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Where Can You File State Taxes For Free

Where can you file state taxes for free 1. Where can you file state taxes for free   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Where can you file state taxes for free Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Where can you file state taxes for free The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Where can you file state taxes for free If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Where can you file state taxes for free Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Where can you file state taxes for free Rental income is any payment you receive for the use or occupation of property. Where can you file state taxes for free In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Where can you file state taxes for free When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Where can you file state taxes for free Most individual taxpayers use the cash method. Where can you file state taxes for free Cash method. Where can you file state taxes for free   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Where can you file state taxes for free You constructively receive income when it is made available to you, for example, by being credited to your bank account. Where can you file state taxes for free Accrual method. Where can you file state taxes for free    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Where can you file state taxes for free You generally deduct your expenses when you incur them, rather than when you pay them. Where can you file state taxes for free More information. Where can you file state taxes for free   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Where can you file state taxes for free Types of Income The following are common types of rental income. Where can you file state taxes for free Advance rent. Where can you file state taxes for free   Advance rent is any amount you receive before the period that it covers. Where can you file state taxes for free Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Where can you file state taxes for free Example. Where can you file state taxes for free On March 18, 2013, you signed a 10-year lease to rent your property. Where can you file state taxes for free During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Where can you file state taxes for free You must include $19,200 in your rental income in the first year. Where can you file state taxes for free Canceling a lease. Where can you file state taxes for free   If your tenant pays you to cancel a lease, the amount you receive is rent. Where can you file state taxes for free Include the payment in your income in the year you receive it regardless of your method of accounting. Where can you file state taxes for free Expenses paid by tenant. Where can you file state taxes for free   If your tenant pays any of your expenses, those payments are rental income. Where can you file state taxes for free Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Where can you file state taxes for free For more information, see Rental Expenses , later. Where can you file state taxes for free Example 1. Where can you file state taxes for free Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Where can you file state taxes for free Under the terms of the lease, your tenant does not have to pay this bill. Where can you file state taxes for free Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Where can you file state taxes for free You can deduct the utility payment made by your tenant as a rental expense. Where can you file state taxes for free Example 2. Where can you file state taxes for free While you are out of town, the furnace in your rental property stops working. Where can you file state taxes for free Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Where can you file state taxes for free Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Where can you file state taxes for free You can deduct the repair payment made by your tenant as a rental expense. Where can you file state taxes for free Property or services. Where can you file state taxes for free   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Where can you file state taxes for free   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Where can you file state taxes for free Example. Where can you file state taxes for free Your tenant is a house painter. Where can you file state taxes for free He offers to paint your rental property instead of paying 2 months rent. Where can you file state taxes for free You accept his offer. Where can you file state taxes for free Include in your rental income the amount the tenant would have paid for 2 months rent. Where can you file state taxes for free You can deduct that same amount as a rental expense for painting your property. Where can you file state taxes for free Security deposits. Where can you file state taxes for free   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Where can you file state taxes for free But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Where can you file state taxes for free    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Where can you file state taxes for free Include it in your income when you receive it. Where can you file state taxes for free Other Sources of Rental Income Lease with option to buy. Where can you file state taxes for free   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Where can you file state taxes for free If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Where can you file state taxes for free Part interest. Where can you file state taxes for free   If you own a part interest in rental property, you must report your part of the rental income from the property. Where can you file state taxes for free Rental of property also used as your home. Where can you file state taxes for free   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Where can you file state taxes for free However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Where can you file state taxes for free See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Where can you file state taxes for free Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Where can you file state taxes for free Personal use of rental property. Where can you file state taxes for free   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Where can you file state taxes for free Also, your rental expense deductions may be limited. Where can you file state taxes for free See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Where can you file state taxes for free Part interest. Where can you file state taxes for free   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Where can you file state taxes for free Example. Where can you file state taxes for free Roger owns a one-half undivided interest in a rental house. Where can you file state taxes for free Last year he paid $968 for necessary repairs on the property. Where can you file state taxes for free Roger can deduct $484 (50% × $968) as a rental expense. Where can you file state taxes for free He is entitled to reimbursement for the remaining half from the co-owner. Where can you file state taxes for free When To Deduct You generally deduct your rental expenses in the year you pay them. Where can you file state taxes for free If you use the accrual method, see Publication 538 for more information. Where can you file state taxes for free Types of Expenses Listed below are the most common rental expenses. Where can you file state taxes for free Advertising. Where can you file state taxes for free Auto and travel expenses. Where can you file state taxes for free Cleaning and maintenance. Where can you file state taxes for free Commissions. Where can you file state taxes for free Depreciation. Where can you file state taxes for free Insurance. Where can you file state taxes for free Interest (other). Where can you file state taxes for free Legal and other professional fees. Where can you file state taxes for free Local transportation expenses. Where can you file state taxes for free Management fees. Where can you file state taxes for free Mortgage interest paid to banks, etc. Where can you file state taxes for free Points. Where can you file state taxes for free Rental payments. Where can you file state taxes for free Repairs. Where can you file state taxes for free Taxes. Where can you file state taxes for free Utilities. Where can you file state taxes for free Some of these expenses, as well as other less common ones, are discussed below. Where can you file state taxes for free Depreciation. Where can you file state taxes for free   Depreciation is a capital expense. Where can you file state taxes for free It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Where can you file state taxes for free   You can begin to depreciate rental property when it is ready and available for rent. Where can you file state taxes for free See Placed in Service under When Does Depreciation Begin and End in chapter 2. Where can you file state taxes for free Insurance premiums paid in advance. Where can you file state taxes for free   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Where can you file state taxes for free You cannot deduct the total premium in the year you pay it. Where can you file state taxes for free See chapter 6 of Publication 535 for information on deductible premiums. Where can you file state taxes for free Interest expense. Where can you file state taxes for free   You can deduct mortgage interest you pay on your rental property. Where can you file state taxes for free When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Where can you file state taxes for free Chapter 4 of Publication 535 explains mortgage interest in detail. Where can you file state taxes for free Expenses paid to obtain a mortgage. Where can you file state taxes for free   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Where can you file state taxes for free These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Where can you file state taxes for free Form 1098, Mortgage Interest Statement. Where can you file state taxes for free   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Where can you file state taxes for free If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Where can you file state taxes for free Attach a statement to your return showing the name and address of the other person. Where can you file state taxes for free On the dotted line next to line 13, enter “See attached. Where can you file state taxes for free ” Legal and other professional fees. Where can you file state taxes for free   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Where can you file state taxes for free For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Where can you file state taxes for free You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Where can you file state taxes for free Local benefit taxes. Where can you file state taxes for free   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Where can you file state taxes for free These charges are nondepreciable capital expenditures and must be added to the basis of your property. Where can you file state taxes for free However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Where can you file state taxes for free Local transportation expenses. Where can you file state taxes for free   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Where can you file state taxes for free However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Where can you file state taxes for free See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Where can you file state taxes for free   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Where can you file state taxes for free For 2013, the standard mileage rate for business use is 56. Where can you file state taxes for free 5 cents per mile. Where can you file state taxes for free For more information, see chapter 4 of Publication 463. Where can you file state taxes for free    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Where can you file state taxes for free In addition, you must complete Form 4562, Part V, and attach it to your tax return. Where can you file state taxes for free Pre-rental expenses. Where can you file state taxes for free   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Where can you file state taxes for free Rental of equipment. Where can you file state taxes for free   You can deduct the rent you pay for equipment that you use for rental purposes. Where can you file state taxes for free However, in some cases, lease contracts are actually purchase contracts. Where can you file state taxes for free If so, you cannot deduct these payments. Where can you file state taxes for free You can recover the cost of purchased equipment through depreciation. Where can you file state taxes for free Rental of property. Where can you file state taxes for free   You can deduct the rent you pay for property that you use for rental purposes. Where can you file state taxes for free If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Where can you file state taxes for free Travel expenses. Where can you file state taxes for free   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Where can you file state taxes for free You must properly allocate your expenses between rental and nonrental activities. Where can you file state taxes for free You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Where can you file state taxes for free The cost of improvements is recovered by taking depreciation. Where can you file state taxes for free For information on travel expenses, see chapter 1 of Publication 463. Where can you file state taxes for free    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Where can you file state taxes for free Uncollected rent. Where can you file state taxes for free   If you are a cash basis taxpayer, do not deduct uncollected rent. Where can you file state taxes for free Because you have not included it in your income, it is not deductible. Where can you file state taxes for free   If you use an accrual method, report income when you earn it. Where can you file state taxes for free If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Where can you file state taxes for free See chapter 10 of Publication 535 for more information about business bad debts. Where can you file state taxes for free Vacant rental property. Where can you file state taxes for free   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Where can you file state taxes for free However, you cannot deduct any loss of rental income for the period the property is vacant. Where can you file state taxes for free Vacant while listed for sale. Where can you file state taxes for free   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Where can you file state taxes for free If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Where can you file state taxes for free Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Where can you file state taxes for free These charges are also called loan origination fees, maximum loan charges, or premium charges. Where can you file state taxes for free Any of these charges (points) that are solely for the use of money are interest. Where can you file state taxes for free Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Where can you file state taxes for free The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Where can you file state taxes for free In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Where can you file state taxes for free The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Where can you file state taxes for free If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Where can you file state taxes for free De minimis OID. Where can you file state taxes for free   The OID is de minimis if it is less than one-fourth of 1% (. Where can you file state taxes for free 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Where can you file state taxes for free   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Where can you file state taxes for free On a constant-yield basis over the term of the loan. Where can you file state taxes for free On a straight line basis over the term of the loan. Where can you file state taxes for free In proportion to stated interest payments. Where can you file state taxes for free In its entirety at maturity of the loan. Where can you file state taxes for free You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Where can you file state taxes for free Example. Where can you file state taxes for free Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Where can you file state taxes for free The loan is to be repaid over 30 years. Where can you file state taxes for free During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Where can you file state taxes for free When the loan was made, she paid $1,500 in points to the lender. Where can you file state taxes for free The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Where can you file state taxes for free Carol determines that the points (OID) she paid are de minimis based on the following computation. Where can you file state taxes for free Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Where can you file state taxes for free 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Where can you file state taxes for free Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Where can you file state taxes for free Under the straight line method, she can deduct $50 each year for 30 years. Where can you file state taxes for free Constant-yield method. Where can you file state taxes for free   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Where can you file state taxes for free   You figure your deduction for the first year in the following manner. Where can you file state taxes for free Determine the issue price of the loan. Where can you file state taxes for free If you paid points on the loan, the issue price generally is the difference between the principal and the points. Where can you file state taxes for free Multiply the result in (1) by the yield to maturity (defined later). Where can you file state taxes for free Subtract any qualified stated interest payments (defined later) from the result in (2). Where can you file state taxes for free This is the OID you can deduct in the first year. Where can you file state taxes for free Yield to maturity (YTM). Where can you file state taxes for free   This rate is generally shown in the literature you receive from your lender. Where can you file state taxes for free If you do not have this information, consult your lender or tax advisor. Where can you file state taxes for free In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Where can you file state taxes for free Qualified stated interest (QSI). Where can you file state taxes for free   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Where can you file state taxes for free Example—Year 1. Where can you file state taxes for free The facts are the same as in the previous example. Where can you file state taxes for free The yield to maturity on Carol's loan is 10. Where can you file state taxes for free 2467%, compounded annually. Where can you file state taxes for free She figured the amount of points (OID) she could deduct in 2013 as follows. Where can you file state taxes for free Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Where can you file state taxes for free 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Where can you file state taxes for free To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Where can you file state taxes for free Then follow steps (2) and (3), earlier. Where can you file state taxes for free Example—Year 2. Where can you file state taxes for free Carol figured the deduction for 2014 as follows. Where can you file state taxes for free Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Where can you file state taxes for free 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Where can you file state taxes for free    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Where can you file state taxes for free A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Where can you file state taxes for free However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Where can you file state taxes for free Points when loan refinance is more than the previous outstanding balance. Where can you file state taxes for free   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Where can you file state taxes for free For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Where can you file state taxes for free Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Where can you file state taxes for free Improvements. Where can you file state taxes for free   You must capitalize any expense you pay to improve your rental property. Where can you file state taxes for free An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Where can you file state taxes for free Betterments. Where can you file state taxes for free   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Where can you file state taxes for free Restoration. Where can you file state taxes for free   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Where can you file state taxes for free Adaptation. Where can you file state taxes for free   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Where can you file state taxes for free Separate the costs of repairs and improvements, and keep accurate records. Where can you file state taxes for free You will need to know the cost of improvements when you sell or depreciate your property. Where can you file state taxes for free The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Where can you file state taxes for free Table 1-1. Where can you file state taxes for free Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications
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U.S. Court of Appeals for Veterans Claims

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The Where Can You File State Taxes For Free

Where can you file state taxes for free 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. Where can you file state taxes for free Hybrid method. Where can you file state taxes for free Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Where can you file state taxes for free Accounting Periods You must use a tax year to figure your taxable income. Where can you file state taxes for free A tax year is an annual accounting period for keeping records and reporting income and expenses. Where can you file state taxes for free An annual accounting period does not include a short tax year (discussed later). Where can you file state taxes for free You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). Where can you file state taxes for free Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. Where can you file state taxes for free A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. Where can you file state taxes for free 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. Where can you file state taxes for free This section discusses: A calendar year. Where can you file state taxes for free A fiscal year (including a period of 52 or 53 weeks). Where can you file state taxes for free A short tax year. Where can you file state taxes for free An improper tax year. Where can you file state taxes for free A change in tax year. Where can you file state taxes for free Special situations that apply to individuals. Where can you file state taxes for free Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. Where can you file state taxes for free Special situations that apply to corporations. Where can you file state taxes for free Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free See Change in Tax Year, later. Where can you file state taxes for free Generally, anyone can adopt the calendar year. Where can you file state taxes for free 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. Where can you file state taxes for free Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free If you make this election, your 52-53-week tax year must always end on the same day of the week. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Election. Where can you file state taxes for free   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. Where can you file state taxes for free The month in which the new 52-53-week tax year ends. Where can you file state taxes for free The day of the week on which the tax year always ends. Where can you file state taxes for free The date the tax year ends. Where can you file state taxes for free 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. Where can you file state taxes for free   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. Where can you file state taxes for free   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. Where can you file state taxes for free Example. Where can you file state taxes for free Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. Where can you file state taxes for free 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. Where can you file state taxes for free Short Tax Year A short tax year is a tax year of less than 12 months. Where can you file state taxes for free 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. Where can you file state taxes for free Tax on a short period tax return is figured differently for each situation. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Example 1. Where can you file state taxes for free XYZ Corporation was organized on July 1, 2012. Where can you file state taxes for free It elected the calendar year as its tax year. Where can you file state taxes for free Therefore, its first tax return was due March 15, 2013. Where can you file state taxes for free This short period return will cover the period from July 1, 2012, through December 31, 2012. Where can you file state taxes for free Example 2. Where can you file state taxes for free A calendar year corporation dissolved on July 23, 2012. Where can you file state taxes for free Its final return is due by October 15, 2012. Where can you file state taxes for free It will cover the short period from January 1, 2012, through July 23, 2012. Where can you file state taxes for free Death of individual. Where can you file state taxes for free   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. Where can you file state taxes for free The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. Where can you file state taxes for free 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. Where can you file state taxes for free Example. Where can you file state taxes for free   Agnes Green was a single, calendar year taxpayer. Where can you file state taxes for free She died on March 6, 2012. Where can you file state taxes for free Her final income tax return must be filed by April 15, 2013. Where can you file state taxes for free It will cover the short period from January 1, 2012, to March 6, 2012. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Figure tax for a short year under the general rule, explained below. Where can you file state taxes for free You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. Where can you file state taxes for free General rule. Where can you file state taxes for free   Income tax for a short tax year must be annualized. Where can you file state taxes for free However, self-employment tax is figured on the actual self-employment income for the short period. Where can you file state taxes for free Individuals. Where can you file state taxes for free   An individual must figure income tax for the short tax year as follows. Where can you file state taxes for free Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. Where can you file state taxes for free You must itemize deductions when you file a short period tax return. Where can you file state taxes for free Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. Where can you file state taxes for free Subtract the amount in (2) from the amount in (1). Where can you file state taxes for free The result is your modified taxable income. Where can you file state taxes for free Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. Where can you file state taxes for free The result is your annualized income. Where can you file state taxes for free Figure the total tax on your annualized income using the appropriate tax rate schedule. Where can you file state taxes for free Multiply the total tax by the number of months in the short tax year and divide the result by 12. Where can you file state taxes for free The result is your tax for the short tax year. Where can you file state taxes for free Relief procedure. Where can you file state taxes for free   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. Where can you file state taxes for free It may result in less tax. Where can you file state taxes for free Under this procedure, the tax is figured by two separate methods. Where can you file state taxes for free 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. Where can you file state taxes for free For more information, see section 443(b)(2) of the Internal Revenue Code. Where can you file state taxes for free Alternative minimum tax. Where can you file state taxes for free   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. Where can you file state taxes for free Multiply the AMTI by 12. Where can you file state taxes for free Divide the result by the number of months in the short tax year. Where can you file state taxes for free Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. Where can you file state taxes for free The result is the annualized AMT. Where can you file state taxes for free Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. Where can you file state taxes for free   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. Where can you file state taxes for free For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. Where can you file state taxes for free Tax withheld from wages. Where can you file state taxes for free   You can claim a credit against your income tax liability for federal income tax withheld from your wages. Where can you file state taxes for free Federal income tax is withheld on a calendar year basis. Where can you file state taxes for free The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. Where can you file state taxes for free Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. Where can you file state taxes for free 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. Where can you file state taxes for free See Accounting Periods, earlier, for a description of permissible tax years. Where can you file state taxes for free To change to a proper tax year, you must do one of the following. Where can you file state taxes for free 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. Where can you file state taxes for free Attach a completed Form 1128 to the amended tax return. Where can you file state taxes for free Write “FILED UNDER REV. Where can you file state taxes for free PROC. Where can you file state taxes for free 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. Where can you file state taxes for free 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. Where can you file state taxes for free Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. Where can you file state taxes for free See the Instructions for Form 1128 for exceptions. Where can you file state taxes for free If you qualify for an automatic approval request, a user fee is not required. Where can you file state taxes for free Individuals Generally, individuals must adopt the calendar year as their tax year. Where can you file state taxes for free 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. Where can you file state taxes for free Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. Where can you file state taxes for free A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. Where can you file state taxes for free 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). Where can you file state taxes for free The following discussions provide the rules for partnerships, S corporations, and PSCs. Where can you file state taxes for free Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free The partnership can establish a business purpose for a different tax year. Where can you file state taxes for free The rules for the required tax year for partnerships are as follows. Where can you file state taxes for free 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. Where can you file state taxes for free If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. Where can you file state taxes for free A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. Where can you file state taxes for free 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. Where can you file state taxes for free If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. Where can you file state taxes for free Least aggregate deferral of income. Where can you file state taxes for free   The tax year that results in the least aggregate deferral of income is determined as follows. Where can you file state taxes for free Figure the number of months of deferral for each partner using one partner's tax year. Where can you file state taxes for free 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. Where can you file state taxes for free 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). Where can you file state taxes for free Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). Where can you file state taxes for free Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. Where can you file state taxes for free   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. Where can you file state taxes for free 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. Where can you file state taxes for free However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. Where can you file state taxes for free Example. Where can you file state taxes for free A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. Where can you file state taxes for free A uses the calendar year and B uses a fiscal year ending November 30. Where can you file state taxes for free 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. Where can you file state taxes for free Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Where can you file state taxes for free 5 -0- -0- B 11/30 0. Where can you file state taxes for free 5 11 5. Where can you file state taxes for free 5 Total Deferral 5. Where can you file state taxes for free 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. Where can you file state taxes for free 5 1 0. Where can you file state taxes for free 5 B 11/30 0. Where can you file state taxes for free 5 -0- -0- Total Deferral 0. Where can you file state taxes for free 5 When determination is made. Where can you file state taxes for free   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. Where can you file state taxes for free However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. Where can you file state taxes for free This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. Where can you file state taxes for free Short period return. Where can you file state taxes for free   When a partnership changes its tax year, a short period return must be filed. Where can you file state taxes for free 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. Where can you file state taxes for free   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. Where can you file state taxes for free The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. Where can you file state taxes for free 706-1. Where can you file state taxes for free ” More information. Where can you file state taxes for free   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. Where can you file state taxes for free S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. Where can you file state taxes for free A permitted tax year is any of the following. Where can you file state taxes for free The calendar year. Where can you file state taxes for free A tax year elected under section 444 of the Internal Revenue Code. Where can you file state taxes for free See Section 444 Election, below for details. Where can you file state taxes for free A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. Where can you file state taxes for free Any other tax year for which the corporation establishes a business purpose. Where can you file state taxes for free 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. Where can you file state taxes for free For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. Where can you file state taxes for free Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. Where can you file state taxes for free The corporation makes an election under section 444 of the Internal Revenue Code. Where can you file state taxes for free See Section 444 Election, below for details. Where can you file state taxes for free 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. Where can you file state taxes for free The corporation establishes a business purpose for a fiscal year. Where can you file state taxes for free See the Instructions for Form 1120 for general information about PSCs. Where can you file state taxes for free For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. Where can you file state taxes for free 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. Where can you file state taxes for free Certain restrictions apply to the election. Where can you file state taxes for free 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). Where can you file state taxes for free 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. Where can you file state taxes for free A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. Where can you file state taxes for free It is not a member of a tiered structure (defined in section 1. Where can you file state taxes for free 444-2T of the regulations). Where can you file state taxes for free It has not previously had a section 444 election in effect. Where can you file state taxes for free It elects a year that meets the deferral period requirement. Where can you file state taxes for free Deferral period. Where can you file state taxes for free   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. Where can you file state taxes for free Retaining tax year. Where can you file state taxes for free   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. Where can you file state taxes for free This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. Where can you file state taxes for free Adopting or changing tax year. Where can you file state taxes for free   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. Where can you file state taxes for free 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. Where can you file state taxes for free This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. Where can you file state taxes for free If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. Where can you file state taxes for free Example 1. Where can you file state taxes for free BD Partnership uses a calendar year, which is also its required tax year. Where can you file state taxes for free BD cannot make a section 444 election because the deferral period is zero. Where can you file state taxes for free Example 2. Where can you file state taxes for free E, a newly formed partnership, began operations on December 1. Where can you file state taxes for free E is owned by calendar year partners. Where can you file state taxes for free E wants to make a section 444 election to adopt a September 30 tax year. Where can you file state taxes for free E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. Where can you file state taxes for free Making the election. Where can you file state taxes for free   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. Where can you file state taxes for free 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. Where can you file state taxes for free For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. Where can you file state taxes for free Note. Where can you file state taxes for free If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Where can you file state taxes for free   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. Where can you file state taxes for free Example 1. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Example 2. Where can you file state taxes for free The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. Where can you file state taxes for free AB must file Form 8716 by March 17, 2013. Where can you file state taxes for free Example 3. Where can you file state taxes for free B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. Where can you file state taxes for free B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. Where can you file state taxes for free 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. Where can you file state taxes for free Note. Where can you file state taxes for free The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. Where can you file state taxes for free Extension of time for filing. Where can you file state taxes for free   There is an automatic extension of 12 months to make this election. Where can you file state taxes for free See the Form 8716 instructions for more information. Where can you file state taxes for free Terminating the election. Where can you file state taxes for free   The section 444 election remains in effect until it is terminated. Where can you file state taxes for free If the election is terminated, another section 444 election cannot be made for any tax year. Where can you file state taxes for free   The election ends when any of the following applies to the partnership, S corporation, or PSC. Where can you file state taxes for free The entity changes to its required tax year. Where can you file state taxes for free The entity liquidates. Where can you file state taxes for free The entity becomes a member of a tiered structure. Where can you file state taxes for free The IRS determines that the entity willfully failed to comply with the required payments or distributions. Where can you file state taxes for free   The election will also end if either of the following events occur. Where can you file state taxes for free An S corporation's S election is terminated. Where can you file state taxes for free However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. Where can you file state taxes for free A PSC ceases to be a PSC. Where can you file state taxes for free If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. Where can you file state taxes for free Required payment for partnership or S corporation. Where can you file state taxes for free   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. Where can you file state taxes for free The required payment for that year (or any preceding tax year) is more than $500. Where can you file state taxes for free    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. Where can you file state taxes for free   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. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Applicable election year. Where can you file state taxes for free   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. Where can you file state taxes for free 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. Where can you file state taxes for free Required distribution for PSC. Where can you file state taxes for free   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. Where can you file state taxes for free If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. Where can you file state taxes for free The amount deferred is treated as paid or incurred in the following tax year. Where can you file state taxes for free   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). Where can you file state taxes for free Back-up election. Where can you file state taxes for free   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. Where can you file state taxes for free If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). Where can you file state taxes for free Making back-up election. Where can you file state taxes for free   The general rules for making a section 444 election, as discussed earlier, apply. Where can you file state taxes for free When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. Where can you file state taxes for free 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. Where can you file state taxes for free Activating election. Where can you file state taxes for free   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. Where can you file state taxes for free The due date for filing Form 8752 and making the payment is the later of the following dates. Where can you file state taxes for free May 15 of the calendar year following the calendar year in which the applicable election year begins. Where can you file state taxes for free 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. Where can you file state taxes for free   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. Where can you file state taxes for free ” 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). Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. Where can you file state taxes for free See the Instructions for Form 1128 for details. Where can you file state taxes for free Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. Where can you file state taxes for free 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. Where can you file state taxes for free An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. Where can you file state taxes for free 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. Where can you file state taxes for free See the Instructions for Form 1128 for details. Where can you file state taxes for free Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. Where can you file state taxes for free Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Where can you file state taxes for free You choose an accounting method when you file your first tax return. Where can you file state taxes for free If you later want to change your accounting method, you must get IRS approval. Where can you file state taxes for free See Change in Accounting Method, later. Where can you file state taxes for free No single accounting method is required of all taxpayers. Where can you file state taxes for free 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. Where can you file state taxes for free In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. Where can you file state taxes for free You must use the same accounting method from year to year. Where can you file state taxes for free An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. Where can you file state taxes for free 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. Where can you file state taxes for free Methods you can use. Where can you file state taxes for free   In general, you can compute your taxable income under any of the following accounting methods. Where can you file state taxes for free Cash method. Where can you file state taxes for free Accrual method. Where can you file state taxes for free Special methods of accounting for certain items of income and expenses. Where can you file state taxes for free A hybrid method which combines elements of two or more of the above accounting methods. Where can you file state taxes for free The cash and accrual methods of accounting are explained later. Where can you file state taxes for free Special methods. Where can you file state taxes for free   This publication does not discuss special methods of accounting for certain items of income or expenses. Where can you file state taxes for free 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. Where can you file state taxes for free The following publications also discuss special methods of reporting income or expenses. Where can you file state taxes for free Publication 225, Farmer's Tax Guide. Where can you file state taxes for free Publication 535, Business Expenses. Where can you file state taxes for free Publication 537, Installment Sales. Where can you file state taxes for free Publication 946, How To Depreciate Property. Where can you file state taxes for free Hybrid method. Where can you file state taxes for free   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. Where can you file state taxes for free However, the following restrictions apply. Where can you file state taxes for free If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. Where can you file state taxes for free See Exceptions under Inventories, later. Where can you file state taxes for free Generally, you can use the cash method for all other items of income and expenses. Where can you file state taxes for free See Inventories, later. Where can you file state taxes for free If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. Where can you file state taxes for free If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Where can you file state taxes for free Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. Where can you file state taxes for free Business and personal items. Where can you file state taxes for free   You can account for business and personal items using different accounting methods. Where can you file state taxes for free 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. Where can you file state taxes for free Two or more businesses. Where can you file state taxes for free   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Where can you file state taxes for free No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. Where can you file state taxes for free Note. Where can you file state taxes for free 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. Where can you file state taxes for free Cash Method Most individuals and many small businesses use the cash method of accounting. Where can you file state taxes for free Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. Where can you file state taxes for free See Inventories, later, for exceptions to this rule. Where can you file state taxes for free Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. Where can you file state taxes for free If you receive property and services, you must include their fair market value (FMV) in income. Where can you file state taxes for free Constructive receipt. Where can you file state taxes for free   Income is constructively received when an amount is credited to your account or made available to you without restriction. Where can you file state taxes for free You need not have possession of it. Where can you file state taxes for free 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. Where can you file state taxes for free Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Where can you file state taxes for free Example. Where can you file state taxes for free You are a calendar year taxpayer. Where can you file state taxes for free Your bank credited, and made available, interest to your bank account in December 2012. Where can you file state taxes for free You did not withdraw it or enter it into your books until 2013. Where can you file state taxes for free You must include the amount in gross income for 2012, the year you constructively received it. Where can you file state taxes for free You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. Where can you file state taxes for free You must report the income in the year the property is received or made available to you without restriction. Where can you file state taxes for free Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. Where can you file state taxes for free This includes business expenses for which you contest liability. Where can you file state taxes for free However, you may not be able to deduct an expense paid in advance. Where can you file state taxes for free Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. Where can you file state taxes for free Expense paid in advance. Where can you file state taxes for free   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. Where can you file state taxes for free   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. Where can you file state taxes for free 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. Where can you file state taxes for free   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. Where can you file state taxes for free See Change in Accounting Method, later. Where can you file state taxes for free Example 1. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Example 2. Where can you file state taxes for free 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. Where can you file state taxes for free The 12-month rule applies. Where can you file state taxes for free Therefore, the full $10,000 is deductible in 2012. Where can you file state taxes for free Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. Where can you file state taxes for free (See Special rules for farming businesses, later. Where can you file state taxes for free ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. Where can you file state taxes for free See Gross receipts test, below. Where can you file state taxes for free 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. Where can you file state taxes for free See Gross receipts test, below. Where can you file state taxes for free A tax shelter. Where can you file state taxes for free Exceptions The following entities are not prohibited from using the cash method of accounting. Where can you file state taxes for free Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. Where can you file state taxes for free A qualified personal service corporation (PSC). Where can you file state taxes for free Gross receipts test. Where can you file state taxes for free   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. Where can you file state taxes for free 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. Where can you file state taxes for free    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. Where can you file state taxes for free See Gross receipts test for qualifying taxpayers, for more information. Where can you file state taxes for free Generally, a partnership applies the test at the partnership level. Where can you file state taxes for free Gross receipts for a short tax year are annualized. Where can you file state taxes for free Aggregation rules. Where can you file state taxes for free   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. Where can you file state taxes for free Change to accrual method. Where can you file state taxes for free   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. Where can you file state taxes for free Special rules for farming businesses. Where can you file state taxes for free   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. Where can you file state taxes for free 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. Where can you file state taxes for free 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). Where can you file state taxes for free   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. Where can you file state taxes for free For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. Where can you file state taxes for free See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. Where can you file state taxes for free Qualified PSC. Where can you file state taxes for free   A PSC that meets the following function and ownership tests can use the cash method. Where can you file state taxes for free Function test. Where can you file state taxes for free   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. Where can you file state taxes for free Ownership test. Where can you file state taxes for free   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. Where can you file state taxes for free Employees performing services for the corporation in a field qualifying under the function test. Where can you file state taxes for free Retired employees who had performed services in those fields. Where can you file state taxes for free The estate of an employee described in (1) or (2). Where can you file state taxes for free 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. Where can you file state taxes for free   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. Where can you file state taxes for free Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. Where can you file state taxes for free 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. Where can you file state taxes for free   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. Where can you file state taxes for free Change to accrual method. Where can you file state taxes for free   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. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free The purpose of an accrual method of accounting is to match income and expenses in the correct year. Where can you file state taxes for free 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. Where can you file state taxes for free Under this rule, you report an amount in your gross income on the earliest of the following dates. Where can you file state taxes for free When you receive payment. Where can you file state taxes for free When the income amount is due to you. Where can you file state taxes for free When you earn the income. Where can you file state taxes for free When title has passed. Where can you file state taxes for free Estimated income. Where can you file state taxes for free   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. Where can you file state taxes for free Change in payment schedule. Where can you file state taxes for free   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. Where can you file state taxes for free Continue this procedure until you complete the services, then account for the difference. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free However, you cannot postpone including any payment beyond that tax year. Where can you file state taxes for free Service agreement. Where can you file state taxes for free   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. Where can you file state taxes for free This includes an agreement providing for incidental replacement of parts or materials. Where can you file state taxes for free However, this applies only if you offer the property without a service agreement in the normal course of business. Where can you file state taxes for free Postponement not allowed. Where can you file state taxes for free   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free Examples. Where can you file state taxes for free   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. Where can you file state taxes for free Example 1. Where can you file state taxes for free You manufacture, sell, and service computers. Where can you file state taxes for free You received payment in 2012 for a one-year contingent service contract on a computer you sold. Where can you file state taxes for free 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. Where can you file state taxes for free Example 2. Where can you file state taxes for free You are in the television repair business. Where can you file state taxes for free 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. Where can you file state taxes for free You include the payments in gross income as you earn them. Where can you file state taxes for free Example 3. Where can you file state taxes for free You own a dance studio. Where can you file state taxes for free On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. Where can you file state taxes for free You give eight lessons in 2012. Where can you file state taxes for free 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. Where can you file state taxes for free Example 4. Where can you file state taxes for free Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. Where can you file state taxes for free You must include the entire payment in income in 2012 since part of the services may be performed after the following year. Where can you file state taxes for free Guarantee or warranty. Where can you file state taxes for free   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. Where can you file state taxes for free Prepaid rent. Where can you file state taxes for free   You cannot postpone reporting income from prepaid rent. Where can you file state taxes for free Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. Where can you file state taxes for free 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. Where can you file state taxes for free Books and records. Where can you file state taxes for free   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. Where can you file state taxes for free Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Where can you file state taxes for free IRS approval. Where can you file state taxes for free   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free An agreement includes a gift certificate that can be redeemed for goods. Where can you file state taxes for free Amounts due and payable are considered received. Where can you file state taxes for free How to report payments. Where can you file state taxes for free   Generally, include an advance payment in income in the year in which you receive it. Where can you file state taxes for free However, you can use the alternative method, discussed next. Where can you file state taxes for free Alternative method of reporting. Where can you file state taxes for free   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. Where can you file state taxes for free Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. Where can you file state taxes for free Example 1. Where can you file state taxes for free You are a retailer. Where can you file state taxes for free You use an accrual method of accounting and account for the sale of goods when you ship the goods. Where can you file state taxes for free You use this method for both tax and financial reporting purposes. Where can you file state taxes for free 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. Where can you file state taxes for free However, see Exception for inventory goods, later. Where can you file state taxes for free Example 2. Where can you file state taxes for free You are a calendar year taxpayer. Where can you file state taxes for free You manufacture household furniture and use an accrual method of accounting. Where can you file state taxes for free Under this method, you accrue income for your financial reports when you ship the furniture. Where can you file state taxes for free For tax purposes, you do not accrue income until the furniture has been delivered and accepted. Where can you file state taxes for free 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. Where can you file state taxes for free You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. Where can you file state taxes for free 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. Where can you file state taxes for free Information schedule. Where can you file state taxes for free   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. Where can you file state taxes for free Total advance payments received in the current tax year. Where can you file state taxes for free Total advance payments received in earlier tax years and not included in income before the current tax year. Where can you file state taxes for free Total payments received in earlier tax years included in income for the current tax year. Where can you file state taxes for free Exception for inventory goods. Where can you file state taxes for free   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. Where can you file state taxes for free You account for the advance payment under the alternative method (discussed earlier). Where can you file state taxes for free You have received a substantial advance payment on the agreement (discussed next). Where can you file state taxes for free You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. Where can you file state taxes for free 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. Where can you file state taxes for free   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. Where can you file state taxes for free You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. Where can you file state taxes for free If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. Where can you file state taxes for free Note. Where can you file state taxes for free You must report any advance payments you receive after the second year in the year received. Where can you file state taxes for free No further deferral is allowed. Where can you file state taxes for free Substantial advance payments. Where can you file state taxes for free   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. Where can you file state taxes for free Example. Where can you file state taxes for free You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. Where can you file state taxes for free In 2008, you entered into a contract for the sale of goods properly includible in your inventory. Where can you file state taxes for free The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. Where can you file state taxes for free You receive the following advance payments under the contract. Where can you file state taxes for free 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. Where can you file state taxes for free In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. Where can you file state taxes for free 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. Where can you file state taxes for free   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. Where can you file state taxes for free 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. Where can you file state taxes for free If no such goods are on hand, then estimate the cost necessary to satisfy the contract. Where can you file state taxes for free   No further deferral is allowed. Where can you file state taxes for free You must include in gross income the advance payment you receive each remaining year of the contract. Where can you file state taxes for free Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. Where can you file state taxes for free IRS approval. Where can you file state taxes for free   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. Where can you file state taxes for free Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. Where can you file state taxes for free The all-events test has been met. Where can you file state taxes for free The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Where can you file state taxes for free Economic performance has occurred. Where can you file state taxes for free Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Where can you file state taxes for free 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. Where can you file state taxes for free If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Where can you file state taxes for free Example. Where can you file state taxes for free You are a calendar year taxpayer. Where can you file state taxes for free You buy office supplies in December 2012. Where can you file state taxes for free You receive the supplies and the bill in December, but you pay the bill in January 2013. Where can you file state taxes for free 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. Where can you file state taxes for free Your office supplies may qualify as a recurring item, discussed later. Where can you file state taxes for free If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). Where can you file state taxes for free Workers' compensation and tort liability. Where can you file state taxes for free   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. Where can you file state taxes for free 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. Where can you file state taxes for free Taxes. Where can you file state taxes for free   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. Where can you file state taxes for free are paid. Where can you file state taxes for free However, you can elect to treat taxes as a recurring item, discussed later. Where can you file state taxes for free You can also elect to ratably accrue real estate taxes. Where can you file state taxes for free See chapter 5 of Publication 535 for information about real estate taxes. Where can you file state taxes for free Other liabilities. Where can you file state taxes for free   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. Where can you file state taxes for free Interest. Where can you file state taxes for free   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. Where can you file state taxes for free Compensation for services. Where can you file state taxes for free   Generally, economic performance occurs as an employee renders service to the employer. Where can you file state taxes for free 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. Where can you file state taxes for free For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Where can you file state taxes for free Vacation pay. Where can you file state taxes for free   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. Where can you file state taxes for free If you pay it later than this, you must deduct it in the year actually paid. Where can you file state taxes for free An amount is vested if your right to it cannot be nullified or cancelled. Where can you file state taxes for free Exception for recurring items. Where can you file state taxes for free   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. Where can you file state taxes for free The exception applies if all the following requirements are met. Where can you file state taxes for free The all-events test, discussed earlier, is met. Where can you file state taxes for free Economic performance occurs by the earlier of the following dates. Where can you file state taxes for free 8½ months after the close of the year. Where can you file state taxes for free The date you file a timely return (including extensions) for the year. Where can you file state taxes for free 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. Where can you file state taxes for free 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. Where can you file state taxes for free This exception does not apply to workers' compensation or tort liabilities. Where can you file state taxes for free Amended return. Where can you file state taxes for free   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. Where can you file state taxes for free 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. Where can you file state taxes for free Recurrence and consistency. 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Where can you file state taxes for free 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. Where can you file state taxes for free Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. Where can you file state taxes for free These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). Where can you file state taxes for free A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. Where can you file state taxes for free irs. Where can you file state taxes for free gov/pub/irs-irbs/irb01–02. Where can you file state taxes for free pdf. Where can you file state taxes for free A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. Where can you file state taxes for free irs. Where can you file state taxes for free gov/pub/irs-irbs/irb02–18. Where can you file state taxes for free pdf. Where can you file state taxes for free 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). Where can you file state taxes for free Qualifying taxpayer. Where can you file state taxes for free   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). 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Where can you file state taxes for free 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. Where can you file state taxes for free Step 3. Where can you file state taxes for free 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. Where can you file state taxes for free Qualifying small business taxpayer. Where can you file state taxes for free   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). Where can you file state taxes for free Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. Where can you file state taxes for free You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. Where can you file state taxes for free Your principle business activity is an eligible business. Where can you file state taxes for free See Eligible business, later. Where can you file state taxes for free 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. Where can you file state taxes for free Note. Where can you file state taxes for free Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. Where can you file state taxes for free A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. Where can you file state taxes for free See Special rules for farming businesses under Cash Method, earlier. Where can you file state taxes for free Gross receipts test for qualifying small business taxpayers. Where can you file state taxes for free   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. Where can you file state taxes for free List each of the test years. Where can you file state taxes for free 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. Where can you file state taxes for free Step 2. Where can you file state taxes for free Determine your average annual gross receipts for each test year listed in Step 1. Where can you file state taxes for free 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. Where can you file state taxes for free Step 3. 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Where can you file state taxes for free NAICS codes 44-45 (retail trade). Where can you file state taxes for free NAICS codes 5111 and 5122 (information industries). Where can you file state taxes for free Your principal business activity is the provision of services, including the provision of property incident to those services. Where can you file state taxes for free Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. Where can you file state taxes for free   Information about the NAICS codes can be found at http://www. Where can you file state taxes for free census. Where can you file state taxes for free gov/naics or in the instructions for your federal income tax return. Where can you file state taxes for free Gross receipts. Where can you file state taxes for free   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. Where can you file state taxes for free See the definit