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Information for the Tax Exempt Bond Community

Update: Effect of Sequestration on Certain State & Local Government Filers of Form 8038-CP
Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, certain automatic reductions will take place as of October 1, 2013. These required reductions include a reduction to refundable credits under section 6431 of the Internal Revenue Code applicable to certain qualified bonds.

Published Volume Cap Limit for Tribal Economic Development Bonds
IRS announces the Published Volume Cap Limit for applications for allocations of national bond volume limitation authority to issuers of tribal economic development bonds for the period beginning February 1, 2014.

Extra Time Granted for Tax-Exempt Bond Issuers Affected by Severe Storms and Tornados in Oklahoma
Government entity issuers of tax-exempt bonds affected by the severe storms and tornados occurring in parts of Oklahoma may qualify for additional time to file certain returns related to tax-exempt bonds, qualified tax credit bonds, and specified tax credit bonds.

New Voluntary Closing Agreement Program Request Form
The Internal Revenue Service released the new Form 14429, Tax Exempt Bonds Voluntary Closing Agreement Program Request, which must be submitted with a Tax Exempt Bonds Voluntary Closing Agreement Program submission request.

IRS Report on Avoiding Troubled Tax-Advantaged Bonds
This report produced by the TEB Compliance Practice Research Team seeks to provide aid to issuers of tax-advantaged municipal bonds. It identifies some considerations for issuers of such bonds and is TEB’s initial step toward producing public resource products that assist issuers in avoiding troubled transactions.

Sale of Assets Financed with Tax-Exempt Bonds by State and Local Governments and 501(c)(3) Organizations
Often, in their need to raise funds, state and local governments and 501(c)(3) organizations may sell property financed with tax-exempt bonds. These sales could cause the bond issue to become taxable. This article provides basic information concerning remedial actions needed, if necessary, to preserve the tax-exempt status of the bond issue.

TEGE ACT 11th Report
The eleventh report of recommendations of the Advisory Committee on Tax Exempt and Government Entities (ACT).

ARRA and HIRE Act Bond Guidance
Guidance on bond provisions of the ARRA and HIRE Act.

TEB Post-Issuance Compliance
Provides basic post-issuance information for issuers of tax-advantaged bonds.

TEB Voluntary Compliance
Provides information about post-issuance and voluntary compliance.

TEB Financial Restructuring Compliance
Provides information for issuers or conduit borrowers with defaulted or distressed obligations.

TEB Archives
Past articles and information on Tax Exempt Bonds topics.

Contact TEB
If you need to contact Tax Exempt Bonds this page will provide you with contact information.

TEB Published Guidance
Information and guidance for the Tax Exempt Bond Community.

TEB FAQs
Frequently Asked Questions about Tax Exempt Bond topics.

Page Last Reviewed or Updated: 26-Mar-2014

The Online 1040ez

Online 1040ez 5. Online 1040ez   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Online 1040ez Short-term lease. Online 1040ez Retail space. Online 1040ez Qualified long-term real property. Online 1040ez Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Online 1040ez If there is a connection between any income you receive and your business, the income is business income. Online 1040ez A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Online 1040ez You can have business income even if you are not involved in the activity on a regular full-time basis. Online 1040ez Income from work you do on the side in addition to your regular job can be business income. Online 1040ez You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Online 1040ez But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Online 1040ez For information on selling business assets, see chapter 3. Online 1040ez Nonemployee compensation. Online 1040ez Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Online 1040ez This includes amounts reported as nonemployee compensation in box 7 of the form. Online 1040ez You can find more information in the instructions on the back of the Form 1099-MISC you received. Online 1040ez Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Online 1040ez In most cases, your business income will be in the form of cash, checks, and credit card charges. Online 1040ez But business income can be in other forms, such as property or services. Online 1040ez These and other types of income are explained next. Online 1040ez If you are a U. Online 1040ez S. Online 1040ez citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Online 1040ez S. Online 1040ez law. Online 1040ez If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Online 1040ez For details, see Publication 54, Tax Guide for U. Online 1040ez S. Online 1040ez Citizens and Resident Aliens Abroad. Online 1040ez Bartering for Property or Services Bartering is an exchange of property or services. Online 1040ez You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Online 1040ez If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Online 1040ez Example 1. Online 1040ez You are a self-employed lawyer. Online 1040ez You perform legal services for a client, a small corporation. Online 1040ez In payment for your services, you receive shares of stock in the corporation. Online 1040ez You must include the fair market value of the shares in income. Online 1040ez Example 2. Online 1040ez You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Online 1040ez You must include the fair rental value of the apartment in your gross receipts. Online 1040ez Your landlord must include the fair market value of the work of art in his or her rental income. Online 1040ez Example 3. Online 1040ez You are a self-employed accountant. Online 1040ez Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Online 1040ez Members get in touch with other members directly and bargain for the value of the services to be performed. Online 1040ez In return for accounting services you provided for the house painter's business, the house painter painted your home. Online 1040ez You must include in gross receipts the fair market value of the services you received from the house painter. Online 1040ez The house painter must include the fair market value of your accounting services in his or her gross receipts. Online 1040ez Example 4. Online 1040ez You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Online 1040ez As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Online 1040ez You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Online 1040ez The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Online 1040ez It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Online 1040ez See Publication 15 (Circular E), Employer's Tax Guide. Online 1040ez Example 5. Online 1040ez You operate a plumbing business and use the cash method of accounting. Online 1040ez You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Online 1040ez Each member has access to a directory that lists the members of the club and the services available. Online 1040ez Members contact each other directly and request services to be performed. Online 1040ez You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Online 1040ez You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Online 1040ez Information returns. Online 1040ez   If you are involved in a bartering transaction, you may have to file either of the following forms. Online 1040ez Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Online 1040ez Form 1099-MISC, Miscellaneous Income. Online 1040ez For information about these forms, see the General Instructions for Certain Information Returns. Online 1040ez Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Online 1040ez , who provides services (maid services, etc. Online 1040ez ) for guests, report the rental income and expenses on Schedule C or C-EZ. Online 1040ez If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Online 1040ez For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Online 1040ez Real estate dealer. Online 1040ez   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Online 1040ez Rent you receive from real estate held for sale to customers is subject to SE tax. Online 1040ez However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Online 1040ez Trailer park owner. Online 1040ez   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Online 1040ez    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Online 1040ez Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Online 1040ez   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Online 1040ez   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Online 1040ez Hotels, boarding houses, and apartments. Online 1040ez   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Online 1040ez   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Online 1040ez An example of a service that is not normally provided for the convenience of the occupants is maid service. Online 1040ez However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Online 1040ez Prepaid rent. Online 1040ez   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Online 1040ez This is true no matter what accounting method or period you use. Online 1040ez Lease bonus. Online 1040ez   A bonus you receive from a lessee for granting a lease is an addition to the rent. Online 1040ez Include it in your gross receipts in the year received. Online 1040ez Lease cancellation payments. Online 1040ez   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Online 1040ez Payments to third parties. Online 1040ez   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Online 1040ez A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Online 1040ez Settlement payments. Online 1040ez   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Online 1040ez Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Online 1040ez ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Online 1040ez Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Online 1040ez If you receive any of those payments, include them in your gross receipts as explained in that discussion. Online 1040ez Interest and Dividend Income Interest and dividends may be considered business income. Online 1040ez Interest. Online 1040ez   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Online 1040ez Interest received on loans is business income if you are in the business of lending money. Online 1040ez Uncollectible loans. Online 1040ez   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Online 1040ez If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Online 1040ez See Bad Debts in chapter 8. Online 1040ez Unstated interest. Online 1040ez   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Online 1040ez See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Online 1040ez Dividends. Online 1040ez   Generally, dividends are business income to dealers in securities. Online 1040ez For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Online 1040ez If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Online 1040ez   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Online 1040ez To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Online 1040ez Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Online 1040ez General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Online 1040ez Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Online 1040ez If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Online 1040ez Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Online 1040ez Price reduced after purchase. Online 1040ez   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Online 1040ez Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Online 1040ez Deductible debt. Online 1040ez   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Online 1040ez Example. Online 1040ez You get accounting services for your business on credit. Online 1040ez Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Online 1040ez Your accountant forgives part of the amount you owe for the accounting services. Online 1040ez How you treat the canceled debt depends on your method of accounting. Online 1040ez Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Online 1040ez Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Online 1040ez   For information on the cash and accrual methods of accounting, see chapter 2. Online 1040ez Exclusions Do not include canceled debt in income in the following situations. Online 1040ez However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Online 1040ez For more information, see Form 982. Online 1040ez The cancellation takes place in a bankruptcy case under title 11 of the U. Online 1040ez S. Online 1040ez Code (relating to bankruptcy). Online 1040ez See Publication 908, Bankruptcy Tax Guide. Online 1040ez The cancellation takes place when you are insolvent. Online 1040ez You can exclude the canceled debt to the extent you are insolvent. Online 1040ez See Publication 908. Online 1040ez The canceled debt is a qualified farm debt owed to a qualified person. Online 1040ez See chapter 3 in Publication 225, Farmer's Tax Guide. Online 1040ez The canceled debt is a qualified real property business debt. Online 1040ez This situation is explained later. Online 1040ez The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Online 1040ez See Form 982. Online 1040ez If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Online 1040ez If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Online 1040ez Debt. Online 1040ez   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Online 1040ez Qualified real property business debt. Online 1040ez   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Online 1040ez If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Online 1040ez Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Online 1040ez However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Online 1040ez Cancellation of qualified real property business debt. Online 1040ez   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Online 1040ez It was incurred or assumed in connection with real property used in a trade or business. Online 1040ez It was secured by such real property. Online 1040ez It was incurred or assumed at either of the following times. Online 1040ez Before January 1, 1993. Online 1040ez After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Online 1040ez It is debt to which you choose to apply these rules. Online 1040ez   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Online 1040ez   You cannot exclude more than either of the following amounts. Online 1040ez The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Online 1040ez The total adjusted bases of depreciable real property held by you immediately before the cancellation. Online 1040ez These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Online 1040ez Do not take into account depreciable real property acquired in contemplation of the cancellation. Online 1040ez Election. Online 1040ez   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Online 1040ez You must file your return by the due date (including extensions). Online 1040ez If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Online 1040ez For more information, see When To File in the form instructions. Online 1040ez Other Income The following discussion explains how to treat other types of business income you may receive. Online 1040ez Restricted property. Online 1040ez   Restricted property is property that has certain restrictions that affect its value. Online 1040ez If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Online 1040ez However, you can choose to be taxed in the year you receive the property. Online 1040ez For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Online 1040ez Gains and losses. Online 1040ez   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Online 1040ez Instead, you must report these gains and losses on other forms. Online 1040ez For more information, see chapter 3. Online 1040ez Promissory notes. Online 1040ez   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Online 1040ez In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Online 1040ez Lost income payments. Online 1040ez   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Online 1040ez Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Online 1040ez Damages. Online 1040ez   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Online 1040ez Patent infringement. Online 1040ez Breach of contract or fiduciary duty. Online 1040ez Antitrust injury. Online 1040ez Economic injury. Online 1040ez   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Online 1040ez Your deduction is the smaller of the following amounts. Online 1040ez The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Online 1040ez Your loss from the injury that you have not yet deducted. Online 1040ez Punitive damages. Online 1040ez   You must also include punitive damages in income. Online 1040ez Kickbacks. Online 1040ez   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Online 1040ez However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Online 1040ez Recovery of items previously deducted. Online 1040ez   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Online 1040ez However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Online 1040ez If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Online 1040ez Example. Online 1040ez Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Online 1040ez He also had 2 personal exemptions for a total of $7,800. Online 1040ez He would not pay income tax even if he did not deduct the bad debt. Online 1040ez Therefore, he will not report as income any part of the $300 he may recover in any future year. Online 1040ez Exception for depreciation. Online 1040ez   This rule does not apply to depreciation. Online 1040ez You recover depreciation using the rules explained next. Online 1040ez Recapture of depreciation. Online 1040ez   In the following situations, you have to recapture the depreciation deduction. Online 1040ez This means you include in income part or all of the depreciation you deducted in previous years. Online 1040ez Listed property. Online 1040ez   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Online 1040ez You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Online 1040ez Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Online 1040ez For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Online 1040ez That chapter explains how to determine whether property is used more than 50% in your business. Online 1040ez Section 179 property. Online 1040ez   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Online 1040ez You do this by including in income on Schedule C part of the deduction you took. Online 1040ez Use Part IV of Form 4797 to figure the amount to include on Schedule C. Online 1040ez See chapter 2 in Publication 946 to find out when you recapture the deduction. Online 1040ez Sale or exchange of depreciable property. Online 1040ez   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Online 1040ez You figure the income due to depreciation recapture in Part III of Form 4797. Online 1040ez For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Online 1040ez Items That Are Not Income In some cases the property or money you receive is not income. Online 1040ez Appreciation. Online 1040ez   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Online 1040ez Consignments. Online 1040ez   Consignments of merchandise to others to sell for you are not sales. Online 1040ez The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Online 1040ez Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Online 1040ez Merchandise you have shipped out on consignment is included in your inventory until it is sold. Online 1040ez   Do not include merchandise you receive on consignment in your inventory. Online 1040ez Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Online 1040ez Construction allowances. Online 1040ez   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Online 1040ez Under a short-term lease of retail space. Online 1040ez For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Online 1040ez Amount you can exclude. Online 1040ez   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Online 1040ez Short-term lease. Online 1040ez   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Online 1040ez The following rules apply in determining whether the lease is for 15 years or less. Online 1040ez Take into account options to renew when figuring whether the lease is for 15 years or less. Online 1040ez But do not take into account any option to renew at fair market value determined at the time of renewal. Online 1040ez Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Online 1040ez Retail space. Online 1040ez   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Online 1040ez Qualified long-term real property. Online 1040ez   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Online 1040ez Exchange of like-kind property. Online 1040ez   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Online 1040ez This means that the gain is not taxable and the loss is not deductible. Online 1040ez A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Online 1040ez For more information, see Form 8824. Online 1040ez Leasehold improvements. Online 1040ez   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Online 1040ez However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Online 1040ez Loans. Online 1040ez   Money borrowed through a bona fide loan is not income. Online 1040ez Sales tax. Online 1040ez   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Online 1040ez Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Online 1040ez Direct seller. Online 1040ez   You must report all income you receive as a direct seller on Schedule C or C-EZ. Online 1040ez This includes any of the following. Online 1040ez Income from sales—payments you receive from customers for products they buy from you. Online 1040ez Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Online 1040ez Prizes, awards, and gifts you receive from your selling business. Online 1040ez You must report this income regardless of whether it is reported to you on an information return. Online 1040ez   You are a direct seller if you meet all the following conditions. Online 1040ez You are engaged in one of the following trades or businesses. Online 1040ez Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Online 1040ez Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Online 1040ez Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Online 1040ez Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Online 1040ez Executor or administrator. Online 1040ez   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Online 1040ez A nonprofessional fiduciary (personal representative) and both of the following apply. Online 1040ez The estate includes an active trade or business in which you actively participate. Online 1040ez Your fees are related to the operation of that trade or business. Online 1040ez A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Online 1040ez    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Online 1040ez Fishing crew member. Online 1040ez    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Online 1040ez Insurance agent, former. Online 1040ez   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Online 1040ez You received payments after your agreement to perform services for the company ended. Online 1040ez You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Online 1040ez You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Online 1040ez The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Online 1040ez The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Online 1040ez Insurance agent, retired. Online 1040ez   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Online 1040ez Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Online 1040ez   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Online 1040ez Newspaper carrier or distributor. Online 1040ez   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Online 1040ez You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Online 1040ez Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Online 1040ez You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Online 1040ez   This rule applies whether or not you hire others to help you make deliveries. Online 1040ez It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Online 1040ez Newspaper or magazine vendor. Online 1040ez   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Online 1040ez You sell newspapers or magazines to ultimate consumers. Online 1040ez You sell them at a fixed price. Online 1040ez Your earnings are based on the difference between the sales price and your cost of goods sold. Online 1040ez   This rule applies whether or not you are guaranteed a minimum amount of earnings. Online 1040ez It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Online 1040ez Notary public. Online 1040ez   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Online 1040ez These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Online 1040ez Public official. Online 1040ez   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Online 1040ez This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Online 1040ez Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Online 1040ez   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Online 1040ez Real estate agent or direct seller. Online 1040ez   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Online 1040ez Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Online 1040ez You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Online 1040ez Securities dealer. Online 1040ez   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Online 1040ez For more information, see sections 1256 and 1402(i). Online 1040ez Securities trader. Online 1040ez   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Online 1040ez As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Online 1040ez However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Online 1040ez For more information about securities traders, see Publication 550, Investment Income and Expenses. Online 1040ez Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Online 1040ez This section discusses some of the more common differences that may affect business transactions. Online 1040ez Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Online 1040ez If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Online 1040ez Dealers in real estate are not allowed to use inventories. Online 1040ez For more information on inventories, see chapter 2. Online 1040ez Income paid to a third party. Online 1040ez   All income you earn is taxable to you. Online 1040ez You cannot avoid tax by having the income paid to a third party. Online 1040ez Example. Online 1040ez You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Online 1040ez The amount paid to your son is gross income to you. Online 1040ez Cash discounts. Online 1040ez   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Online 1040ez For income tax purposes, you can use either of the following two methods to account for cash discounts. Online 1040ez Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Online 1040ez Credit the cash discount to a discount income account. Online 1040ez You must use the chosen method every year for all your purchase discounts. Online 1040ez   If you use the second method, the credit balance in the account at the end of your tax year is business income. Online 1040ez Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Online 1040ez When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Online 1040ez Trade discounts. Online 1040ez   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Online 1040ez Do not enter these discounts on your books of account. Online 1040ez Instead, use only the net amount as the cost of the merchandise purchased. Online 1040ez For more information, see Trade discounts in chapter 6. Online 1040ez Payment placed in escrow. Online 1040ez   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Online 1040ez However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Online 1040ez Sales returns and allowances. Online 1040ez   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Online 1040ez Advance payments. Online 1040ez   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Online 1040ez Insurance proceeds. Online 1040ez   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Online 1040ez You cannot deduct the reimbursed part of a casualty or theft loss. Online 1040ez   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. 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