performed as the data flows through the system. Irs 1040x 2012 Controls used to ensure accurate and reliable processing. Irs 1040x 2012 Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Irs 1040x 2012 Charts of accounts and detailed account descriptions. Irs 1040x 2012 See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 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. Irs 1040x 2012 Table 3 contains the periods of limitations that apply to income tax returns. Irs 1040x 2012 Unless otherwise stated, the years refer to the period after the return was filed. Irs 1040x 2012 Returns filed before the due date are treated as filed on the due date. Irs 1040x 2012 Keep copies of your filed tax returns. Irs 1040x 2012 They help in preparing future tax returns and making computations if you file an amended return. Irs 1040x 2012 Employment taxes. Irs 1040x 2012   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. Irs 1040x 2012 For more information about recordkeeping for employment taxes, see Publication 15. Irs 1040x 2012 Assets. Irs 1040x 2012   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. Irs 1040x 2012 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. Irs 1040x 2012   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. Irs 1040x 2012 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. Irs 1040x 2012 Records for nontax purposes. Irs 1040x 2012   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. Irs 1040x 2012 For example, your insurance company or creditors may require you to keep them longer than the IRS does. Irs 1040x 2012 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. Irs 1040x 2012 Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Irs 1040x 2012 These sample records should not be viewed as a recommendation of how to keep your records. Irs 1040x 2012 They are intended only to show how one business keeps its records. Irs 1040x 2012 1. Irs 1040x 2012 Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Irs 1040x 2012 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. Irs 1040x 2012 Henry takes the cash sales entry from his cash register tape. Irs 1040x 2012 If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Irs 1040x 2012 He carries the total receipts shown in this summary for January 3 ($267. Irs 1040x 2012 80), including cash sales ($263. Irs 1040x 2012 60) and sales tax ($4. Irs 1040x 2012 20), to the Monthly Summary of Cash Receipts. Irs 1040x 2012 Petty cash fund. Irs 1040x 2012   Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Irs 1040x 2012 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. Irs 1040x 2012 He sets up a fixed amount ($50) in his petty cash fund. Irs 1040x 2012 The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Irs 1040x 2012 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. Irs 1040x 2012 (See the Check Disbursements Journal entry for check number 92. Irs 1040x 2012 ) This restores the fund to its fixed amount of $50. Irs 1040x 2012 He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Irs 1040x 2012 2. Irs 1040x 2012 Monthly Summary of Cash Receipts This shows the income activity for the month. Irs 1040x 2012 Henry carries the total monthly net sales shown in this summary for January ($4,865. Irs 1040x 2012 05) to his Annual Summary. Irs 1040x 2012 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. Irs 1040x 2012 He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Irs 1040x 2012 He does not include the tax in his income. Irs 1040x 2012 3. Irs 1040x 2012 Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Irs 1040x 2012 All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Irs 1040x 2012 Frequent expenses have their own headings across the sheet. Irs 1040x 2012 He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Irs 1040x 2012 Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Irs 1040x 2012 Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Irs 1040x 2012 If he did, he would record them in the journal, even though he could not deduct them as business expenses. Irs 1040x 2012 Henry carries the January total of expenses for materials ($1,083. Irs 1040x 2012 50) to the Annual Summary. Irs 1040x 2012 Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Irs 1040x 2012 , in the appropriate columns of that summary. Irs 1040x 2012 4. Irs 1040x 2012 Employee Compensation Record This record shows the following information. Irs 1040x 2012 The number of hours Henry's employee worked in a pay period. Irs 1040x 2012 The employee's total pay for the period. Irs 1040x 2012 The deductions Henry withheld in figuring the employee's net pay. Irs 1040x 2012 The monthly gross payroll. Irs 1040x 2012 Henry carries the January gross payroll ($520) to the Annual Summary. Irs 1040x 2012 5. Irs 1040x 2012 Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Irs 1040x 2012 He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Irs 1040x 2012 He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Irs 1040x 2012 As in the journal, he keeps each major expense in a separate column. Irs 1040x 2012 Henry carries the cash receipts total shown in the annual summary ($47,440. Irs 1040x 2012 9