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Turbotax Form 1040x

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Turbotax Form 1040x

Turbotax form 1040x 5. Turbotax form 1040x   Table and Worksheets for the Self-Employed Table of Contents Community property laws. Turbotax form 1040x As discussed in chapters 2 and 4, if you are self-employed, you must use the rate table or rate worksheet and deduction worksheet to figure your deduction for contributions you made for yourself to a SEP-IRA or qualified plan. Turbotax form 1040x First, use either the rate table or rate worksheet to find your reduced contribution rate. Turbotax form 1040x Then complete the deduction worksheet to figure your deduction for contributions. Turbotax form 1040x The table and the worksheets in chapter 5 apply only to self-employed individuals who have only one defined contribution plan, such as a profit-sharing plan. Turbotax form 1040x A SEP plan is treated as a profit-sharing plan. Turbotax form 1040x However, do not use this worksheet for SARSEPs. Turbotax form 1040x Rate table for self-employed. Turbotax form 1040x   If your plan's contribution rate is a whole percentage (for example, 12% rather than 12½%), you can use the table on the next page to find your reduced contribution rate. Turbotax form 1040x Otherwise, use the rate worksheet provided below. Turbotax form 1040x   First, find your plan contribution rate (the contribution rate stated in your plan) in Column A of the table. Turbotax form 1040x Then read across to the rate under Column B. Turbotax form 1040x Enter the rate from Column B in step 4 of the Deduction Worksheet for Self-Employed on this page. Turbotax form 1040x    Example. Turbotax form 1040x You are a sole proprietor with no employees. Turbotax form 1040x If your plan's contribution rate is 10% of a participant's compensation, your rate is 0. Turbotax form 1040x 090909. Turbotax form 1040x Enter this rate in step 4 of the Deduction Worksheet for Self-Employed on this page. Turbotax form 1040x Deduction Worksheet for Self-Employed   Step 1           Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 34, Schedule F (Form 1040)*; or box 14, code A**, Schedule K-1 (Form 1065)*. Turbotax form 1040x For information on other income included in net profit from self-employment, see the Instructions for Schedule SE, Form 1040. Turbotax form 1040x       *Reduce this amount by any amount reported on Schedule SE (Form 1040), line 1b. Turbotax form 1040x       **General partners should reduce this amount by the same additional expenses subtracted from box 14, code A to determine the amount on line 1 or 2 of Schedule SE. Turbotax form 1040x     Step 2           Enter your deduction for self-employment tax from Form 1040, line 27             Step 3           Net earnings from self-employment. Turbotax form 1040x Subtract step 2 from step 1     Step 4           Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed     Step 5           Multiply step 3 by step 4     Step 6           Multiply $255,000 by your plan contribution rate (not the reduced rate)     Step 7           Enter the smaller of step 5 or step 6     Step 8           Contribution dollar limit $51,000     • If you made any elective deferrals to your self-employed plan, go to step 9. Turbotax form 1040x         • Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. Turbotax form 1040x       Step 9           Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2013. Turbotax form 1040x Do not enter more than $17,500     Step 10           Subtract step 9 from step 8     Step 11           Subtract step 9 from step 3       Step 12           Enter one-half of step 11     Step 13           Enter the smallest of step 7, 10, or 12     Step 14           Subtract step 13 from step 3     Step 15           Enter the smaller of step 9 or step 14       • If you made catch-up contributions, go to step 16. Turbotax form 1040x         • Otherwise, skip steps 16 through 18 and go to step 19. Turbotax form 1040x       Step 16           Subtract step 15 from step 14     Step 17           Enter your catch-up contributions (including designated Roth contributions), if any. Turbotax form 1040x Do not enter more than $5,500     Step 18           Enter the smaller of step 16 or step 17     Step 19           Add steps 13, 15, and 18. Turbotax form 1040x     Step 20           Enter the amount of designated Roth contributions included on lines 9 and 17. Turbotax form 1040x     Step 21           Subtract step 20 from step 19. Turbotax form 1040x This is your maximum deductible contribution. Turbotax form 1040x                 Next: Enter your actual contribution, not to exceed your maximum deductible contribution, on Form 1040, line 28. Turbotax form 1040x   Rate worksheet for self-employed. Turbotax form 1040x   If your plan's contribution rate is not a whole percentage (for example, 10½%), you cannot use the Rate Table for Self-Employed. Turbotax form 1040x Use the following worksheet instead. Turbotax form 1040x Rate Worksheet for Self-Employed 1) Plan contribution rate as a decimal (for example, 10½% = 0. Turbotax form 1040x 105)   2) Rate in line 1 plus 1 (for example, 0. Turbotax form 1040x 105 + 1 = 1. Turbotax form 1040x 105)   3) Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2) (for example, 0. Turbotax form 1040x 105 ÷ 1. Turbotax form 1040x 105 = 0. Turbotax form 1040x 095)   Figuring your deduction. Turbotax form 1040x   Now that you have your self-employed rate from either the rate table or rate worksheet, you can figure your maximum deduction for contributions for yourself by completing the Deduction Worksheet for Self-Employed. Turbotax form 1040x Community property laws. Turbotax form 1040x   If you reside in a community property state and you are married and filing a separate return, disregard community property laws for step 1 of the Deduction Worksheet for Self-Employed. Turbotax form 1040x Enter on step 1 the total net profit you actually earned. Turbotax form 1040x Rate Table for Self-Employed Column A  If the plan contri- bution rate is: (shown as %) Column B  Your rate is: (shown as decimal) 1 . Turbotax form 1040x 009901 2 . Turbotax form 1040x 019608 3 . Turbotax form 1040x 029126 4 . Turbotax form 1040x 038462 5 . Turbotax form 1040x 047619 6 . Turbotax form 1040x 056604 7 . Turbotax form 1040x 065421 8 . Turbotax form 1040x 074074 9 . Turbotax form 1040x 082569 10 . Turbotax form 1040x 090909 11 . Turbotax form 1040x 099099 12 . Turbotax form 1040x 107143 13 . Turbotax form 1040x 115044 14 . Turbotax form 1040x 122807 15 . Turbotax form 1040x 130435 16 . Turbotax form 1040x 137931 17 . Turbotax form 1040x 145299 18 . Turbotax form 1040x 152542 19 . Turbotax form 1040x 159664 20 . Turbotax form 1040x 166667 21 . Turbotax form 1040x 173554 22 . Turbotax form 1040x 180328 23 . Turbotax form 1040x 186992 24 . Turbotax form 1040x 193548 25* . Turbotax form 1040x 200000* *The deduction for annual employer contributions (other than elective deferrals) to a SEP plan, a profit-sharing plan, or a money purchase plan cannot be more than 20% of your net earnings (figured without deducting contributions for yourself) from the business that has the plan. Turbotax form 1040x Example. Turbotax form 1040x You are a sole proprietor with no employees. Turbotax form 1040x The terms of your plan provide that you contribute 8½% (. Turbotax form 1040x 085) of your compensation to your plan. Turbotax form 1040x Your net profit from line 31, Schedule C (Form 1040) is $200,000. Turbotax form 1040x You have no elective deferrals or catch-up contributions. Turbotax form 1040x Your self-employment tax deduction on line 27 of Form 1040 is $9,728. Turbotax form 1040x See the filled-in portions of both Schedule SE (Form 1040), Self-Employment Income, and Form 1040, later. Turbotax form 1040x You figure your self-employed rate and maximum deduction for employer contributions you made for yourself as follows. Turbotax form 1040x Deduction Worksheet for Self-Employed   Step 1           Enter your net profit from line 31, Schedule C (Form 1040); line 3, Schedule C-EZ (Form 1040); line 34, Schedule F (Form 1040)*; or box 14, code A**, Schedule K-1 (Form 1065)*. Turbotax form 1040x For information on other income included in net profit from self-employment, see the Instructions for Schedule SE, Form 1040. Turbotax form 1040x $200,000     *Reduce this amount by any amount reported on Schedule SE (Form 1040), line 1b. Turbotax form 1040x       **General partners should reduce this amount by the same additional expenses subtracted from box 14, code A to determine the amount on line 1 or 2 of Schedule SE. Turbotax form 1040x     Step 2           Enter your deduction for self-employment tax from Form 1040, line 27 9,728           Step 3           Net earnings from self-employment. Turbotax form 1040x Subtract step 2 from step 1 190,272   Step 4           Enter your rate from the Rate Table for Self-Employed or Rate Worksheet for Self-Employed 0. Turbotax form 1040x 078   Step 5           Multiply step 3 by step 4 14,841   Step 6           Multiply $255,000 by your plan contribution rate (not the reduced rate) 21,675   Step 7           Enter the smaller of step 5 or step 6 14,841   Step 8           Contribution dollar limit $51,000     • If you made any elective deferrals to your self-employed plan, go to step 9. Turbotax form 1040x         • Otherwise, skip steps 9 through 20 and enter the smaller of step 7 or step 8 on step 21. Turbotax form 1040x       Step 9           Enter your allowable elective deferrals (including designated Roth contributions) made to your self-employed plan during 2013. Turbotax form 1040x Do not enter more than $17,500 N/A   Step 10           Subtract step 9 from step 8     Step 11           Subtract step 9 from step 3       Step 12           Enter one-half of step 11     Step 13           Enter the smallest of step 7, 10, or 12     Step 14           Subtract step 13 from step 3     Step 15           Enter the smaller of step 9 or step 14       • If you made catch-up contributions, go to step 16. Turbotax form 1040x         • Otherwise, skip steps 16 through 18 and go to step 19. Turbotax form 1040x       Step 16           Subtract step 15 from step 14     Step 17           Enter your catch-up contributions (including designated Roth contributions), if any. Turbotax form 1040x Do not enter more than $5,500     Step 18           Enter the smaller of step 16 or step 17     Step 19           Add steps 13, 15, and 18. Turbotax form 1040x     Step 20           Enter the amount of designated Roth contributions included on lines 9 and 17     Step 21           Subtract step 20 from step 19. Turbotax form 1040x This is your maximum deductible contribution $14,841                 Next: Enter your actual contribution, not to exceed your maximum deductible contribution, on Form 1040, line 28. Turbotax form 1040x   See the filled-in Deduction Worksheet for Self-Employed on this page. Turbotax form 1040x Rate Worksheet for Self-Employed 1) Plan contribution rate as a decimal (for example, 10½% = 0. Turbotax form 1040x 105) 0. Turbotax form 1040x 085 2) Rate in line 1 plus 1 (for example, 0. Turbotax form 1040x 105 + 1 = 1. Turbotax form 1040x 105) 1. Turbotax form 1040x 085 3) Self-employed rate as a decimal rounded to at least 3 decimal places (line 1 ÷ line 2) (for example, 0. Turbotax form 1040x 105 ÷ 1. Turbotax form 1040x 105 = 0. Turbotax form 1040x 095) 0. Turbotax form 1040x 078 This image is too large to be displayed in the current screen. Turbotax form 1040x Please click the link to view the image. Turbotax form 1040x Portion of Form 1040 and Portion of Schedule SE Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Estate Tax Statistics

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Estate Tax Statistics OneSheet (PDF)
The OneSheet presents a project description, highlights of the data, and selected figures.

What is the Federal Estate Tax?

The Federal estate tax is a tax on the right to transfer property at death. The tax, reported on Form 706, United States Estate (and Generation Skipping Transfer) Tax Return, is applied to estates for which at-death gross assets, the "gross estate," exceed the filing threshold. Included in gross estate are real estate, cash, stocks, bonds, businesses, and decedent-owned life insurance policies. Deductions are allowed for administrative expenses, indebtedness, taxes, casualty loss, and charitable and marital transfers. The taxable estate is calculated as gross estate less allowable deductions.

For information about selected terms and concepts, a description of the data sources and limitations, and links to recent revisions of Form 706, please visit Estate Tax Study Metadata.

The IRS Estate Tax page provides further information concerning the estate tax.

Use the links below to find information about Estate Tax Statistics:

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Filing Year Data Tables SOI Bulletin Articles Estate Tax Projections
                         
Year-of-Death Data Tables Research Papers
                           

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Presentations 
 

Compendium of Federal Estate Tax & Personal Wealth Studies: Volume 1  

Compendium of Federal Transfer Tax & Personal Wealth Studies: Volume 2

 

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Page Last Reviewed or Updated: 26-Dec-2013

The Turbotax Form 1040x

Turbotax form 1040x Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. Turbotax form 1040x Hybrid method. Turbotax form 1040x Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Turbotax form 1040x Accounting Periods You must use a tax year to figure your taxable income. Turbotax form 1040x A tax year is an annual accounting period for keeping records and reporting income and expenses. Turbotax form 1040x An annual accounting period does not include a short tax year (discussed later). Turbotax form 1040x You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Turbotax form 1040x Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Turbotax form 1040x A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Turbotax form 1040x You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. Turbotax form 1040x This section discusses: A calendar year. Turbotax form 1040x A fiscal year (including a period of 52 or 53 weeks). Turbotax form 1040x A short tax year. Turbotax form 1040x An improper tax year. Turbotax form 1040x A change in tax year. Turbotax form 1040x Special situations that apply to individuals. Turbotax form 1040x Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Turbotax form 1040x Special situations that apply to corporations. Turbotax form 1040x Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Turbotax form 1040x If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. Turbotax form 1040x 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 obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. Turbotax form 1040x See Change in Tax Year, later. Turbotax form 1040x Generally, anyone can adopt the calendar year. Turbotax form 1040x However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. Turbotax form 1040x Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Turbotax form 1040x If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. Turbotax form 1040x 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. Turbotax form 1040x If you make this election, your 52-53-week tax year must always end on the same day of the week. Turbotax form 1040x Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. Turbotax form 1040x For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. Turbotax form 1040x Election. Turbotax form 1040x   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Turbotax form 1040x The month in which the new 52-53-week tax year ends. Turbotax form 1040x The day of the week on which the tax year always ends. Turbotax form 1040x The date the tax year ends. Turbotax form 1040x It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. Turbotax form 1040x   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Turbotax form 1040x   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. Turbotax form 1040x Example. Turbotax form 1040x Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Turbotax form 1040x For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. Turbotax form 1040x Short Tax Year A short tax year is a tax year of less than 12 months. Turbotax form 1040x A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. Turbotax form 1040x Tax on a short period tax return is figured differently for each situation. Turbotax form 1040x Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. Turbotax form 1040x Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. Turbotax form 1040x Example 1. Turbotax form 1040x XYZ Corporation was organized on July 1, 2012. Turbotax form 1040x It elected the calendar year as its tax year. Turbotax form 1040x Therefore, its first tax return was due March 15, 2013. Turbotax form 1040x This short period return will cover the period from July 1, 2012, through December 31, 2012. Turbotax form 1040x Example 2. Turbotax form 1040x A calendar year corporation dissolved on July 23, 2012. Turbotax form 1040x Its final return is due by October 15, 2012. Turbotax form 1040x It will cover the short period from January 1, 2012, through July 23, 2012. Turbotax form 1040x Death of individual. Turbotax form 1040x   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. Turbotax form 1040x The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Turbotax form 1040x In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. Turbotax form 1040x Example. Turbotax form 1040x   Agnes Green was a single, calendar year taxpayer. Turbotax form 1040x She died on March 6, 2012. Turbotax form 1040x Her final income tax return must be filed by April 15, 2013. Turbotax form 1040x It will cover the short period from January 1, 2012, to March 6, 2012. Turbotax form 1040x Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. Turbotax form 1040x The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. Turbotax form 1040x Figure tax for a short year under the general rule, explained below. Turbotax form 1040x You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Turbotax form 1040x General rule. Turbotax form 1040x   Income tax for a short tax year must be annualized. Turbotax form 1040x However, self-employment tax is figured on the actual self-employment income for the short period. Turbotax form 1040x Individuals. Turbotax form 1040x   An individual must figure income tax for the short tax year as follows. Turbotax form 1040x Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Turbotax form 1040x You must itemize deductions when you file a short period tax return. Turbotax form 1040x Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Turbotax form 1040x Subtract the amount in (2) from the amount in (1). Turbotax form 1040x The result is your modified taxable income. Turbotax form 1040x Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Turbotax form 1040x The result is your annualized income. Turbotax form 1040x Figure the total tax on your annualized income using the appropriate tax rate schedule. Turbotax form 1040x Multiply the total tax by the number of months in the short tax year and divide the result by 12. Turbotax form 1040x The result is your tax for the short tax year. Turbotax form 1040x Relief procedure. Turbotax form 1040x   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Turbotax form 1040x It may result in less tax. Turbotax form 1040x Under this procedure, the tax is figured by two separate methods. Turbotax form 1040x If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. Turbotax form 1040x For more information, see section 443(b)(2) of the Internal Revenue Code. Turbotax form 1040x Alternative minimum tax. Turbotax form 1040x   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. Turbotax form 1040x Multiply the AMTI by 12. Turbotax form 1040x Divide the result by the number of months in the short tax year. Turbotax form 1040x Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Turbotax form 1040x The result is the annualized AMT. Turbotax form 1040x Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Turbotax form 1040x   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Turbotax form 1040x For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Turbotax form 1040x Tax withheld from wages. Turbotax form 1040x   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Turbotax form 1040x Federal income tax is withheld on a calendar year basis. Turbotax form 1040x The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Turbotax form 1040x Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Turbotax form 1040x For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. Turbotax form 1040x See Accounting Periods, earlier, for a description of permissible tax years. Turbotax form 1040x To change to a proper tax year, you must do one of the following. Turbotax form 1040x If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. Turbotax form 1040x Attach a completed Form 1128 to the amended tax return. Turbotax form 1040x Write “FILED UNDER REV. Turbotax form 1040x PROC. Turbotax form 1040x 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Turbotax form 1040x If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. Turbotax form 1040x Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Turbotax form 1040x See the Instructions for Form 1128 for exceptions. Turbotax form 1040x If you qualify for an automatic approval request, a user fee is not required. Turbotax form 1040x Individuals Generally, individuals must adopt the calendar year as their tax year. Turbotax form 1040x An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. Turbotax form 1040x Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Turbotax form 1040x A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Turbotax form 1040x The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). Turbotax form 1040x The following discussions provide the rules for partnerships, S corporations, and PSCs. Turbotax form 1040x Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Turbotax form 1040x The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. Turbotax form 1040x The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. Turbotax form 1040x The partnership can establish a business purpose for a different tax year. Turbotax form 1040x The rules for the required tax year for partnerships are as follows. Turbotax form 1040x If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. Turbotax form 1040x If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Turbotax form 1040x A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Turbotax form 1040x If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. Turbotax form 1040x If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Turbotax form 1040x Least aggregate deferral of income. Turbotax form 1040x   The tax year that results in the least aggregate deferral of income is determined as follows. Turbotax form 1040x Figure the number of months of deferral for each partner using one partner's tax year. Turbotax form 1040x Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. Turbotax form 1040x Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). Turbotax form 1040x Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Turbotax form 1040x Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Turbotax form 1040x   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Turbotax form 1040x If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. Turbotax form 1040x However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Turbotax form 1040x Example. Turbotax form 1040x A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Turbotax form 1040x A uses the calendar year and B uses a fiscal year ending November 30. Turbotax form 1040x P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. Turbotax form 1040x Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Turbotax form 1040x 5 -0- -0- B 11/30 0. Turbotax form 1040x 5 11 5. Turbotax form 1040x 5 Total Deferral 5. Turbotax form 1040x 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Turbotax form 1040x 5 1 0. Turbotax form 1040x 5 B 11/30 0. Turbotax form 1040x 5 -0- -0- Total Deferral 0. Turbotax form 1040x 5 When determination is made. Turbotax form 1040x   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. Turbotax form 1040x However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Turbotax form 1040x This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Turbotax form 1040x Short period return. Turbotax form 1040x   When a partnership changes its tax year, a short period return must be filed. Turbotax form 1040x The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. Turbotax form 1040x   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. Turbotax form 1040x The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Turbotax form 1040x 706-1. Turbotax form 1040x ” More information. Turbotax form 1040x   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Turbotax form 1040x S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Turbotax form 1040x A permitted tax year is any of the following. Turbotax form 1040x The calendar year. Turbotax form 1040x A tax year elected under section 444 of the Internal Revenue Code. Turbotax form 1040x See Section 444 Election, below for details. Turbotax form 1040x A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Turbotax form 1040x Any other tax year for which the corporation establishes a business purpose. Turbotax form 1040x If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. Turbotax form 1040x For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Turbotax form 1040x Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Turbotax form 1040x The corporation makes an election under section 444 of the Internal Revenue Code. Turbotax form 1040x See Section 444 Election, below for details. Turbotax form 1040x The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Turbotax form 1040x The corporation establishes a business purpose for a fiscal year. Turbotax form 1040x See the Instructions for Form 1120 for general information about PSCs. Turbotax form 1040x For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Turbotax form 1040x Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. Turbotax form 1040x Certain restrictions apply to the election. Turbotax form 1040x A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). Turbotax form 1040x The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. Turbotax form 1040x A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Turbotax form 1040x It is not a member of a tiered structure (defined in section 1. Turbotax form 1040x 444-2T of the regulations). Turbotax form 1040x It has not previously had a section 444 election in effect. Turbotax form 1040x It elects a year that meets the deferral period requirement. Turbotax form 1040x Deferral period. Turbotax form 1040x   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. Turbotax form 1040x Retaining tax year. Turbotax form 1040x   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. Turbotax form 1040x This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Turbotax form 1040x Adopting or changing tax year. Turbotax form 1040x   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. Turbotax form 1040x The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. Turbotax form 1040x This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Turbotax form 1040x If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Turbotax form 1040x Example 1. Turbotax form 1040x BD Partnership uses a calendar year, which is also its required tax year. Turbotax form 1040x BD cannot make a section 444 election because the deferral period is zero. Turbotax form 1040x Example 2. Turbotax form 1040x E, a newly formed partnership, began operations on December 1. Turbotax form 1040x E is owned by calendar year partners. Turbotax form 1040x E wants to make a section 444 election to adopt a September 30 tax year. Turbotax form 1040x E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Turbotax form 1040x Making the election. Turbotax form 1040x   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Turbotax form 1040x Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. Turbotax form 1040x For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Turbotax form 1040x Note. Turbotax form 1040x If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Turbotax form 1040x   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. Turbotax form 1040x Example 1. Turbotax form 1040x AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. Turbotax form 1040x AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. Turbotax form 1040x Example 2. Turbotax form 1040x The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Turbotax form 1040x AB must file Form 8716 by March 17, 2013. Turbotax form 1040x Example 3. Turbotax form 1040x B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Turbotax form 1040x B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Turbotax form 1040x B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. Turbotax form 1040x Note. Turbotax form 1040x The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Turbotax form 1040x Extension of time for filing. Turbotax form 1040x   There is an automatic extension of 12 months to make this election. Turbotax form 1040x See the Form 8716 instructions for more information. Turbotax form 1040x Terminating the election. Turbotax form 1040x   The section 444 election remains in effect until it is terminated. Turbotax form 1040x If the election is terminated, another section 444 election cannot be made for any tax year. Turbotax form 1040x   The election ends when any of the following applies to the partnership, S corporation, or PSC. Turbotax form 1040x The entity changes to its required tax year. Turbotax form 1040x The entity liquidates. Turbotax form 1040x The entity becomes a member of a tiered structure. Turbotax form 1040x The IRS determines that the entity willfully failed to comply with the required payments or distributions. Turbotax form 1040x   The election will also end if either of the following events occur. Turbotax form 1040x An S corporation's S election is terminated. Turbotax form 1040x However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Turbotax form 1040x A PSC ceases to be a PSC. Turbotax form 1040x If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Turbotax form 1040x Required payment for partnership or S corporation. Turbotax form 1040x   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Turbotax form 1040x The required payment for that year (or any preceding tax year) is more than $500. Turbotax form 1040x    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Turbotax form 1040x   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. Turbotax form 1040x If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. Turbotax form 1040x If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. Turbotax form 1040x Applicable election year. Turbotax form 1040x   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Turbotax form 1040x Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. Turbotax form 1040x Required distribution for PSC. Turbotax form 1040x   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Turbotax form 1040x If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Turbotax form 1040x The amount deferred is treated as paid or incurred in the following tax year. Turbotax form 1040x   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). Turbotax form 1040x Back-up election. Turbotax form 1040x   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. Turbotax form 1040x If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Turbotax form 1040x Making back-up election. Turbotax form 1040x   The general rules for making a section 444 election, as discussed earlier, apply. Turbotax form 1040x When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Turbotax form 1040x However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. Turbotax form 1040x Activating election. Turbotax form 1040x   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Turbotax form 1040x The due date for filing Form 8752 and making the payment is the later of the following dates. Turbotax form 1040x May 15 of the calendar year following the calendar year in which the applicable election year begins. Turbotax form 1040x 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Turbotax form 1040x   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. Turbotax form 1040x ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). Turbotax form 1040x A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. Turbotax form 1040x However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. Turbotax form 1040x Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Turbotax form 1040x See the Instructions for Form 1128 for details. Turbotax form 1040x Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Turbotax form 1040x A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. Turbotax form 1040x An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Turbotax form 1040x Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. Turbotax form 1040x See the Instructions for Form 1128 for details. Turbotax form 1040x Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Turbotax form 1040x Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Turbotax form 1040x You choose an accounting method when you file your first tax return. Turbotax form 1040x If you later want to change your accounting method, you must get IRS approval. Turbotax form 1040x See Change in Accounting Method, later. Turbotax form 1040x No single accounting method is required of all taxpayers. Turbotax form 1040x You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. Turbotax form 1040x In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Turbotax form 1040x You must use the same accounting method from year to year. Turbotax form 1040x An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Turbotax form 1040x If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. Turbotax form 1040x Methods you can use. Turbotax form 1040x   In general, you can compute your taxable income under any of the following accounting methods. Turbotax form 1040x Cash method. Turbotax form 1040x Accrual method. Turbotax form 1040x Special methods of accounting for certain items of income and expenses. Turbotax form 1040x A hybrid method which combines elements of two or more of the above accounting methods. Turbotax form 1040x The cash and accrual methods of accounting are explained later. Turbotax form 1040x Special methods. Turbotax form 1040x   This publication does not discuss special methods of accounting for certain items of income or expenses. Turbotax form 1040x For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. Turbotax form 1040x The following publications also discuss special methods of reporting income or expenses. Turbotax form 1040x Publication 225, Farmer's Tax Guide. Turbotax form 1040x Publication 535, Business Expenses. Turbotax form 1040x Publication 537, Installment Sales. Turbotax form 1040x Publication 946, How To Depreciate Property. Turbotax form 1040x Hybrid method. Turbotax form 1040x   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. Turbotax form 1040x However, the following restrictions apply. Turbotax form 1040x If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Turbotax form 1040x See Exceptions under Inventories, later. Turbotax form 1040x Generally, you can use the cash method for all other items of income and expenses. Turbotax form 1040x See Inventories, later. Turbotax form 1040x If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Turbotax form 1040x If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Turbotax form 1040x Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Turbotax form 1040x Business and personal items. Turbotax form 1040x   You can account for business and personal items using different accounting methods. Turbotax form 1040x For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. Turbotax form 1040x Two or more businesses. Turbotax form 1040x   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Turbotax form 1040x No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Turbotax form 1040x Note. Turbotax form 1040x If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. Turbotax form 1040x Cash Method Most individuals and many small businesses use the cash method of accounting. Turbotax form 1040x Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Turbotax form 1040x See Inventories, later, for exceptions to this rule. Turbotax form 1040x Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Turbotax form 1040x If you receive property and services, you must include their fair market value (FMV) in income. Turbotax form 1040x Constructive receipt. Turbotax form 1040x   Income is constructively received when an amount is credited to your account or made available to you without restriction. Turbotax form 1040x You need not have possession of it. Turbotax form 1040x If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Turbotax form 1040x Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Turbotax form 1040x Example. Turbotax form 1040x You are a calendar year taxpayer. Turbotax form 1040x Your bank credited, and made available, interest to your bank account in December 2012. Turbotax form 1040x You did not withdraw it or enter it into your books until 2013. Turbotax form 1040x You must include the amount in gross income for 2012, the year you constructively received it. Turbotax form 1040x You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Turbotax form 1040x You must report the income in the year the property is received or made available to you without restriction. Turbotax form 1040x Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Turbotax form 1040x This includes business expenses for which you contest liability. Turbotax form 1040x However, you may not be able to deduct an expense paid in advance. Turbotax form 1040x Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Turbotax form 1040x Expense paid in advance. Turbotax form 1040x   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Turbotax form 1040x   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Turbotax form 1040x 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Turbotax form 1040x   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. Turbotax form 1040x See Change in Accounting Method, later. Turbotax form 1040x Example 1. Turbotax form 1040x You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. Turbotax form 1040x The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. Turbotax form 1040x Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. Turbotax form 1040x Example 2. Turbotax form 1040x You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. Turbotax form 1040x The 12-month rule applies. Turbotax form 1040x Therefore, the full $10,000 is deductible in 2012. Turbotax form 1040x Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Turbotax form 1040x (See Special rules for farming businesses, later. Turbotax form 1040x ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Turbotax form 1040x See Gross receipts test, below. Turbotax form 1040x A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. Turbotax form 1040x See Gross receipts test, below. Turbotax form 1040x A tax shelter. Turbotax form 1040x Exceptions The following entities are not prohibited from using the cash method of accounting. Turbotax form 1040x Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Turbotax form 1040x A qualified personal service corporation (PSC). Turbotax form 1040x Gross receipts test. Turbotax form 1040x   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Turbotax form 1040x A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. Turbotax form 1040x    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. Turbotax form 1040x See Gross receipts test for qualifying taxpayers, for more information. Turbotax form 1040x Generally, a partnership applies the test at the partnership level. Turbotax form 1040x Gross receipts for a short tax year are annualized. Turbotax form 1040x Aggregation rules. Turbotax form 1040x   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. Turbotax form 1040x Change to accrual method. Turbotax form 1040x   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. Turbotax form 1040x Special rules for farming businesses. Turbotax form 1040x   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Turbotax form 1040x However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. Turbotax form 1040x For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). Turbotax form 1040x   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. Turbotax form 1040x For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Turbotax form 1040x See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Turbotax form 1040x Qualified PSC. Turbotax form 1040x   A PSC that meets the following function and ownership tests can use the cash method. Turbotax form 1040x Function test. Turbotax form 1040x   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. Turbotax form 1040x Ownership test. Turbotax form 1040x   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. Turbotax form 1040x Employees performing services for the corporation in a field qualifying under the function test. Turbotax form 1040x Retired employees who had performed services in those fields. Turbotax form 1040x The estate of an employee described in (1) or (2). Turbotax form 1040x Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. Turbotax form 1040x   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Turbotax form 1040x Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Turbotax form 1040x Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. Turbotax form 1040x   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. Turbotax form 1040x Change to accrual method. Turbotax form 1040x   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. Turbotax form 1040x A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. Turbotax form 1040x Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. Turbotax form 1040x The purpose of an accrual method of accounting is to match income and expenses in the correct year. Turbotax form 1040x Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. Turbotax form 1040x Under this rule, you report an amount in your gross income on the earliest of the following dates. Turbotax form 1040x When you receive payment. Turbotax form 1040x When the income amount is due to you. Turbotax form 1040x When you earn the income. Turbotax form 1040x When title has passed. Turbotax form 1040x Estimated income. Turbotax form 1040x   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. Turbotax form 1040x Change in payment schedule. Turbotax form 1040x   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. Turbotax form 1040x Continue this procedure until you complete the services, then account for the difference. Turbotax form 1040x Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. Turbotax form 1040x However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. Turbotax form 1040x However, you cannot postpone including any payment beyond that tax year. Turbotax form 1040x Service agreement. Turbotax form 1040x   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Turbotax form 1040x This includes an agreement providing for incidental replacement of parts or materials. Turbotax form 1040x However, this applies only if you offer the property without a service agreement in the normal course of business. Turbotax form 1040x Postponement not allowed. Turbotax form 1040x   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Turbotax form 1040x You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. Turbotax form 1040x You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. Turbotax form 1040x Examples. Turbotax form 1040x   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Turbotax form 1040x Example 1. Turbotax form 1040x You manufacture, sell, and service computers. Turbotax form 1040x You received payment in 2012 for a one-year contingent service contract on a computer you sold. Turbotax form 1040x You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. Turbotax form 1040x Example 2. Turbotax form 1040x You are in the television repair business. Turbotax form 1040x You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. Turbotax form 1040x You include the payments in gross income as you earn them. Turbotax form 1040x Example 3. Turbotax form 1040x You own a dance studio. Turbotax form 1040x On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Turbotax form 1040x You give eight lessons in 2012. Turbotax form 1040x Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. Turbotax form 1040x Example 4. Turbotax form 1040x Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Turbotax form 1040x You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Turbotax form 1040x Guarantee or warranty. Turbotax form 1040x   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Turbotax form 1040x Prepaid rent. Turbotax form 1040x   You cannot postpone reporting income from prepaid rent. Turbotax form 1040x Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Turbotax form 1040x You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. Turbotax form 1040x Books and records. Turbotax form 1040x   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. Turbotax form 1040x Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Turbotax form 1040x IRS approval. Turbotax form 1040x   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Turbotax form 1040x Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. Turbotax form 1040x However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. Turbotax form 1040x An agreement includes a gift certificate that can be redeemed for goods. Turbotax form 1040x Amounts due and payable are considered received. Turbotax form 1040x How to report payments. Turbotax form 1040x   Generally, include an advance payment in income in the year in which you receive it. Turbotax form 1040x However, you can use the alternative method, discussed next. Turbotax form 1040x Alternative method of reporting. Turbotax form 1040x   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. Turbotax form 1040x Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Turbotax form 1040x Example 1. Turbotax form 1040x You are a retailer. Turbotax form 1040x You use an accrual method of accounting and account for the sale of goods when you ship the goods. Turbotax form 1040x You use this method for both tax and financial reporting purposes. Turbotax form 1040x You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. Turbotax form 1040x However, see Exception for inventory goods, later. Turbotax form 1040x Example 2. Turbotax form 1040x You are a calendar year taxpayer. Turbotax form 1040x You manufacture household furniture and use an accrual method of accounting. Turbotax form 1040x Under this method, you accrue income for your financial reports when you ship the furniture. Turbotax form 1040x For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Turbotax form 1040x In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. Turbotax form 1040x You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Turbotax form 1040x For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. Turbotax form 1040x Information schedule. Turbotax form 1040x   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. Turbotax form 1040x Total advance payments received in the current tax year. Turbotax form 1040x Total advance payments received in earlier tax years and not included in income before the current tax year. Turbotax form 1040x Total payments received in earlier tax years included in income for the current tax year. Turbotax form 1040x Exception for inventory goods. Turbotax form 1040x   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. Turbotax form 1040x You account for the advance payment under the alternative method (discussed earlier). Turbotax form 1040x You have received a substantial advance payment on the agreement (discussed next). Turbotax form 1040x You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Turbotax form 1040x These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. Turbotax form 1040x   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. Turbotax form 1040x You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Turbotax form 1040x If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Turbotax form 1040x Note. Turbotax form 1040x You must report any advance payments you receive after the second year in the year received. Turbotax form 1040x No further deferral is allowed. Turbotax form 1040x Substantial advance payments. Turbotax form 1040x   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. Turbotax form 1040x Example. Turbotax form 1040x You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Turbotax form 1040x In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Turbotax form 1040x The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Turbotax form 1040x You receive the following advance payments under the contract. Turbotax form 1040x 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. Turbotax form 1040x In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Turbotax form 1040x Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. Turbotax form 1040x   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. Turbotax form 1040x You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. Turbotax form 1040x If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Turbotax form 1040x   No further deferral is allowed. Turbotax form 1040x You must include in gross income the advance payment you receive each remaining year of the contract. Turbotax form 1040x Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Turbotax form 1040x IRS approval. Turbotax form 1040x   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Turbotax form 1040x Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Turbotax form 1040x The all-events test has been met. Turbotax form 1040x The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Turbotax form 1040x Economic performance has occurred. Turbotax form 1040x Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Turbotax form 1040x If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. Turbotax form 1040x If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Turbotax form 1040x Example. Turbotax form 1040x You are a calendar year taxpayer. Turbotax form 1040x You buy office supplies in December 2012. Turbotax form 1040x You receive the supplies and the bill in December, but you pay the bill in January 2013. Turbotax form 1040x You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. Turbotax form 1040x Your office supplies may qualify as a recurring item, discussed later. Turbotax form 1040x If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Turbotax form 1040x Workers' compensation and tort liability. Turbotax form 1040x   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. Turbotax form 1040x If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. Turbotax form 1040x Taxes. Turbotax form 1040x   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Turbotax form 1040x are paid. Turbotax form 1040x However, you can elect to treat taxes as a recurring item, discussed later. Turbotax form 1040x You can also elect to ratably accrue real estate taxes. Turbotax form 1040x See chapter 5 of Publication 535 for information about real estate taxes. Turbotax form 1040x Other liabilities. Turbotax form 1040x   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. Turbotax form 1040x Interest. Turbotax form 1040x   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. Turbotax form 1040x Compensation for services. Turbotax form 1040x   Generally, economic performance occurs as an employee renders service to the employer. Turbotax form 1040x However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. Turbotax form 1040x For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Turbotax form 1040x Vacation pay. Turbotax form 1040x   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. Turbotax form 1040x If you pay it later than this, you must deduct it in the year actually paid. Turbotax form 1040x An amount is vested if your right to it cannot be nullified or cancelled. Turbotax form 1040x Exception for recurring items. Turbotax form 1040x   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. Turbotax form 1040x The exception applies if all the following requirements are met. Turbotax form 1040x The all-events test, discussed earlier, is met. Turbotax form 1040x Economic performance occurs by the earlier of the following dates. Turbotax form 1040x 8½ months after the close of the year. Turbotax form 1040x The date you file a timely return (including extensions) for the year. Turbotax form 1040x The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. Turbotax form 1040x Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. Turbotax form 1040x This exception does not apply to workers' compensation or tort liabilities. Turbotax form 1040x Amended return. Turbotax form 1040x   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Turbotax form 1040x You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. Turbotax form 1040x Recurrence and consistency. Turbotax form 1040x   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. Turbotax form 1040x A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. Turbotax form 1040x Materiality. Turbotax form 1040x   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. Turbotax form 1040x   An item considered material for financial statement purposes is also considered material for tax purposes. Turbotax form 1040x However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. Turbotax form 1040x Matching expenses with income. Turbotax form 1040x   Costs directly associated with the revenue of a period are properly allocable to that period. Turbotax form 1040x To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. Turbotax form 1040x fasab. Turbotax form 1040x gov/accepted. Turbotax form 1040x html) are an important factor. Turbotax form 1040x   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. Turbotax form 1040x Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. Turbotax form 1040x However, the matching requirement is considered met for certain types of expenses. Turbotax form 1040x These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. Turbotax form 1040x Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. Turbotax form 1040x Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. Turbotax form 1040x 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Turbotax form 1040x If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. Turbotax form 1040x See Change in Accounting Method, later, for information on how to get IRS approval. Turbotax form 1040x See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. Turbotax form 1040x Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Turbotax form 1040x Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Turbotax form 1040x See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. Turbotax form 1040x Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Turbotax form 1040x If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. Turbotax form 1040x However, see Exceptions, next. Turbotax form 1040x See also Accrual Method, earlier. Turbotax form 1040x To figure taxable income, you must value your inventory at the beginning and end of each tax year. Turbotax form 1040x To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. Turbotax form 1040x See Identifying Cost and Valuing Inventory, later. Turbotax form 1040x The rules for valuing inventory are not the same for all businesses. Turbotax form 1040x The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Turbotax form 1040x Your inventory practices must be consistent from year to year. Turbotax form 1040x The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. Turbotax form 1040x Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Turbotax form 1040x These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Turbotax form 1040x A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Turbotax form 1040x irs. Turbotax form 1040x gov/pub/irs-irbs/irb01–02. Turbotax form 1040x pdf. Turbotax form 1040x A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Turbotax form 1040x irs. Turbotax form 1040x gov/pub/irs-irbs/irb02–18. Turbotax form 1040x pdf. Turbotax form 1040x In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). Turbotax form 1040x Qualifying taxpayer. Turbotax form 1040x   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). Turbotax form 1040x Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. Turbotax form 1040x You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. Turbotax form 1040x Gross receipts test for qualifying taxpayers. Turbotax form 1040x   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. Turbotax form 1040x List each of the test years. Turbotax form 1040x For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. Turbotax form 1040x Step 2. Turbotax form 1040x Determine your average annual gross receipts for each test year listed in Step 1. Turbotax form 1040x Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Turbotax form 1040x Step 3. Turbotax form 1040x You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. Turbotax form 1040x Qualifying small business taxpayer. Turbotax form 1040x   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). Turbotax form 1040x Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Turbotax form 1040x You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Turbotax form 1040x Your principle business activity is an eligible business. Turbotax form 1040x See Eligible business, later. Turbotax form 1040x You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. Turbotax form 1040x Note. Turbotax form 1040x Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Turbotax form 1040x A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Turbotax form 1040x See Special rules for farming businesses under Cash Method, earlier. Turbotax form 1040x Gross receipts test for qualifying small business taxpayers. Turbotax form 1040x   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Turbotax form 1040x List each of the test years. Turbotax form 1040x For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. Turbotax form 1040x Step 2. Turbotax form 1040x Determine your average annual gross receipts for each test year listed in Step 1. Turbotax form 1040x Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. Turbotax form 1040x Step 3. Turbotax form 1040x You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. Turbotax form 1040x Eligible business. Turbotax form 1040x   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. Turbotax form 1040x You have an eligible business if you meet any of the following requirements. Turbotax form 1040x Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). Turbotax form 1040x NAICS codes 31-33 (manufacturing). Turbotax form 1040x NAICS code 42 (wholesale trade). Turbotax form 1040x NAICS codes 44-45 (retail trade). Turbotax form 1040x NAICS codes 5111 and 5122 (information industries). Turbotax form 1040x Your principal business activity is the provision of services, including the provision of property incident to those services. Turbotax form 1040x Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Turbotax form 1040x   Information about the NAICS codes can be found at http://www. Turbotax form 1040x census. Turbotax form 1040x gov/naics or in the instructions for your federal income tax return. Turbotax form 1040x Gross receipts. Turbotax form 1040x   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. Turbotax form 1040x See the definit