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Tax Form 1040x Amended Return

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Tax Form 1040x Amended Return

Tax form 1040x amended return 5. Tax form 1040x amended return   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Tax form 1040x amended return Making the election. Tax form 1040x amended return Form 3115. Tax form 1040x amended return Income TaxesAccrual of contested income taxes. Tax form 1040x amended return Employment Taxes Other TaxesAdditional Medicare Tax. Tax form 1040x amended return What's New Additional Medicare Tax. Tax form 1040x amended return  Beginning in 2013, you must withhold a 0. Tax form 1040x amended return 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Tax form 1040x amended return Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Tax form 1040x amended return See Employment Taxes , and Self-employment tax , later. Tax form 1040x amended return Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Tax form 1040x amended return You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Tax form 1040x amended return Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Tax form 1040x amended return When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Tax form 1040x amended return This applies whether you use the cash method or an accrual method of accounting. Tax form 1040x amended return Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Tax form 1040x amended return You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Tax form 1040x amended return Limit on accrual of taxes. Tax form 1040x amended return   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Tax form 1040x amended return However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Tax form 1040x amended return Example. Tax form 1040x amended return Your state imposes a tax on personal property used in a trade or business conducted in the state. Tax form 1040x amended return This tax is assessed and becomes a lien as of July 1 (accrual date). Tax form 1040x amended return In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Tax form 1040x amended return Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Tax form 1040x amended return You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Tax form 1040x amended return Uniform capitalization rules. Tax form 1040x amended return   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Tax form 1040x amended return They also apply to certain taxpayers who acquire property for resale. Tax form 1040x amended return Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Tax form 1040x amended return For more information, see chapter 1. Tax form 1040x amended return Carrying charges. Tax form 1040x amended return   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Tax form 1040x amended return You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Tax form 1040x amended return For more information, see chapter 7. Tax form 1040x amended return Refunds of taxes. Tax form 1040x amended return   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Tax form 1040x amended return For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Tax form 1040x amended return    You must include in income any interest you receive on tax refunds. Tax form 1040x amended return Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Tax form 1040x amended return The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Tax form 1040x amended return Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Tax form 1040x amended return See Taxes for local benefits , later. Tax form 1040x amended return If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Tax form 1040x amended return However, you can elect to ratably accrue the taxes during the year. Tax form 1040x amended return See Electing to ratably accrue , later. Tax form 1040x amended return Taxes for local benefits. Tax form 1040x amended return   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Tax form 1040x amended return These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Tax form 1040x amended return You should increase the basis of your property by the amount of the assessment. Tax form 1040x amended return   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Tax form 1040x amended return If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Tax form 1040x amended return Example. Tax form 1040x amended return To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Tax form 1040x amended return The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Tax form 1040x amended return The city is paying the principal and interest with the annual payments made by the property owners. Tax form 1040x amended return The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Tax form 1040x amended return The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Tax form 1040x amended return Charges for services. Tax form 1040x amended return   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Tax form 1040x amended return Purchase or sale of real estate. Tax form 1040x amended return   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Tax form 1040x amended return   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Tax form 1040x amended return Treat the seller as paying the taxes up to but not including the date of sale. Tax form 1040x amended return Treat the buyer as paying the taxes beginning with the date of sale. Tax form 1040x amended return You can usually find this information on the settlement statement you received at closing. Tax form 1040x amended return   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Tax form 1040x amended return Example. Tax form 1040x amended return Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Tax form 1040x amended return He has not elected to ratably accrue property taxes. Tax form 1040x amended return November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Tax form 1040x amended return He sold the property on June 30, 2013. Tax form 1040x amended return Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Tax form 1040x amended return He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Tax form 1040x amended return Electing to ratably accrue. Tax form 1040x amended return   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Tax form 1040x amended return Example. Tax form 1040x amended return Juan Sanchez is a calendar year taxpayer who uses an accrual method. Tax form 1040x amended return His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Tax form 1040x amended return July 1 is the assessment and lien date. Tax form 1040x amended return If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Tax form 1040x amended return Separate elections. Tax form 1040x amended return   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Tax form 1040x amended return Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Tax form 1040x amended return See Form 3115 , later. Tax form 1040x amended return Making the election. Tax form 1040x amended return   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Tax form 1040x amended return The statement should show all the following items. Tax form 1040x amended return The trades or businesses to which the election applies and the accounting method or methods used. Tax form 1040x amended return The period to which the taxes relate. Tax form 1040x amended return The computation of the real estate tax deduction for that first year. Tax form 1040x amended return   Generally, you must file your return by the due date (including extensions). Tax form 1040x amended return However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Tax form 1040x amended return Attach the statement to the amended return and write “Filed pursuant to section 301. Tax form 1040x amended return 9100-2” on the statement. Tax form 1040x amended return File the amended return at the same address where you filed the original return. Tax form 1040x amended return Form 3115. Tax form 1040x amended return    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Tax form 1040x amended return For more information, including applicable time frames for filing, see the Instructions for Form 3115. Tax form 1040x amended return Note. Tax form 1040x amended return If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Tax form 1040x amended return R. Tax form 1040x amended return B. Tax form 1040x amended return 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Tax form 1040x amended return R. Tax form 1040x amended return B. Tax form 1040x amended return 689, and Revenue Procedure 2012-20, 2012-14 I. Tax form 1040x amended return R. Tax form 1040x amended return B. Tax form 1040x amended return 700, or any successor. Tax form 1040x amended return Revenue Procedure 2011-14 is available at  www. Tax form 1040x amended return irs. Tax form 1040x amended return gov/irb/2011-04IRB/ar08. Tax form 1040x amended return html. Tax form 1040x amended return Income Taxes This section discusses federal, state, local, and foreign income taxes. Tax form 1040x amended return Federal income taxes. Tax form 1040x amended return   You cannot deduct federal income taxes. Tax form 1040x amended return State and local income taxes. Tax form 1040x amended return   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Tax form 1040x amended return An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Tax form 1040x amended return   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Tax form 1040x amended return Accrual of contested income taxes. Tax form 1040x amended return   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Tax form 1040x amended return   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Tax form 1040x amended return You cannot deduct them in the year in which the liability is finally determined. Tax form 1040x amended return    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Tax form 1040x amended return Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Tax form 1040x amended return   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Tax form 1040x amended return You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Tax form 1040x amended return For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Tax form 1040x amended return Foreign income taxes. Tax form 1040x amended return   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Tax form 1040x amended return S. Tax form 1040x amended return possession. Tax form 1040x amended return However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Tax form 1040x amended return S. Tax form 1040x amended return tax under the foreign earned income exclusion or the foreign housing exclusion. Tax form 1040x amended return For information on these exclusions, see Publication 54, Tax Guide for U. Tax form 1040x amended return S. Tax form 1040x amended return Citizens and Resident Aliens Abroad. Tax form 1040x amended return For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Tax form 1040x amended return Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Tax form 1040x amended return Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Tax form 1040x amended return You may also need to pay certain employment taxes from your own funds. Tax form 1040x amended return These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Tax form 1040x amended return Note. Tax form 1040x amended return Additional Medicare Tax is only imposed on the employee. Tax form 1040x amended return There is no employer share of Additional Medicare Tax. Tax form 1040x amended return Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Tax form 1040x amended return You can deduct the employment taxes you must pay from your own funds as taxes. Tax form 1040x amended return Example. Tax form 1040x amended return You pay your employee $18,000 a year. Tax form 1040x amended return However, after you withhold various taxes, your employee receives $14,500. Tax form 1040x amended return You also pay an additional $1,500 in employment taxes. Tax form 1040x amended return You should deduct the full $18,000 as wages. Tax form 1040x amended return You can deduct the $1,500 you pay from your own funds as taxes. Tax form 1040x amended return For more information on employment taxes, see Publication 15 (Circular E). Tax form 1040x amended return Unemployment fund taxes. Tax form 1040x amended return   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Tax form 1040x amended return Deduct these payments as taxes. Tax form 1040x amended return Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Tax form 1040x amended return Excise taxes. Tax form 1040x amended return   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Tax form 1040x amended return However, see Fuel taxes , later. Tax form 1040x amended return   For more information on excise taxes, see Publication 510. Tax form 1040x amended return Franchise taxes. Tax form 1040x amended return   You can deduct corporate franchise taxes as a business expense. Tax form 1040x amended return Fuel taxes. Tax form 1040x amended return   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Tax form 1040x amended return Do not deduct these taxes as a separate item. Tax form 1040x amended return   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Tax form 1040x amended return For more information, see Publication 510. Tax form 1040x amended return Occupational taxes. Tax form 1040x amended return   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Tax form 1040x amended return Personal property tax. Tax form 1040x amended return   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Tax form 1040x amended return Sales tax. Tax form 1040x amended return   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Tax form 1040x amended return If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Tax form 1040x amended return If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Tax form 1040x amended return If the property is depreciable, add the sales tax to the basis for depreciation. Tax form 1040x amended return For more information on basis, see Publication 551. Tax form 1040x amended return    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Tax form 1040x amended return Also, do not include these taxes in gross receipts or sales. Tax form 1040x amended return Self-employment tax. Tax form 1040x amended return   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Tax form 1040x amended return This deduction only affects your income tax. Tax form 1040x amended return It does not affect your net earnings from self-employment or your self-employment tax. Tax form 1040x amended return   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Tax form 1040x amended return   For more information on self-employment tax, see Publication 334. Tax form 1040x amended return Additional Medicare Tax. Tax form 1040x amended return   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Tax form 1040x amended return See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Tax form 1040x amended return Prev  Up  Next   Home   More Online Publications
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How to Apply for an EIN

Applying for an EIN is a free service offered by the Internal Revenue Service. Beware of Web sites on the Internet that charge for this free service.

If you are a home-care service recipient who has a previously assigned EIN either as a sole proprietor or as a household employer, do not apply for a new EIN. Use the EIN previously provided. If you can not locate your EIN for any reason, follow the instructions on the Lost or Misplaced Your EIN? Web page.

Apply Online
The Internet EIN application is the preferred method for customers to apply for and obtain an EIN. Once the application is completed, the information is validated during the online session, and an EIN is issued immediately. The online application process is available for all entities whose principal business, office or agency, or legal residence (in the case of an individual), is located in the United States or U.S. Territories. The principal officer, general partner, grantor, owner, trustor etc. must have a valid Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) in order to use the online application.

Apply By FAX
Taxpayers can FAX the completed Form SS-4 (PDF) application to their state FAX number (see Where to File - Business Forms and Filing Addresses), after ensuring that the Form SS-4 contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type. If the taxpayer's fax number is provided, a fax will be sent back with the EIN within four (4) business days.

Apply By Mail
The processing timeframe for an EIN application received by mail is four weeks. Ensure that the Form SS-4 (PDF) contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type and mailed to the taxpayer. Find out where to mail Form SS-4 on the "Where to File Your Taxes" (for Form SS-4) page.

Apply by Telephone – International Applicants
International applicants may call 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday to obtain their EIN. The person making the call must be authorized to receive the EIN and answer questions concerning the Form SS-4 (PDF), Application for Employer Identification Number. Complete the Third Party Designee section only if you want to authorize the named individual to receive the entity’s EIN and answer questions about the completion of Form SS-4. The designee’s authority terminates at the time the EIN is assigned and released to the designee. You must complete the signature area for the authorization to be valid.

Other Important Information

Daily Limitation of an Employer Identification Number
Effective May 21, 2012, to ensure fair and equitable treatment for all taxpayers, the Internal Revenue Service will limit Employer Identification Number (EIN) issuance to one per responsible party per day. This limitation is applicable to all requests for EINs whether online or by fax or mail. We apologize for any inconvenience this may cause.

Responsible Party
In order to identify the correct individuals and entities applying for EINs, language changes have been made to the EIN process. Refer to Responsible Parties and Nominees to learn about these important changes before applying for an EIN.

Third Party Authorization
The Third Party Designee section must be completed at the bottom of the Form SS-4. The Form SS-4 must also be signed by the taxpayer for the third party designee authorization to be valid. The Form SS-4 must be mailed or faxed to the appropriate service center. The third party designee's authority terminates at the time the EIN is assigned and released to the designee.

Page Last Reviewed or Updated: 03-Jan-2014

The Tax Form 1040x Amended Return

Tax form 1040x amended return 6. Tax form 1040x amended return   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. Tax form 1040x amended return However, to determine these costs, you must value your inventory at the beginning and end of each tax year. Tax form 1040x amended return This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. Tax form 1040x amended return This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. Tax form 1040x amended return However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. Tax form 1040x amended return If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. Tax form 1040x amended return For more information, see chapter 2. Tax form 1040x amended return Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. Tax form 1040x amended return These lines are reproduced below and are explained in the discussion that follows. Tax form 1040x amended return 35 Inventory at beginning of year. Tax form 1040x amended return If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. Tax form 1040x amended return Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. Tax form 1040x amended return Subtract line 41 from line 40. Tax form 1040x amended return  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. Tax form 1040x amended return If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). Tax form 1040x amended return Opening inventory usually will be identical to the closing inventory of the year before. Tax form 1040x amended return You must explain any difference in a schedule attached to your return. Tax form 1040x amended return Donation of inventory. Tax form 1040x amended return   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. Tax form 1040x amended return The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Tax form 1040x amended return You must remove the amount of your contribution deduction from your opening inventory. Tax form 1040x amended return It is not part of the cost of goods sold. Tax form 1040x amended return   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Tax form 1040x amended return Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Tax form 1040x amended return For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Tax form 1040x amended return   A special rule may apply to certain donations of food inventory. Tax form 1040x amended return See Publication 526, Charitable Contributions. Tax form 1040x amended return Example 1. Tax form 1040x amended return You are a calendar year taxpayer who uses an accrual method of accounting. Tax form 1040x amended return In 2013, you contributed property from inventory to a church. Tax form 1040x amended return It had a fair market value of $600. Tax form 1040x amended return The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. Tax form 1040x amended return The charitable contribution allowed for 2013 is $400 ($600 − $200). Tax form 1040x amended return The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. Tax form 1040x amended return The cost of goods sold you use in determining gross income for 2013 must not include the $400. Tax form 1040x amended return You remove that amount from opening inventory for 2013. Tax form 1040x amended return Example 2. Tax form 1040x amended return If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. Tax form 1040x amended return You would not be allowed any charitable contribution deduction for the contributed property. Tax form 1040x amended return Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. Tax form 1040x amended return If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. Tax form 1040x amended return Trade discounts. Tax form 1040x amended return   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. Tax form 1040x amended return You must use the prices you pay (not the stated prices) in figuring your cost of purchases. Tax form 1040x amended return Do not show the discount amount separately as an item in gross income. Tax form 1040x amended return   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. Tax form 1040x amended return Cash discounts. Tax form 1040x amended return   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. Tax form 1040x amended return There are two methods of accounting for cash discounts. Tax form 1040x amended return You can either credit them to a separate discount account or deduct them from total purchases for the year. Tax form 1040x amended return Whichever method you use, you must be consistent. Tax form 1040x amended return If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. Tax form 1040x amended return For more information, see Change in Accounting Method in chapter 2. Tax form 1040x amended return   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. Tax form 1040x amended return If you use this method, do not reduce your cost of goods sold by the cash discounts. Tax form 1040x amended return Purchase returns and allowances. Tax form 1040x amended return   You must deduct all returns and allowances from your total purchases during the year. Tax form 1040x amended return Merchandise withdrawn from sale. Tax form 1040x amended return   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. Tax form 1040x amended return Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. Tax form 1040x amended return You must also charge the amount to your drawing account. Tax form 1040x amended return   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. Tax form 1040x amended return As stated above, you also use it to record withdrawals of merchandise for personal or family use. Tax form 1040x amended return This account is also known as a “withdrawals account” or “personal account. Tax form 1040x amended return ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. Tax form 1040x amended return Small merchandisers (wholesalers, retailers, etc. Tax form 1040x amended return ) usually do not have labor costs that can properly be charged to cost of goods sold. Tax form 1040x amended return In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. Tax form 1040x amended return Direct labor. Tax form 1040x amended return   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. Tax form 1040x amended return They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. Tax form 1040x amended return Indirect labor. Tax form 1040x amended return   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. Tax form 1040x amended return Other labor. Tax form 1040x amended return   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. Tax form 1040x amended return Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. Tax form 1040x amended return Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. Tax form 1040x amended return Those that are not used in the manufacturing process are treated as deferred charges. Tax form 1040x amended return You deduct them as a business expense when you use them. Tax form 1040x amended return Business expenses are discussed in chapter 8. Tax form 1040x amended return Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. Tax form 1040x amended return Containers. Tax form 1040x amended return   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. Tax form 1040x amended return If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. Tax form 1040x amended return Freight-in. Tax form 1040x amended return   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. Tax form 1040x amended return Overhead expenses. Tax form 1040x amended return   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. Tax form 1040x amended return The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. Tax form 1040x amended return Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. Tax form 1040x amended return Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. Tax form 1040x amended return Inventory at the end of the year is also known as closing or ending inventory. Tax form 1040x amended return Your ending inventory will usually become the beginning inventory of your next tax year. Tax form 1040x amended return Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. Tax form 1040x amended return Prev  Up  Next   Home   More Online Publications