Publication 583 (Rev. January 2021)

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Department of the Treasury

Internal Revenue Service

Publication 583

(Rev. January 2021)

Cat. No. 15150B

Starting a

Business and

Keeping

Records

Get forms and other information faster and easier at:

• IRS.gov (English)

• IRS.gov/Spanish (Español)

•

IRS.gov/Chinese (中文)

•

IRS.gov/Korean (한국어)

• IRS.gov/Russian (Pусский)

• IRS.gov/Vietnamese (TiếngViệt)

Contents

Future Developments ....................... 1

Introduction .............................. 1

What New Business Owners Need To Know ..... 2

Determining Which Type of Business to Use ..... 2

Getting a Taxpayer Identification Number ....... 3

Employer Identification Number (EIN) .......... 4

Payee's Identification Number ............... 4

Designating a Tax Year ..................... 4

Choosing an Accounting Method .............. 5

Business Taxes ........................... 5

Income Tax ............................ 5

Self-Employment Tax ..................... 6

Employment Taxes ....................... 7

Excise Taxes ........................... 8

Depositing Taxes ........................ 8

Information Returns ........................ 8

Penalties ................................ 9

Deducting Business Expenses ............... 9

Business Start-Up Costs ................... 9

Depreciation .......................... 10

Business Use of Your Home ............... 10

Recordkeeping ........................... 11

How To Get Tax Help ...................... 24

Index .................................. 28

Future Developments

For the latest information about developments related to

Pub. 583, such as legislation enacted after it was

published, go to IRS.gov/Pub583.

Introduction

This publication provides basic federal tax information for

people who are starting a business. It also provides infor-

mation on keeping records and illustrates a recordkeeping

system.

Throughout this publication we refer to other IRS publi-

cations and forms where you will find more information. In

addition, you may want to contact other government agen-

cies, such as the Small Business Administration (SBA) at

SBA.gov.

Comments and suggestions. We welcome your com-

ments about this publication and suggestions for future

editions.

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You can send us comments through IRS.gov/

FormComments. Or, you can write to the Internal Reve-

nue Service, Tax Forms and Publications, 1111 Constitu-

tion Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each com-

ment received, we do appreciate your feedback and will

consider your comments and suggestions as we revise

our tax forms, instructions, and publications. Do not send

tax questions, tax returns, or payments to the above ad-

dress.

Getting answers to your tax questions. If you have

a tax question not answered by this publication or the How

To Get Tax Help section at the end of this publication, go

to the IRS Interactive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the search

feature or viewing the categories listed.

Getting tax forms, instructions, and publications.

Visit IRS.gov/Forms to download current and prior-year

forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

Go to IRS.gov/OrderForms to order current forms, instruc-

tions, and publications; call 800-829-3676 to order

prior-year forms and instructions. The IRS will process

your order for forms and publications as soon as possible.

Do not resubmit requests you’ve already sent us. You can

get forms and publications faster online.

What New Business Owners

Need To Know

As a new business owner, you need to know your federal

tax responsibilities. Table 1 can help you learn what those

responsibilities are. Ask yourself each question listed in

the table, then see the related discussion to find the an-

swer.

In addition to knowing about federal taxes, you need to

make some basic business decisions. Ask yourself:

•

What are my financial resources?

•

What products and services will I sell?

•

How will I market my products and services?

•

How will I develop a strategic business plan?

•

How will I manage my business on a day-to-day ba-

sis?

•

How will I recruit employees?

The Small Business Administration (SBA) is a federal

agency that can help you answer these types of ques-

tions. For information about the SBA, see SBA.gov.

Determining Which Type of

Business to Use

The most common forms of business are the sole proprie-

torship, partnership, and corporation. When beginning a

business, you must decide which form of business to use.

Table 1. What New Business Owners Need To Know About Federal Taxes

(Note: This table is intended to help you, as a new business owner, learn what you need to know about

your federal tax responsibilities. To use it, ask yourself each question in the left column, then see the

related discussion in the right column.)

What must I know? Where to find the answer...

Which form of business will I use? See Determining Which Type of Business to Use.

Will I need an employer identification number (EIN)? See Getting a Taxpayer Identification Number.

Do I have to start my tax year in January, or may I start it in

any other month?

See Designating a Tax Year.

What method can I use to account for my income and

expenses?

See Choosing an Accounting Method.

What kinds of federal taxes will I have to pay? How should I

pay my taxes?

See Business Taxes.

What must I do if I have employees? See Employment Taxes.

Which forms must I file? See Table 2 and Information Returns.

Are there penalties if I do not pay my taxes or file my returns? See Penalties.

What business expenses can I deduct on my federal income

tax return?

See Deducting Business Expenses.

What records must I keep? How long must I keep them? See Recordkeeping.

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Legal and tax considerations enter into this decision. Only

tax considerations are discussed in this Pub. .

Your form of business determines which income

tax return form you have to file. See Table 2 to

find out which form you have to file.

Sole proprietorships. A sole proprietorship is an unin-

corporated business that is owned by one individual. It is

the simplest form of business organization to start and

maintain. The business has no existence apart from you,

the owner. Its liabilities are your personal liabilities. You

undertake the risks of the business for all assets owned,

whether or not used in the business. You include the in-

come and expenses of the business on your personal tax

return.

More information. For more information on sole pro-

prietorships, see Pub. 334, Tax Guide for Small Business

(For Individuals Who Use Schedule C). If you are a

farmer, see Pub. 225, Farmer's Tax Guide.

Partnerships. A partnership is the relationship existing

between two or more persons who join to carry on a trade

or business. Each person contributes money, property, la-

bor, or skill, and expects to share in the profits and losses

of the business.

A partnership must file an annual information return to

report the income, deductions, gains, losses, etc., from its

operations, but it does not pay income tax. Instead, it

“passes through” any profits or losses to its partners. Each

partner includes his or her share of the partnership's items

on his or her tax return.

More information. For more information on partner-

ships, see Pub. 541, Partnerships.

Business owned and operated by spouses. If you and

your spouse jointly own and operate an unincorporated

business and share in the profits and losses, you are part-

ners in a partnership, whether or not you have a formal

partnership agreement. Do not use Schedule C. Instead,

file Form 1065, U.S. Return of Partnership Income. For

more information, see Pub. 541, Partnerships.

Exception—Community Income. If you and your

spouse wholly own an unincorporated business as com-

munity property under the community property laws of a

state, foreign country, or U.S. possession, you can treat

the business either as a sole proprietorship or a partner-

ship. States with community property laws include Ari-

zona, California, Idaho, Louisiana, Nevada, New Mexico,

Texas, Washington, and Wisconsin. See Pub. 555 for

more information about community property laws.

Exception—Qualified joint venture. If you and your

spouse each materially participate as the only members of

an unincorporated, jointly owned and operated business,

and you file a joint return for the tax year, you can make a

joint election to be treated as a qualified joint venture in-

stead of a partnership for the tax year. Making this elec-

tion will allow you to avoid the complexity of Form 1065

but still give each spouse credit for social security earn-

ings on which retirement benefits are based. For an

TIP

explanation of "material participation," see the instructions

for Schedule C, line G.

To make this election, you must divide all items of in-

come, gain, loss, deduction, and credit attributable to the

business between you and your spouse in accordance

with your respective interests in the venture. Each of you

must file a separate Schedule C and a separate Sched-

ule SE. For more information, see Qualified Joint Venture

in the Instructions for Schedule SE.

Corporations. In forming a corporation, prospective

shareholders exchange money, property, or both, for the

corporation's capital stock. A corporation generally takes

the same deductions as a sole proprietorship to figure its

taxable income. A corporation can also take special de-

ductions.

C corporations. The profit of a C corporation is taxed

to the corporation when earned, and then is taxed to the

shareholders when distributed as dividends. However,

shareholders cannot deduct any loss of the corporation.

For more information on corporations, see Pub. 542, Cor-

porations.

S corporations. An eligible domestic corporation (or a

domestic entity eligible to elect to be treated as a corpora-

tion) can avoid double taxation (once to the corporation

and again to the shareholders) as long as it meets certain

tests and elects to be treated as an S corporation. Gener-

ally, an S corporation is exempt from federal income tax

other than tax on certain capital gains and passive in-

come. On their tax returns, the S corporation's sharehold-

ers include their share of the corporation's separately sta-

ted items of income, deduction, loss, and credit, and their

share of nonseparately stated income or loss. For more

information on S corporations and the tests that need to

be met to be eligible to elect to be an S corporation, see

the instructions for Form 2553, Election by a Small Busi-

ness Corporation, and Form 1120-S, U.S. Income Tax Re-

turn for an S Corporation.

Limited liability company. A limited liability company

(LLC) is an entity formed under state law by filing articles

of organization as an LLC. The members of an LLC are

not personally liable for its debts. An LLC may be classi-

fied for federal income tax purposes as either a partner-

ship, a corporation, or an entity disregarded as separate

from its owner by applying the rules in Regulations section

301.7701-3.

More information. For more information on LLCs, see

the Instructions for Form 8832, Entity Classification Elec-

tion.

Getting a Taxpayer

Identification Number

You must have a taxpayer identification number so the

IRS can process your returns. Two of the most common

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kinds of taxpayer identification numbers are the social se-

curity number (SSN) and the employer identification num-

ber (EIN).

•

An SSN is issued to individuals by the Social Security

Administration (SSA) and is in the following format:

000–00–0000.

•

An EIN is issued to individuals (sole proprietors), part-

nerships, corporations, and other entities by the IRS

and is in the following format: 00–0000000.

Providing your identification number to others. You

must include your taxpayer identification number (SSN or

EIN) on all returns and other documents you send to the

IRS. You must also give your number to other persons

who use your identification number on any returns or

documents they send to the IRS. This includes returns or

documents filed to report the following information.

1. Interest, dividends, royalties, etc., paid to you.

2. Any amount paid to you as a dependent care pro-

vider.

3. Certain other amounts paid to you that total $600 or

more for the year.

If you do not furnish your identification number as re-

quired, you may be subject to penalties. See Penalties,

later.

Employer Identification Number (EIN)

EINs are assigned to sole proprietors, LLCs, corporations,

and partnerships for tax filing and reporting purposes. See

Form SS-4 and its instructions for more information and to

see which businesses must get an EIN.

Applying for an EIN. You may apply for an EIN:

•

Online—Click on the Employer ID Numbers (EINs) link

at IRS.gov/businesses/small. The EIN is issued imme-

diately once the application information is validated.

•

By mailing or faxing Form SS-4, Application for Em-

ployer Identification Number.

•

International applicants may call 267-941-1099 (not a

toll-free number).

When to apply. You should apply for an EIN early

enough to receive the number by the time you must file a

return or statement or make a tax deposit. If you apply by

mail, file Form SS-4 at least 4 weeks before you need an

EIN. If you apply by telephone or through the IRS website,

you can get an EIN immediately. If you apply by fax, you

can get an EIN within 4 business days.

If you do not receive your EIN by the time a return is

due, file your return anyway. Write “Applied for” and the

date you applied for the number in the space for the EIN.

Do not use your social security number as a substitute for

an EIN on your tax returns.

More than one EIN. You should have only one EIN for a

business entity. If you have more than one EIN and are

not sure which to use, contact the Internal Revenue Serv-

ice Center where you file your return. Give the numbers

you have, the name and address to which each was as-

signed, and the address of your main place of business.

The IRS will tell you which number to use.

More information. For more information about EINs, see

Pub. 1635, Understanding Your EIN.

Payee's Identification Number

In the operation of a business, you will probably make cer-

tain payments you must report on information returns (dis-

cussed later under Information Returns). The forms used

to report these payments must include the payee's identi-

fication number.

Employee. If you have employees, you must get an SSN

from each of them. Record the name and SSN of each

employee exactly as they are shown on the employee's

social security card. If the employee's name is not correct

as shown on the card, the employee should request a new

card from the SSA. This may occur, for example, if the

employee's name has changed due to marriage or di-

vorce.

If your employee does not have an SSN, he or she

should file Form SS-5, Application for a Social Security

Card, with the SSA. This form is available at SSA offices

or by calling 800-772-1213. It is also available from the

SSA website at SSA.gov.

Other payee. If you make payments to someone who is

not your employee and you must report the payments on

an information return, get that person's SSN. If you make

reportable payments to an organization, such as a corpo-

ration or partnership, you must get its EIN.

To get the payee's SSN or EIN, use Form W-9, Re-

quest for Taxpayer Identification Number and Certifica-

tion. For more information, see IRS.gov/FormW9.

If the payee does not provide you with an identifi-

cation number, you may have to withhold part of

the payments as backup withholding. For informa-

tion on backup withholding, see the Instructions for the

Requester of Form W-9 and the General Instructions for

Certain Information Returns.

Designating a Tax Year

You must figure your taxable income and file an income

tax return based on an annual accounting period called a

tax year. A tax year is usually 12 consecutive months.

There are two kinds of tax years.

1. Calendar tax year. A calendar tax year is 12 consec-

utive months beginning January 1 and ending De-

cember 31.

2. Fiscal tax year. A fiscal tax year is 12 consecutive

months ending on the last day of any month except

December. A 52-53-week tax year is a fiscal tax year

CAUTION

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that varies from 52 to 53 weeks but does not have to

end on the last day of a month.

If you file your first tax return using the calendar tax

year and you later begin business as a sole proprietor, be-

come a partner in a partnership, or become a shareholder

in an S corporation, you must continue to use the calendar

year unless you get IRS approval to change it or are other-

wise allowed to change it without IRS approval.

You must use a calendar tax 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.

•

You are required to use a calendar year by a provision

of the Internal Revenue Code or the Income Tax Reg-

ulations.

For more information, see Pub. 538, Accounting Peri-

ods and Methods.

First-time filer. If you have never filed an income tax re-

turn for your business, you can adopt either a calendar tax

year or a fiscal tax year. Although, some partnerships and

S corporations must use a particular tax year. See Pub.

538 for more information.

You adopt a tax year by filing your first income tax re-

turn using that tax year. You have not adopted a tax year if

all you did was one or more of the following.

•

Filed an application for an extension of time to file an

income tax return.

•

Filed an application for an employer identification

number.

•

Paid estimated taxes for that tax year.

Changing your tax year. Once you have adopted your

tax year, you may have to get IRS approval to change it.

To get approval, you must file Form 1128, Application To

Adopt, Change, or Retain a Tax Year. You may have to

pay a fee. For more information, see Pub. 538.

Choosing an Accounting

Method

An accounting method is a set of rules used to determine

when and how income and expenses are reported. You

choose an accounting method for your business when you

file your first income tax return. There are two basic ac-

counting methods.

1. Cash method. Under the cash method, you report in-

come in the tax year you receive it. You usually de-

duct or capitalize expenses in the tax year you pay

them.

2. Accrual method. Under an accrual method, you gen-

erally report income in the tax year you earn it, even

though you may receive payment in a later year. You

deduct or capitalize expenses in the tax year you

incur them, whether or not you pay them that year.

For other methods, see Pub. 538.

If an inventory is necessary to account for your income,

you must generally use an accrual method of accounting

for purchases and sales. Inventories include goods held

for sale in the normal course of business. They also in-

clude raw materials and supplies that will physically be-

come a part of merchandise intended for sale. Inventories

are explained in Pub. 538.

Certain small business taxpayers can use the

cash method of accounting and can also account

for inventoriable items as materials and supplies

that are not incidental. For more information, see Pub.

538.

You must use the same accounting method to figure

your taxable income and to keep your books. Also, you

must use an accounting method that clearly shows your

income. In general, any accounting method that consis-

tently uses accounting principles suitable for your trade or

business clearly shows income. An accounting method

clearly shows income only if it treats all items of gross in-

come and expense the same from year to year.

More than one business. When you own more than one

business, you can use a different accounting method for

each business if the method you use for each clearly

shows your income. You must keep a complete and sepa-

rate set of books and records for each business.

Changing your method of accounting. Once you have

set up your accounting method, you must generally get

IRS approval before you can change to another method. A

change in accounting method not only includes a change

in your overall system of accounting, but also a change in

the treatment of any material item. For examples of

changes that require approval and information on how to

get approval for the change, see Pub. 538.

Business Taxes

The form of business you operate determines what taxes

you must pay and how you pay them. The following are

the four general kinds of business taxes.

•

Income tax.

•

Self-employment tax.

•

Employment taxes.

•

Excise taxes.

See Table 2 for the forms you file to report these taxes.

You may want to get Pub. 509. It has tax calen-

dars that tell you when to file returns and make

tax payments.

Income Tax

All businesses except partnerships must file an annual in-

come tax return. Partnerships file an information return.

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Which form you use depends on how your business is or-

ganized. See Table 2 to find out which return you have to

file.

The federal income tax is a pay-as-you-go tax. You

must pay the tax as you earn or receive income during the

year. An employee usually has income tax withheld from

his or her pay. If you do not pay your tax through withhold-

ing, or do not pay enough tax that way, you might have to

pay estimated tax. If you are not required to make estima-

ted tax payments, you may pay any tax due when you file

your return.

Reminder. If your business is an LLC, how you elected to

have the LLC treated for tax purposes (either as a corpo-

ration, partnership, or as part of the LLC owner's tax re-

turn) will determine what taxes you must pay and what

forms you should use to pay your taxes.

Estimated tax. Generally, you must pay taxes on in-

come, including self-employment tax (discussed next), by

making regular payments of estimated tax during the year.

Sole proprietors, partners, and S corporation

shareholders. You generally have to make estimated tax

payments if you expect to owe tax of $1,000 or more

when you file your return. Use Form 1040-ES, Estimated

Tax for Individuals, to figure and pay your estimated tax.

For more information, see Pub. 505, Tax Withholding and

Estimated Tax.

Corporations. You generally have to make estimated

tax payments for your corporation if you expect it to owe

tax of $500 or more when you file its return. Use Form

1120-W, Estimated Tax for Corporations, to figure the es-

timated tax. You must deposit the payments as explained

later under Depositing Taxes. For more information, see

Pub. 542.

Self-Employment Tax

Self-employment tax (SE tax) is a social security and

Medicare tax primarily for individuals who work for them-

selves. Your payments of SE tax contribute to your cover-

age under the social security system. Social security

Table 2. Which Forms Must I File?

IF you are a... THEN you may have to pay... FILE form...

Sole proprietor Income tax 1040 or 1040-SR, and Schedule C

(Schedule F

for farm business)

Self-employment tax 1040 or 1040-SR, and Schedule SE

Estimated tax 1040-ES

Employment taxes:

• Social security and Medicare

taxes and income tax

withholding

941 or 944 (943 for farm employees)

• Federal unemployment (FUTA)

tax

940

Excise taxes See Excise Taxes

Partnership Annual return of income 1065

Employment taxes Same as sole proprietor

Excise taxes See Excise Taxes

Partner in a partnership (individual) Income tax 1040 or 1040-SR, and Schedule E

Self-employment tax 1040 or 1040-SR, and Schedule SE

Estimated tax 1040-ES

C corporation or S corporation Income tax 1120 (C corporation)

1120-S (S corporation)

Estimated tax 1120-W (corporation only)

Employment taxes Same as sole proprietor

Excise taxes See Excise Taxes

S corporation shareholder Income tax 1040 or 1040-SR, and Schedule E

Estimated tax 1040-ES

File a separate schedule for each business.

Various other schedules may be needed.

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coverage provides you with retirement benefits, disability

benefits, survivor benefits, and hospital insurance (Medi-

care) benefits.

You must pay SE tax and file Schedule SE (Form 1040)

if either of the following applies.

1. Your net earnings from self-employment were $400 or

more.

2. You had church employee income of $108.28 or

more.

Use Schedule SE (Form 1040) to figure your SE tax. For

more information, see Pub. 334.

You can deduct a portion of your SE tax as an ad-

justment to income on your Form 1040 or

1040-SR.

The Social Security Administration (SSA) time limit

for posting self-employment income. Generally, the

SSA will give you credit only for self-employment income

reported on a tax return filed within 3 years, 3 months, and

15 days after the tax year you earned the income. If you

file your tax return or report a change in your self-employ-

ment income after this time limit, the SSA may change its

records, but only to remove or reduce the amount. The

SSA will not change its records to increase your self-em-

ployment income.

Employment Taxes

This section briefly discusses the employment taxes you

must pay, the forms you must file to report them, and

other forms that must be filed when you have employees.

Employment taxes include the following.

•

Social security and Medicare taxes.

•

Federal income tax withholding.

•

Federal unemployment (FUTA) tax.

If you have employees, you will need to get Pub. 15

(Circular E), Employer's Tax Guide. If you have agricul-

tural employees, get Pub. 51 (Circular A), Agricultural Em-

ployer's Tax Guide. These publications explain your tax

responsibilities as an employer.

If you are not sure whether the people working for you

are your employees, see Pub. 15-A, Employer's Supple-

mental Tax Guide. That publication has information to

help you determine whether an individual is an employee

or an independent contractor. Also, people who provide a

service generally associated with the sharing (or on-de-

mand, gig, or access) economy are, under certain circum-

stances, independent contractors. An independent con-

tractor is someone who is self-employed. Generally, you

do not have to withhold or pay any taxes on payments to

an independent contractor. If you wrongly classify an em-

ployee as an independent contractor, you can be held lia-

ble for employment taxes for that worker plus a penalty.

TIP

Federal Income, Social Security, and

Medicare Taxes

You generally must withhold federal income tax from your

employee's wages. To figure how much federal income

tax to withhold from each wage payment, use the employ-

ee's Form W-4 (discussed later under Hiring Employees)

and the methods described in Publication 15-T, Federal

Income Tax Withholding Methods. Pub. 15-T provides in-

structions about how to apply Form W-4 to calculate with-

holding on the employee.

Social security and Medicare taxes pay for benefits that

workers and their families receive under the Federal Insur-

ance Contributions Act (FICA). Social security tax pays for

benefits under the old-age, survivors, and disability insur-

ance part of FICA. Medicare tax pays for benefits under

the hospital insurance part of FICA. You withhold part of

these taxes from your employee's wages and you pay a

part yourself. To find out how much social security and

Medicare tax to withhold and to pay, see Pub. 15.

Which form do I file? Report these taxes on Form 941,

Employer's QUARTERLY Federal Tax Return, or Form

944, Employer's ANNUAL Federal Tax Return. (Farm em-

ployers use Form 943, Employer's Annual Federal Tax

Return for Agricultural Employees.)

Federal Unemployment (FUTA) Tax

The federal unemployment tax is part of the federal and

state program under the Federal Unemployment Tax Act

(FUTA) that pays unemployment compensation to work-

ers who lose their jobs. You report and pay FUTA tax sep-

arately from social security and Medicare taxes and with-

held income tax. You pay FUTA tax only from your own

funds. Employees do not pay this tax or have it withheld

from their pay.

Which form do I file? Report federal unemployment tax

on Form 940, Employer's Annual Federal Unemployment

(FUTA) Tax Return. See Pub. 15 to find out if you can use

this form.

Hiring Employees

Have the employees you hire fill out Form I-9 and Form

W-4.

Form I-9. You must verify that each new employee is le-

gally eligible to work in the United States. Both you and

the employee must complete the U.S. Citizenship and Im-

migration Services (USCIS) Form I-9, Employment Eligi-

bility Verification. You can get the form from USCIS offices

or from the USCIS website at USCIS.gov. Call the USCIS

at 800-375-5283 for more information about your respon-

sibilities.

Form W-4. Each employee must fill out Form W-4, Em-

ployee's Withholding Certificate. You will use the informa-

tion provided on this form to figure the amount of income

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tax to withhold from your employee's wages. For more in-

formation, see Pub. 15-T.

Form W-2 Wage Reporting

After the calendar year is over, you must furnish copies of

Form W-2, Wage and Tax Statement, to each employee

to whom you paid wages during the year. You must also

send copies to the Social Security Administration. See In-

formation Returns, later, for more information on Form

W-2.

Excise Taxes

This section describes the excise taxes you may have to

pay and the forms you have to file if you do any of the fol-

lowing.

•

Manufacture or sell certain products.

•

Operate certain kinds of businesses.

•

Use various kinds of equipment, facilities, or products.

•

Receive payment for certain services.

For more information on excise taxes, see Pub. 510, Ex-

cise Taxes.

Form 720. The federal excise taxes reported on Form

720, Quarterly Federal Excise Tax Return, consist of sev-

eral broad categories of taxes, including the following.

•

Environmental taxes.

•

Communications and air transportation taxes.

•

Fuel taxes.

•

Tax on the first retail sale of heavy trucks, trailers, and

tractors.

•

Manufacturers taxes on the sale or use of a variety of

different articles.

Form 2290. There is a federal excise tax on certain

trucks, truck tractors, and buses used on public highways.

The tax applies to vehicles having a taxable gross weight

of 55,000 pounds or more. Report the tax on Form 2290,

Heavy Highway Vehicle Use Tax Return. For more infor-

mation, see the Instructions for Form 2290.

Form 730. If you are in the business of accepting wagers

or conducting a wagering pool or lottery, you may be liable

for the federal excise tax on wagering. Use Form 730,

Monthly Tax Return for Wagers, to figure the tax on the

wagers you receive.

Form 11-C. Use Form 11-C, Occupational Tax and Reg-

istration Return for Wagering, to register for any wagering

activity and to pay the federal occupational tax on wager-

ing.

Depositing Taxes

You generally have to deposit federal employment taxes,

certain excise taxes, corporate income tax, and S

corporation taxes before you file your return.

You must use an electronic funds transfer (EFT) to

make all federal tax deposits. Generally, an EFT is made

using the Electronic Federal Tax Payment System

(EFTPS). If you don't want to use EFTPS, you can arrange

for your tax professional, financial institution, payroll serv-

ice, or other trusted third party to make electronic deposits

on your behalf.

Any business that has a federal tax obligation and re-

quests a new EIN will automatically be enrolled in EFTPS.

Through the mail, the business will receive an EFTPS PIN

package that contains instructions for activating its EFTPS

enrollment.

Information Returns

If you make or receive payments in your business, you

may have to report them to the IRS on information returns.

The IRS compares the payments shown on the informa-

tion returns with each person's income tax return to see if

the payments were included in income. You must give a

copy of each information return you are required to file to

the recipient or payer. In addition to the forms described

below, you may have to use other returns to report certain

kinds of payments or transactions. For more details on in-

formation returns and when you have to file them, see the

General Instructions for Certain Information Returns.

Form 1099-MISC. Use Form 1099-MISC, Miscellaneous

Income, to report certain payments you make in your

trade or business. These payments include the following

items.

•

Royalty payments of $10 or more.

•

Rent payments of $600 or more, other than rents paid

to real estate agents.

•

Prizes and awards of $600 or more that are not for

services, such as winnings on TV or radio shows.

•

Payments to certain crew members by operators of

fishing boats.

•

Cash payments of $600 or more for fish (or other

aquatic life) you purchase from anyone engaged in the

trade or business of catching fish.

Either the Form 1099-MISC or Form 1099-NEC can be

used to report sales totaling $5,000 or more of consumer

products to a person on a buy-sell, deposit-commission,

or other commission basis for resale anywhere other than

in a permanent retail establishment. For more information

on what to report on Form 1099-MISC, see the Instruc-

tions for Forms 1099-MISC and 1099-NEC.

Form 1099-NEC. Use Form 1099-NEC, Nonemployee

Compensation, to report certain payments you make in

your trade or business. These payments include the fol-

lowing items.

•

Payments of $600 or more for services performed by

someone who is not your employee.

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•

If you withheld certain federal income tax under the

backup withholding rules regardless of the amount of

the payment.

You may choose to report direct sales of $5,000 or more

of consumer goods to a person for resale on Form

1099-NEC rather than Form 1099-MISC. For more infor-

mation on what to report on Form 1099-NEC, see the In-

structions for Forms 1099-MISC and 1099-NEC.

Form W-2. You must file Form W-2, Wage and Tax

Statement, to report payments to your employees, such

as wages, tips, and other compensation, withheld income,

social security, and Medicare taxes. For more information

on what to report on Form W-2, see the Instructions for

Forms W-2 and W-3.

Form 8300. You must file Form 8300, Report of Cash

Payments Over $10,000 Received in a Trade or Business,

if you receive more than $10,000 in cash in one transac-

tion or two or more related business transactions. Cash in-

cludes U.S. and foreign coin and currency. It also includes

certain monetary instruments such as cashier's and travel-

er's checks and money orders. For more information, see

Pub. 1544, Reporting Cash Payments of Over $10,000.

Penalties

The law provides penalties for not filing returns or paying

taxes as required. Criminal penalties may be imposed for

willful failure to file, tax evasion, or making a false state-

ment.

Failure to file tax returns. If you do not file your tax re-

turn by the due date, you may have to pay a penalty. The

penalty is based on the tax not paid by the due date. See

your tax return instructions for more information about this

penalty.

Failure to pay tax. If you do not pay your taxes by the

due date, you will have to pay a penalty for each month, or

part of a month, that your taxes are not paid. For more in-

formation, see your tax return instructions.

Failure to withhold, deposit, or pay taxes. If you do

not withhold income, social security, or Medicare taxes

from employees, or if you withhold taxes but do not de-

posit them or pay them to the IRS, you may be subject to

a penalty of the unpaid tax, plus interest. You may also be

subject to penalties if you deposit the taxes late. For more

information, see Pub. 15.

Failure to follow information reporting requirements.

The following penalties apply if you are required to file in-

formation returns. For more information, see the General

Instructions for Certain Information Returns.

•

Failure to file information returns. A penalty ap-

plies if you do not file information returns by the due

date, if you do not include all required information, or if

you report incorrect information.

•

Failure to furnish correct payee statements. A

penalty applies if you do not furnish a required state-

ment to a payee by the due date, if you do not include

all required information, or if you report incorrect infor-

mation.

Waiver of penalty. These penalties will not apply if

you can show that the failures were due to reasonable

cause and not willful neglect.

In addition, there is no penalty for failure to include all

the required information, or for including incorrect informa-

tion, on a de minimis number of information returns if you

correct the errors by August 1 of the year the returns are

due. (To be considered de minimis, the number of returns

cannot exceed the greater of 10 or

/2 of 1% of the total

number of returns you are required to file for the year.)

There is also no penalty, and no need for a corrected re-

turn to be filed, for incorrect dollar amounts where no sin-

gle amount differs from the correct amount by more than

$100 ($25 for tax withheld).

Failure to supply taxpayer identification number. If

you do not include your taxpayer identification number

(SSN or EIN) or the taxpayer identification number of an-

other person where required on a return, statement, or

other document, you may be subject to a penalty of $50

for each failure. You may also be subject to the $50 pen-

alty if you do not give your taxpayer identification number

to another person when it is required on a return, state-

ment, or other document.

Deducting Business Expenses

You can deduct business expenses on your business or

personal income tax return, depending on the form of your

business. These are the current operating costs of running

your business. To be deductible, a business expense

must be both ordinary and necessary. An ordinary ex-

pense is one that is common and accepted in your field of

business, trade, or profession. A necessary expense is

one that is helpful and appropriate for your business,

trade, or profession. An expense does not have to be in-

dispensable to be considered necessary.

The following are brief explanations of some expenses

that are of interest to people starting a business. There

are many other expenses that you may be able to deduct.

See your form instructions and Pub. 535, Business Ex-

penses.

Business Start-Up Costs

Business start-up costs are the expenses you incur before

you actually begin business operations. Your business

start-up costs will depend on the type of business you are

starting. They may include costs for advertising, travel,

surveys, and training. These costs are generally capital

expenses.

You usually recover costs for a particular asset (such

as machinery or office equipment) through depreciation

(discussed next). However, you can elect to deduct up to

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$10,000 of business start-up costs and up to $5,000 of or-

ganizational costs. The $10,000 deduction for business

start-up costs is reduced by the amount your total start-up

costs exceed $60,000. The $5,000 deduction for organi-

zational costs is reduced by the amount your total organi-

zational costs exceed $50,000. Any remaining costs must

be amortized.

For more information about amortizing start-up and or-

ganizational costs, see chapter 7 in Pub. 535.

Depreciation

If property you acquire to use in your business has a use-

ful life that extends substantially beyond the year it is

placed in service, you generally cannot deduct the entire

cost as a business expense in the year you acquire it. You

must spread the cost over more than one tax year and de-

duct part of it each year. This method of deducting the

cost of business property is called depreciation.

Business property you must depreciate includes the

following items.

•

Office furniture.

•

Buildings.

•

Machinery and equipment.

You can choose to deduct a limited amount of the cost

of certain depreciable property in the year you place the

property in service. This deduction is known as the “sec-

tion 179 deduction.” For more information about deprecia-

tion and the section 179 deduction, see Pub. 946, How To

Depreciate Property.

Depreciation must be taken in the year it is allow-

able. Allowable depreciation not taken in a prior

year cannot be taken in the current year. If you do

not deduct the correct depreciation, you may be able to

make a correction by filing Form 1040-X, Amended U.S.

Individual Income Tax Return, or by changing your ac-

counting method. For more information on how to correct

depreciation deductions, see chapter 1, How Do You Cor-

rect Depreciation Deductions?, in Pub. 946.

Business Use of Your Home

To deduct expenses related to the business use of your

home, you must meet specific requirements. However,

even if you meet the requirements your deduction may still

be limited.

To qualify to claim expenses for business use of your

home, you must meet both the following tests.

1. Your use of the business part of your home must be:

a. Exclusive (however, see Exceptions to exclusive

use, later),

b. Regular,

c. For your trade or business, AND

2. The business part of your home must be one of the

following:

TIP

a. Your principal place of business (defined later),

b. A place where you meet or deal with patients, cli-

ents, or customers in the normal course of your

trade or business, or

c. A separate structure (not attached to your home)

you use in connection with your trade or business.

Exclusive use. To qualify under the exclusive use test,

you must use a specific area of your home only for your

trade or business. The area used for business can be a

room or other separately identifiable space. The space

does not need to be marked off by a permanent partition.

You do not meet the requirements of the exclusive use

test if you use the area in question both for business and

for personal purposes.

Exceptions to exclusive use. You do not have to meet

the exclusive use test if either of the following applies.

1. You use part of your home for the storage of inventory

or product samples.

2. You use part of your home as a daycare facility.

For an explanation of these exceptions, see Pub. 587,

Business Use of Your Home (Including Use by Daycare

Providers).

Principal place of business. Your home office will qual-

ify as your principal place of business for deducting ex-

penses for its use if you meet the following requirements.

•

You use it exclusively and regularly for administrative

or management activities of your trade or business.

•

You have no other fixed location where you conduct

substantial administrative or management activities of

your trade or business.

Alternatively, if you use your home exclusively and reg-

ularly for your business, but your home office does not

qualify as your principal place of business based on the

previous rules, you determine your principal place of busi-

ness based on the following factors.

•

The relative importance of the activities performed at

each location.

•

If the relative importance factor does not determine

your principal place of business, the time spent at

each location.

If, after considering your business locations, your home

cannot be identified as your principal place of business,

you cannot deduct home office expenses. However, for

other ways to qualify to deduct home office expenses, see

Pub. 587.

Simplified method. The simplified method is an alterna-

tive to the calculation, allocation, and substantiation of ac-

tual expenses normally required to determine your home

office expense deduction. With this method, you will gen-

erally figure your deduction by multiplying $5, the prescri-

bed rate, by the area of your home (measured in square

feet) used for a qualified business. The area you use to

figure your deduction is limited to 300 square feet. For

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more information about the simplified method, see Reve-

nue Procedure 2013-13, 2013-06 I.R.B. 478, available at

IRS.gov/irb/2013-06_IRB#RP-2013-13.

Which form do I file? If you file Schedule C (Form

1040), use Form 8829, Expenses for Business Use of

Your Home. However, if you elect to use the simplified

method, use the Simplified Method Worksheet in the In-

structions for Schedule C or Pub. 587.

If you file Schedule F (Form 1040) or are a partner, you

should use the Worksheet To Figure the Deduction for

Business Use of Your Home in Pub. 587. However, if you

elect to use the simplified method, use the Simplified

Method Worksheet in Pub. 587.

More information. For more information about business

use of your home, see Pub. 587.

Car and Truck Expenses

If you use your car or truck in your business, you can de-

duct the costs of operating and maintaining it. You gener-

ally can deduct either your actual expenses or the stand-

ard mileage rate.

Actual expenses. If you deduct actual expenses, you

can deduct the cost of the following items:

Depreciation Lease payments Registration

Garage rent Licenses Repairs

Gas Oil Tires

Insurance Parking fees Tolls

If you use your vehicle for both business and personal

purposes, you must divide your expenses between busi-

ness and personal use. You can divide your expenses

based on the miles driven for each purpose.

Example. You are the sole proprietor of a flower shop.

You drove your van 20,000 miles during the year. 16,000

miles were for delivering flowers to customers and 4,000

miles were for personal use. You can claim only 80%

(16,000 ÷ 20,000) of the cost of operating your van as a

business expense.

Standard mileage rate. Instead of figuring actual expen-

ses, you may be able to use the standard mileage rate to

figure the deductible costs of operating your car, van,

pickup, or panel truck for business purposes. You can use

the standard mileage rate for a vehicle you own or lease.

The standard mileage rate is a specified amount of money

you can deduct for each business mile you drive. It is an-

nounced annually by the IRS. To figure your deduction,

multiply your business miles by the standard mileage rate

for the year.

Generally, if you use the standard mileage rate,

you cannot deduct your actual expenses. How-

ever, you may be able to deduct business-related

parking fees, tolls, interest on your car loan, and certain

state and local taxes.

CAUTION

Choosing the standard mileage rate. If you want to

use the standard mileage rate for a car you own, you must

choose to use it in the first year the car is available for use

in your business. In later years, you can choose to use ei-

ther the standard mileage rate or actual expenses.

If you use the standard mileage rate for a car you lease,

you must choose to use it for the entire lease period (in-

cluding renewals).

Additional information. For more information about the

rules for claiming car and truck expenses, see Pub. 463,

Travel, Entertainment, Gift, and Car Expenses.

Recordkeeping

This part explains why you must keep records, what kinds

of records you must keep, and how to keep them. It also

explains how long you must keep your records for federal

tax purposes. A sample recordkeeping system is illustra-

ted at the end of this part.

Why Keep Records?

Everyone in business must keep records. Good records

will help you do the following.

Monitor the progress of your business. You need

good records to monitor the progress of your business.

Records can show whether your business is improving,

which items are selling, or what changes you need to

make. Good records can increase the likelihood of busi-

ness success.

Prepare your financial statements. You need good re-

cords to prepare accurate financial statements. These in-

clude income (profit and loss) statements and balance

sheets. These statements can help you in dealing with

your bank or creditors and help you manage your busi-

ness.

•

An income statement shows the income and expen-

ses of the business for a given period of time.

•

A balance sheet shows the assets, liabilities, and your

equity in the business on a given date.

Identify source of receipts. You will receive money or

property from many sources. Your records can identify the

source of your receipts. You need this information to sep-

arate business from nonbusiness receipts and taxable

from nontaxable income.

Keep track of deductible expenses. You may forget

expenses when you prepare your tax return unless you re-

cord them when they occur.

Prepare your tax returns. You need good records to

prepare your tax returns. These records must support the

income, expenses, and credits you report. Generally,

these are the same records you use to monitor your busi-

ness and prepare your financial statements.

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Support items reported on tax returns. You must keep

your business records available at all times for inspection

by the IRS. If the IRS examines any of your tax returns,

you may be asked to explain the items reported. A com-

plete set of records will speed up the examination.

Kinds of Records To Keep

Except in a few cases, the law does not require any spe-

cific kind of records. You can choose any recordkeeping

system suited to your business that clearly shows your in-

come and expenses.

The business you are in affects the type of records you

need to keep for federal tax purposes. You should set up

your recordkeeping system using an accounting method

that clearly shows your income for your tax year. See

Choosing an Accounting Method, earlier. If you are in

more than one business, you should keep a complete and

separate set of records for each business. A corporation

should keep minutes of board of directors' meetings.

Your recordkeeping system should include a summary

of your business transactions. This summary is ordinarily

made in your books (for example, accounting journals and

ledgers). Your books must show your gross income, as

well as your deductions and credits. For most small busi-

nesses, the business checkbook (discussed later) is the

main source for entries in the business books. In addition,

you must keep supporting documents, explained later.

Electronic records. All requirements that apply to hard

copy books and records also apply to electronic storage

systems that maintain tax books and records. When you

replace hard copy books and records, you must maintain

the electronic storage systems for as long as they are ma-

terial to the administration of tax law. An electronic stor-

age system is any system for preparing or keeping your

records either by electronic imaging or by transfer to an

electronic storage media. The electronic storage system

must index, store, preserve, retrieve, and reproduce the

electronically stored books and records in legible format.

All electronic storage systems must provide a complete

and accurate record of your data that is accessible to the

IRS. Electronic storage systems are also subject to the

same controls and retention guidelines as those imposed

on your original hard copy books and records.

The original hard copy books and records may be de-

stroyed provided that the electronic storage system has

been tested to establish that the hard copy books and re-

cords are being reproduced in compliance with IRS re-

quirements for an electronic storage system and proce-

dures are established to ensure continued compliance

with all applicable rules and regulations. You still have the

responsibility of retaining any other books and records

that are required to be retained.

The IRS may test your electronic storage system, in-

cluding the equipment used, indexing methodology, soft-

ware and retrieval capabilities. This test is not considered

an examination and the results must be shared with you. If

your electronic storage system meets the requirements

mentioned earlier, you will be in compliance. If not, you

may be subject to penalties for non-compliance, unless

you continue to maintain your original hard copy books

and records in a manner that allows you and the IRS to

determine your correct tax.

For details on electronic storage system requirements,

see Revenue Procedure 97-22, available at IRS.gov/Tax-

Exempt-Bonds/Revenue-Procedures.

Supporting Documents

Purchases, sales, payroll, and other transactions you

have in your business generate supporting documents.

Supporting documents include sales slips, paid bills, in-

voices, receipts, deposit slips, and canceled checks.

These documents contain information you need to record

in your books.

It is important to keep these documents because they

support the entries in your books and on your tax return.

Keep them in an orderly fashion and in a safe place. For

instance, organize them by year and type of income or ex-

pense.

Gross receipts. Gross receipts are the income you re-

ceive from your business. You should keep supporting

documents that show the amounts and sources of your

gross receipts. Documents that show gross receipts in-

clude the following.

•

Cash register tapes.

•

Bank deposit slips.

•

Receipt books.

•

Invoices.

•

Credit card charge slips.

•

Forms 1099-MISC.

•

Forms 1099-NEC.

Inventory. Inventory is any item you buy and resell to

customers. If you are a manufacturer or producer, this in-

cludes the cost of all raw materials or parts purchased for

manufacture into finished products. Your supporting docu-

ments should show the amount paid and that the amount

was for inventory. Documents reporting the cost of inven-

tory include the following.

•

Canceled checks.

•

Cash register tape receipts.

•

Credit card sales slips.

•

Invoices.

These records will help you determine the value of your in-

ventory at the end of the year. See Pub. 538 for informa-

tion on methods for valuing inventory.

Expenses. Expenses are the costs you incur (other than

the cost of inventory) to carry on your business. Your sup-

porting documents should show the amount paid and that

the amount was for a business expense. Documents for

expenses include the following.

•

Canceled checks.

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•

Cash register tapes.

•

Account statements.

•

Credit card sales slips.

•

Invoices.

•

Petty cash slips for small cash payments.

A petty cash fund allows you to make small pay-

ments without having to write checks for small

amounts. Each time you make a payment from

this fund, you should make out a petty cash slip and at-

tach it to your receipt as proof of payment.

Travel, transportation, and gift expenses. Specific

recordkeeping rules apply to these expenses. For more

information, see Pub. 463.

Employment taxes. There are specific employment

tax records you must keep. For a list, see Pub. 15.

Assets. Assets are the property, such as machinery and

furniture you own and use in your business. You must

keep records to verify certain information about your busi-

ness assets. You need records to figure the annual depre-

ciation and the gain or loss when you sell the assets. Your

records should show the following information.

•

When and how you acquired the asset.

•

Purchase price.

•

Cost of any improvements.

•

Section 179 deduction taken.

•

Deductions taken for depreciation.

•

Deductions taken for casualty losses, such as losses

resulting from fires or storms.

•

How you used the asset.

•

When and how you disposed of the asset.

•

Selling price.

•

Expenses of sale.

The following documents may show this information.

•

Purchase and sales invoices.

•

Real estate closing statements.

•

Canceled checks.

What if I don't have a canceled check? If you do not

have a canceled check, you may be able to prove pay-

ment with certain financial account statements prepared

by financial institutions. These include account statements

prepared for the financial institution by a third party. These

account statements must be highly legible. The following

table lists acceptable account statements.

TIP

IF payment is by...

THEN the statement must

show the...

Check

•

Check number.

•

Amount.

•

Payee's name.

•

Date the check amount

was posted to the

account by the financial

institution.

Electronic funds transfer

•

Amount transferred.

•

Payee's name.

•

Date the transfer was

posted to the account by

the financial institution.

Credit card

•

Amount charged.

•

Payee's name.

•

Transaction date.

Proof of payment of an amount, by itself, does not

establish you are entitled to a tax deduction. You

should also keep other documents, such as credit

card sales slips and invoices, to show that you also incur-

red the cost.

Recording Business Transactions

A good recordkeeping system includes a summary of your

business transactions. (Your business transactions are

shown on the supporting documents just discussed.)

Business transactions are ordinarily summarized in books

called journals and ledgers. You can buy them over the In-

ternet and at your local stationery or office supply store.

A journal is a book where you record each business

transaction shown on your supporting documents. You

may have to keep separate journals for transactions that

occur frequently.

A ledger is a book that contains the totals from all of

your journals. It is organized into different accounts.

Whether you keep journals and ledgers and how you

keep them depends on the type of business you are in.

For example, a recordkeeping system for a small busi-

ness might include the following items.

•

Business checkbook.

•

Daily summary of cash receipts.

•

Monthly summary of cash receipts.

•

Check disbursements journal.

•

Depreciation worksheet.

•

Employee compensation record.

The business checkbook is explained next. The other

items are illustrated later under Recordkeeping System

Example.

CAUTION

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The system you use to record business transac-

tions will be more effective if you follow good re-

cordkeeping practices. For example, record ex-

penses when they occur, and identify the source of

recorded receipts. Generally, it is best to record transac-

tions on a daily basis.

Business checkbook. One of the first things you should

do when you start a business is open a business checking

account. You should keep your business account sepa-

rate from your personal checking account.

The business checkbook is your basic source of infor-

mation for recording your business expenses. You should

deposit all daily receipts in your business checking ac-

count. You should check your account for errors by recon-

ciling it. See Reconciling the checking account, later.

Consider using a checkbook that allows enough space

to identify the source of deposits as business income, per-

sonal funds, or loans. You should also note on the deposit

slip the source of the deposit and keep copies of all slips.

You should make all payments by check to document

business expenses. Write checks payable to yourself only

when making withdrawals from your business for personal

use. Avoid writing checks payable to cash. If you must

write a check for cash to pay a business expense, include

the receipt for the cash payment in your records. If you

cannot get a receipt for a cash payment, you should make

an adequate explanation in your records at the time of

payment.

Use the business account for business purposes

only. Indicate the source of deposits and the type

of expense in the checkbook.

Reconciling the checking account. When you re-

ceive your bank statement, make sure the statement, your

checkbook, and your books agree. The statement balance

may not agree with the balance in your checkbook and

books if the statement:

•

Includes bank charges you did not enter in your books

and subtract from your checkbook balance, or

•

Does not include deposits made after the statement

date or checks that did not clear your account before

the statement date.

By reconciling your checking account, you will:

•

Verify how much money you have in the account,

•

Make sure that your checkbook and books reflect all

bank charges and the correct balance in the checking

account, and

•

Correct any errors in your bank statement, checkbook,

and books.

You should reconcile your checking account each

month.

Before you reconcile your monthly bank statement,

check your own figures. Begin with the balance shown in

your checkbook at the end of the previous month. To this

balance, add the total cash deposited during the month

and subtract the total cash disbursements.

TIP

After checking your figures, the result should agree with

your checkbook balance at the end of the month. If the re-

sult does not agree, you may have made an error in re-

cording a check or deposit. You can find the error by do-

ing the following.

1. Adding the amounts on your check stubs and com-

paring that total with the total in the “amount of check”

column in your check disbursements journal. If the to-

tals do not agree, check the individual amounts to see

if an error was made in your check stub record or in

the related entry in your check disbursements journal.

2. Adding the deposit amounts in your checkbook. Com-

pare that total with the monthly total in your cash re-

ceipt book, if you have one. If the totals do not agree,

check the individual amounts to find any errors.

If your checkbook and journal entries still disagree,

then refigure the running balance in your checkbook to

make sure additions and subtractions are correct.

When your checkbook balance agrees with the balance

figured from the journal entries, you may begin reconciling

your checkbook with the bank statement. Many banks

print a reconciliation worksheet on the back of the state-

ment.

To reconcile your account, follow these steps.

1. Compare the deposits listed on the bank statement

with the deposits shown in your checkbook. Note all

differences in the dollar amounts.

2. Compare each canceled check, including both check

number and dollar amount, with the entry in your

checkbook. Note all differences in the dollar amounts.

Mark the check number in the checkbook as having

cleared the bank. After accounting for all checks re-

turned by the bank, those not marked in your check-

book are your outstanding checks.

3. Prepare a bank reconciliation. One is illustrated later

under Recordkeeping System Example.

4. Update your checkbook and journals for items shown

on the reconciliation as not recorded (such as service

charges) or recorded incorrectly.

At this point, the adjusted bank statement balance should

equal your adjusted checkbook balance. If you still have

differences, check the previous steps to find the errors.

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Bookkeeping System

You must decide whether to use a single-entry or a dou-

ble-entry bookkeeping system. The single-entry system of

bookkeeping is the simplest to maintain, but it may not be

suitable for everyone. You may find the double-entry sys-

tem better because it has built-in checks and balances to

assure accuracy and control.

Single-entry. A single-entry system is based on the in-

come statement (profit or loss statement). It can be a sim-

ple and practical system if you are starting a small busi-

ness. The system records the flow of income and

expenses through the use of:

1. A daily summary of cash receipts, and

2. Monthly summaries of cash receipts and disburse-

ments.

Double-entry. A double-entry bookkeeping system uses

journals and ledgers. Transactions are first entered in a

journal and then posted to ledger accounts. These ac-

counts show income, expenses, assets (property a busi-

ness owns), liabilities (debts of a business), and net worth

(excess of assets over liabilities). You close income and

expense accounts at the end of each tax year. You keep

asset, liability, and net worth accounts open on a perma-

nent basis.

In the double-entry system, each account has a left

side for debits and a right side for credits. It is self-balanc-

ing because you record every transaction as a debit entry

in one account and as a credit entry in another.

Under this system, the total debits must equal the total

credits after you post the journal entries to the ledger ac-

counts. If the amounts do not balance, you have made an

error and you must find and correct it.

An example of a journal entry exhibiting a payment of

rent in October is shown next.

General Journal

Date Description of Entry Debit Credit

Oct. 5 Rent expense 780.00

Cash 780.00

Computerized System

There are computer software packages you can use for

recordkeeping. They can be purchased over the Internet

and in many retail stores. These packages are very help-

ful and relatively easy to use; they require very little knowl-

edge of bookkeeping and accounting.

If you use a computerized system, you must be able to

produce sufficient legible records to support and verify en-

tries made on your return and determine your correct tax

liability. To meet this qualification, the machine-sensible

records must reconcile with your books and return. These

records must provide enough detail to identify the underly-

ing source documents.

You must also keep all machine-sensible records and a

complete description of the computerized portion of your

recordkeeping system. This documentation must be suffi-

ciently detailed to show all of the following items.

•

Functions being performed as the data flows through

the system.

•

Controls used to ensure accurate and reliable pro-

cessing.

•

Controls used to prevent the unauthorized addition, al-

teration, or deletion of retained records.

•

Charts of accounts and detailed account descriptions.

For more information, see Revenue Procedure 98-25 in

Cumulative Bulletin 1998-1, available at IRS.gov/

Businesses/Automated-Records.

Table 3. Period of Limitations

IF you... THEN the period is...

1. Owe additional tax and situations (2), (3), and (4), below, do not apply to you 3 years

2. Do not report income that you should report and it is more than 25% of the gross

income shown on the return

6 years

3. File a fraudulent return Not limited

4. Do not file a return Not limited

5. File a claim for credit or refund after you filed your return Later of: 3 years or

2 years after tax

was paid

6. File a claim for a loss from worthless securities or a bad debt deduction 7 years

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How Long To Keep Records

You must keep your records as long as they may be nee-

ded for the administration of any provision of the Internal

Revenue Code. Generally, this means you must keep re-

cords that support an item of income or deduction on a re-

turn until the period of limitations for that return runs out.

The period of limitations is the period of time in which

you can amend your return to claim a credit or refund, or

the IRS can assess additional tax. Table 3 contains the

periods of limitations that apply to income tax returns. Un-

less otherwise stated, the years refer to the period after

the return was filed. Returns filed before the due date are

treated as filed on the due date.

Keep copies of your filed tax returns. They help in

preparing future tax returns and making computa-

tions if you file an amended return.

Employment taxes. If you have employees, you must

keep all employment tax records for at least 4 years after

the date the tax becomes due or is paid, whichever is

later. For more information about recordkeeping for em-

ployment taxes, see Pub. 15.

Assets. Keep records relating to property until the period

of limitations expires for the year in which you dispose of

the property in a taxable disposition. You must keep these

records to figure any depreciation, amortization, or deple-

tion deduction, and to figure your basis for computing gain

or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable ex-

change, your basis in that property is the same as the ba-

sis of the property you gave up, increased by any money

you paid. You must keep the records on the old property,

as well as on the new property, until the period of limita-

tions expires for the year in which you dispose of the new

property in a taxable disposition.

Records for nontax purposes. When your records are

no longer needed for tax purposes, do not discard them

until you check to see if you have to keep them longer for

other purposes. For example, your insurance company or

creditors may require you to keep them longer than the

IRS does.

Recordkeeping System Example

This example illustrates a single-entry system used by

Henry Brown, who is the sole proprietor of a small auto-

mobile body shop. Henry uses part-time help, has no in-

ventory of items held for sale, and uses the cash method

of accounting.

These sample records should not be viewed as a rec-

ommendation of how to keep your records. They are in-

tended only to show how one business keeps its records.

1. Daily Summary of Cash Receipts

This summary is a record of cash sales for the day. It ac-

counts for cash at the end of the day over the amount in

TIP

the Change and Petty Cash Fund at the beginning of the

day.

Henry takes the cash sales entry from his cash register

tape. If he had no cash register, he would simply total his

cash sale slips and any other cash received that day.

He carries the total receipts shown in this summary for

January 3 ($267.80), including cash sales ($263.60) and

sales tax ($4.20), to the Monthly Summary of Cash Re-

ceipts.

Petty cash fund. Henry uses a petty cash fund to make

small payments without having to write checks for small

amounts. Each time he makes a payment from this fund,

he makes out a petty cash slip and attaches it to his re-

ceipt as proof of payment. He sets up a fixed amount

($50) in his petty cash fund. The total of the unspent petty

cash and the amounts on the petty cash slips should

equal the fixed amount of the fund. When the totals on the

petty cash slips approach the fixed amount, he brings the

cash in the fund back to the fixed amount by writing a

check to “Petty Cash” for the total of the outstanding slips.

(See the Check Disbursements Journal entry for check

number 92.) This restores the fund to its fixed amount of

$50. He then summarizes the slips and enters them in the

proper columns in the monthly check disbursements jour-

nal.

2. Monthly Summary of Cash Receipts

This shows the income activity for the month. Henry car-

ries the total monthly net sales shown in this summary for

January ($4,865.05) to his Annual Summary.

To figure total monthly net sales, Henry reduces the to-

tal monthly receipts by the sales tax imposed on his cus-

tomers and turned over to the state. He cannot take a de-

duction for sales tax turned over to the state because he

only collected the tax. He does not include the tax in his

income.

3. Check Disbursements Journal

Henry enters checks drawn on the business checking ac-

count in the Check Disbursements Journal each day. All

checks are prenumbered and each check number is listed

and accounted for in the column provided in the journal.

Frequent expenses have their own headings across the

sheet. He enters in a separate column expenses that re-

quire comparatively numerous or large payments each

month, such as materials, gross payroll, and rent. Under

the General Accounts column, he enters small expenses

that normally have only one or two monthly payments,

such as licenses and postage.

Henry does not pay personal or nonbusiness expenses

by checks drawn on the business account. If he did, he

would record them in the journal, even though he could

not deduct them as business expenses.

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Henry carries the January total of expenses for materi-

als ($1,083.50) to the Annual Summary. Similarly, he en-

ters the monthly total of expenses for telephone, truck/

auto, etc., in the appropriate columns of that summary.

4. Employee Compensation Record

This record shows the following information.

•

The number of hours Henry's employee worked in a

pay period.

•

The employee's total pay for the period.

•

The deductions Henry withheld in figuring the employ-

ee's net pay.

•

The monthly gross payroll.

Henry carries the January gross payroll ($520) to the An-

nual Summary.

5. Annual Summary

This annual summary of monthly cash receipts and ex-

pense totals provides the final amounts to enter on

Henry's tax return. He figures the cash receipts total from

the total of monthly cash receipts shown in the Monthly

Summary of Cash Receipts. He figures the expense totals

from the totals of monthly expense items shown in the

Check Disbursements Journal. As in the journal, he keeps

each major expense in a separate column.

Henry carries the cash receipts total shown in the an-

nual summary ($47,440.95) to Part I of Schedule C (not il-

lustrated). He carries the total for materials ($10,001.00)

to Part II of Schedule C.

A business that keeps materials and supplies on

hand generally must complete the inventory lines

in Part III of Schedule C. However, there are no

inventories of materials and supplies in this example.

Henry buys parts and supplies on a per-job basis; he does

not keep them on hand.

Henry enters annual totals for interest, rent, taxes, and

wages on the appropriate lines in Part II of Schedule C.

The total for taxes and licenses includes the employer's

share of social security and Medicare taxes, and the busi-

ness license fee. He enters the total of other annual busi-

ness expenses on the “Other expenses” line of Sched-

ule C.

CAUTION

6. Depreciation Worksheet

This worksheet shows the information used in figuring the

depreciation allowed on assets used in Henry's business.

Henry figures the depreciation using the modified acceler-

ated cost recovery system (MACRS). He purchased and

placed in service several used assets that do not qualify

for the section 179 deduction. Depreciation and the sec-

tion 179 deduction are discussed in Pub. 946. Henry uses

the information in the worksheet to complete Form 4562,

Depreciation and Amortization (not illustrated).

7. Bank Reconciliation

Henry reconciles his checkbook with his bank statement

and prepares a bank reconciliation for January as follows.

1. Henry begins by entering his bank statement balance.

2. Henry compares the deposits listed on the bank state-

ment with deposits shown in his checkbook. Two de-

posits shown in his checkbook— $701.33 and

$516.08—were not on his bank statement. He enters

these two amounts on the bank reconciliation. He

adds them to the bank statement balance of

$1,458.12 to arrive at a subtotal of $2,675.53.

3. After comparing each canceled check with his check-

book, Henry found four outstanding checks totaling

$526.50. He subtracts this amount from the subtotal

in (2). The result of $2,149.03 is the adjusted bank

statement balance.

4. Henry enters his checkbook balance on the bank rec-

onciliation.

5. Henry discovered that he mistakenly entered a de-

posit of $600.40 in his checkbook as $594.40. He

adds the difference ($6.00) to the checkbook balance

of $2,153.03. There was a $10.00 bank service

charge on his bank statement that he subtracts from

the checkbook balance. The result is the adjusted

checkbook balance of $2,149.03. This equals his ad-

justed bank statement balance computed in (3).

The only book adjustment Henry needs to make is to

the Check Disbursements Journal for the $10 bank serv-

ice charge. He does not need to adjust the Monthly Sum-

mary of Cash Receipts because he correctly entered the

January 8 deposit of $600.40 in that record.

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Daily Cash Receipts

1. Daily Summary of Cash Receipts

Date

TOTAL RECEIPTS

Cash sales

Sales tax

Cash in register (including unspent petty cash)

Cash on hand

Coins

Bills

Checks

TOTAL CASH IN REGISTER

Add: Petty cash slips

TOTAL CASH

Less: Change and petty cash

Petty cash slips

Coins and bills

(unspent petty cash)

TOTAL CHANGE AND PETTY CASH FUND

TOTAL CASH RECEIPTS

䊲

January 3, 20 —

263.60

4.20

267.80

300.80

17.00

317.80

50.00

267.80

17.00

33.00

23.75

143.00

134.05

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2. Monthly Summary of Cash Receipts

Year 20— Month January

Day Net Sales Sales Tax Daily Receipts Deposit

3 263.60 4.20 267.80

4 212.00 3.39 215.39

5 194.40 3.10 197.50 680.69

6 222.40 3.54 225.94

7 231.15 3.68 234.83

8 137.50 2.13 139.63 600.40

10 187.90 2.99 190.89

11 207.56 3.31 210.87 401.76

12 128.95 2.05 131.00

13 231.40 3.77 235.17

14 201.28 3.21 204.49

15 88.01 1.40 89.41 660.07

17 210.95 3.36 214.31

18 221.80 3.53 225.33 439.64

19 225.15 3.59 228.74

20 221.93 3.52 225.45

21 133.53 2.13 135.66 589.85

22 130.84 2.08 132.92

24 216.37 3.45 219.82 352.74

25 220.05 3.50 223.55

26 197.80 3.15 200.95

27 272.49 4.34 276.83 701.33

28 150.64 2.40 153.04

29 224.05 3.56 227.61

31 133.30 2.13 135.43 516.08

TOTALS 4,865.05 77.51 4,942.56 4,942.56

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3. Check Disbursements Journal

Year 20— Month January

Day Paid To Check #

Amount of

Check Materials

Gross

Payroll

Federal

Withheld

Income

Tax

FICA Social

Security

Reserve

FICA

Medicare

Reserve

3 Dale Advertising 74 85.00

4 City Treasurer 75 35.00

4 Auto Parts, Inc. 76 203.00 203.00

4 John E. Marks 77 214.11 260.00 (20.00) (16.12) (3.77)

6 Henry Brown 78 250.00

6 Mike's Deli 79 36.00

6 Joe's Service

Station

80 74.50 29.50

6 ABC Auto Paint 81 137.50 137.50

7 Henry Brown 82 225.00

14 Telephone Co. 83 27.00

National Bank (Tax

Deposit) 84 119.56 40.00 32.24 7.54

18 National Bank 85 90.09

18 Auto Parts, Inc. 86 472.00 472.00

18 Henry Brown 87 275.00

18 John E. Marks 88 214.11 260.00 (20.00) (16.12) (3.77)

21 Electric Co. 89 175.30

21 M.B. Ignition 90 66.70 66.70

21 Baker's Fender Co. 91 9.80 9.80

21 Petty Cash 92 17.00 15.00

21 Henry Brown 93 225.00

25 Baker's Fender Co. 94 150.00 150.00

25 Enterprise

Properties

95 300.00

25 State Treasurer 96 12.00

25 State Treasurer 97 65.00

3,478.67 1,083.50 520.00 -0- -0- -0-

Bank service

charge

10.00

TOTALS 3,488.67 1,083.50 520.00 -0- -0- -0-

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3. Check Disbursements Journal (Continued)

State

Withheld

Income Tax

Employer's

FICA

Tax Electric Interest Rent Telephone

Truck/

Auto Drawing General Accounts

Advertising 85.00

License 35.00

(6.00)

250.00

Holiday Party 36.00

45.00

225.00

27.00

39.78

18.09 Loan 72.00

275.00

(6.00)

175.30

Postage 2.00

225.00

300.00

12.00

Sales Tax 65.00

-0- 39.78 175.30 18.09 300.00 27.00 45.00 975.00 295.00

10.00

-0- 39.78 175.30 18.09 300.00 27.00 45.00 975.00 305.00

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Employee Compensation

4. Employee Compensation Record

Pay

Period

Ending

Date

Paid S M T W T F S S M T W T F S

Total

Regular

Hours

Overtime

Regular

Rate

Overtime

Rate

Total

Social

Security

. .

Medicare

Federal

Income

Tax

State

Income

Tax

Net Pay

Earnings DeductionsHours Worked

. ... .

Name

QUARTERLY TOTALS

Address

Phone

Soc. Sec. No.

Date of Birth

Filing Status

Full Time

Part Time

5. Annual Summary

Month

Cash

Receipts

Gross

Payroll

FICA

Taxes

Bank

Charges Electric Interest

Insurance

Rent

Telephones

Truck/

.csiMotuA

Materials/

Supplies

Advertising

Ofﬁce

Expenses

Taxes/

Licenses

TOTALS

6. Depreciation Worksheet

Description of Property

Date Placed

in Service

Cost or

Other Basis

Business/

Investment

Use %

Section 179

Deduction

and Special

Allowance

Depreci-

ation Prior

Years

Basis for

Depreciation

Method/

Convention

Recovery

Period

Rate or

Table %

Depreciation

Deduction

1 Elm St., Anytown, NJ 07101

John E. Marks

555-6075

567-00-8901

12-21-65

Single

$6.50 .

$6.50

$260.00

$520.00

$1,262.40

$16.12

$3.77

$20.00

$6.00

$214.11

$16.12

$3.77

$20.00

$6.00

$214.11

$32.24 $7.54

$40.00

$12.00

$428.22

$78.23

$18.31

$100.00

$30.00

$1,035.86

January

February

March

December

$4,865.05

3,478.32

3,942.00

3,656.52

$47,440.95

$420.00

$1,083.50

874.93

724.90

609.23

$10,001.00

$520.00

235.40

507.00

520.00

$5,434.00

$39.78

17.68

38.08

39.78

$408.09

$10.00

7.50

11.25

10.00

$92.30

$175.30

153.10

145.81

169.00

$1,642.37

$18.09

18.09

$217.08

210.00

$300.00

300.00

$3,600.00

$27.00 $45.00 $85.00 $36.00

$100.00

$2.00

71.91

21.50

32.10

23.13

28.50

51.30

37.62 4.00

$324.09 $571.46 $344.00$218.00

$85.00 $40.00

Used Equipment—

Transmission Jack

Used Pickup Truck

Used Heavy Duty

Tow Truck

Used Equipment—

Engine Hoist

1 - 3

3,000 100%

3,000

—

8,000 100%

8,000

—

30,000 100%

30,000

—

4,000 100%

4,000

—

200 DB/HY

$429

14.29%

572

5 20%

20%

$8,601

1 - 15

1 - 18

444442

4 3 4 4 3

1 - 1 1 - 4

5 555

5 5 4 6

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Bank Reconciliation

7. Bank Reconciliation as of

Date

TOTAL DEPOSITS NOT CREDITED

Closing balance shown on bank statement

Add deposits not credited:

Subtract outstanding checks:

No.

TOTAL OUTSTANDING CHECKS

Balance shown in checkbook

Add:

Subtract:

Adjusted checkbook balance

䊲

January 31, 20 —

1,458.12

701.33

1,217.41

526.50

2,153.03

6.00

2,149.03

2,159.03

10.00

66.70

9.80

300.00

516.08

1/28

1/31

Subtotal 2,675.53

150.00

2,149.03Adjusted balance per bank statement

Deposit of $600.40 for

1/8 entered as

$594.40 (difference)

Bank service charge

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How To Get Tax Help

If you have questions about a tax issue, need help prepar-

ing your tax return, or want to download free publications,

forms, or instructions, go to IRS.gov and find resources

that can help you right away.

Preparing and filing your tax return. After receiving all

your wage and earnings statements (Form W-2, W-2G,

1099-R, 1099-MISC, 1099-NEC, etc.); unemployment

compensation statements (by mail or in a digital format) or

other government payment statements (Form 1099-G);

and interest, dividend, and retirement statements from

banks and investment firms (Forms 1099), you have sev-

eral options to choose from to prepare and file your tax re-

turn. You can prepare the tax return yourself, see if you

qualify for free tax preparation, or hire a tax professional to

prepare your return.

Free options for tax preparation. Go to IRS.gov to see

your options for preparing and filing your return online or

in your local community, if you qualify, which include the

following.

•

Free File. This program lets you prepare and file your

federal individual income tax return for free using

brand-name tax-preparation-and-filing software or

Free File fillable forms. However, state tax preparation

may not be available through Free File. Go to IRS.gov/

FreeFile to see if you qualify for free online federal tax

preparation, e-filing, and direct deposit or payment op-

tions.

•

VITA. The Volunteer Income Tax Assistance (VITA)

program offers free tax help to people with

low-to-moderate incomes, persons with disabilities,

and limited-English-speaking taxpayers who need

help preparing their own tax returns. Go to IRS.gov/

VITA, download the free IRS2Go app, or call

800-906-9887 for information on free tax return prepa-

ration.

•

TCE. The Tax Counseling for the Elderly (TCE) pro-

gram offers free tax help for all taxpayers, particularly

those who are 60 years of age and older. TCE volun-

teers specialize in answering questions about pen-

sions and retirement-related issues unique to seniors.

Go to IRS.gov/TCE, download the free IRS2Go app,

or call 888-227-7669 for information on free tax return

preparation.

•

MilTax. Members of the U.S. Armed Forces and

qualified veterans may use MilTax, a free tax service

offered by the Department of Defense through Military

OneSource.

Also, the IRS offers Free Fillable Forms, which can

be completed online and then filed electronically re-

gardless of income.

Using online tools to help prepare your return. Go to

IRS.gov/Tools for the following.

•

The Earned Income Tax Credit Assistant (IRS.gov/

EITCAssistant) determines if you’re eligible for the

earned income credit (EIC).

•

The Online EIN Application (IRS.gov/EIN) helps you

get an employer identification number (EIN).

•

The Tax Withholding Estimator (IRS.gov/W4app)

makes it easier for everyone to pay the correct amount

of tax during the year. The tool is a convenient, online

way to check and tailor your withholding. It’s more

user-friendly for taxpayers, including retirees and

self-employed individuals. The features include the

following.

–

Easy to understand language.

–

The ability to switch between screens, correct pre-

vious entries, and skip screens that don’t apply.

–

Tips and links to help you determine if you qualify

for tax credits and deductions.

–

A progress tracker.

–

A self-employment tax feature.

–

Automatic calculation of taxable social security ben-

efits.

•

The First Time Homebuyer Credit Account Look-up

(IRS.gov/HomeBuyer) tool provides information on

your repayments and account balance.

•

The Sales Tax Deduction Calculator (IRS.gov/

SalesTax) figures the amount you can claim if you

itemize deductions on Schedule A (Form 1040).

Getting answers to your tax questions. On

IRS.gov, you can get up-to-date information on

current events and changes in tax law.

•

IRS.gov/Help: A variety of tools to help you get an-

swers to some of the most common tax questions.

•

IRS.gov/ITA: The Interactive Tax Assistant, a tool that

will ask you questions on a number of tax law topics

and provide answers.

•

IRS.gov/Forms: Find forms, instructions, and publica-

tions. You will find details on 2020 tax changes and

hundreds of interactive links to help you find answers

to your questions.

•

You may also be able to access tax law information in

your electronic filing software.

Need someone to prepare your tax return? There are

various types of tax return preparers, including tax prepar-

ers, enrolled agents, certified public accountants (CPAs),

attorneys, and many others who don’t have professional

credentials. If you choose to have someone prepare your

tax return, choose that preparer wisely. A paid tax pre-

parer is:

•

Primarily responsible for the overall substantive accu-

racy of your return,

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•

Required to sign the return, and

•

Required to include their preparer tax identification

number (PTIN).

Although the tax preparer always signs the return,

you're ultimately responsible for providing all the informa-

tion required for the preparer to accurately prepare your

return. Anyone paid to prepare tax returns for others

should have a thorough understanding of tax matters. For

more information on how to choose a tax preparer, go to

Tips for Choosing a Tax Preparer on IRS.gov.

Coronavirus. Go to IRS.gov/Coronavirus for links to in-

formation on the impact of the coronavirus, as well as tax

relief available for individuals and families, small and large

businesses, and tax-exempt organizations.

Tax reform. Tax reform legislation affects individuals,

businesses, and tax-exempt and government entities. Go

to IRS.gov/TaxReform for information and updates on

how this legislation affects your taxes.

Employers can register to use Business Services On-

line. The Social Security Administration (SSA) offers on-

line service at SSA.gov/employer for fast, free, and secure

online W-2 filing options to CPAs, accountants, enrolled

agents, and individuals who process Form W-2, Wage

and Tax Statement, and Form W-2c, Corrected Wage and

Tax Statement.

IRS social media. Go to IRS.gov/SocialMedia to see the

various social media tools the IRS uses to share the latest

information on tax changes, scam alerts, initiatives, prod-

ucts, and services. At the IRS, privacy and security are

paramount. We use these tools to share public informa-

tion with you. Don’t post your SSN or other confidential in-

formation on social media sites. Always protect your iden-

tity when using any social networking site.

The following IRS YouTube channels provide short, in-

formative videos on various tax-related topics in English,

Spanish, and ASL.

•

Youtube.com/irsvideos.

•

Youtube.com/irsvideosmultilingua.

•

Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal

(IRSVideos.gov) contains video and audio presentations

for individuals, small businesses, and tax professionals.

Online tax information in other languages. You can

find information on IRS.gov/MyLanguage if English isn’t

your native language.

Free interpreter service. Multilingual assistance, provi-

ded by the IRS, is available at Taxpayer Assistance Cen-

ters (TACs) and other IRS offices. Over-the-phone inter-

preter service is accessible in more than 350 languages.

Getting tax forms and publications. Go to IRS.gov/

Forms to view, download, or print all of the forms, instruc-

tions, and publications you may need. You can also down-

load and view popular tax publications and instructions

(including the Instructions for Forms 1040 and 1040-SR)

on mobile devices as an eBook at IRS.gov/eBooks. Or

you can go to IRS.gov/OrderForms to place an order.

Access your online account (individual taxpayers

only). Go to IRS.gov/Account to securely access infor-

mation about your federal tax account.

•

View the amount you owe, pay online, or set up an on-

line payment agreement.

•

Access your tax records online.

•

Review your payment history.

•

Go to IRS.gov/SecureAccess to review the required

identity authentication process.

Using direct deposit. The fastest way to receive a tax

refund is to file electronically and choose direct deposit,

which securely and electronically transfers your refund di-

rectly into your financial account. Direct deposit also

avoids the possibility that your check could be lost, stolen,

or returned undeliverable to the IRS. Eight in 10 taxpayers

use direct deposit to receive their refunds. The IRS issues

more than 90% of refunds in less than 21 days.

Getting a transcript of your return. The quickest way

to get a copy of your tax transcript is to go to IRS.gov/

Transcripts. Click on either “Get Transcript Online” or “Get

Transcript by Mail” to order a free copy of your transcript.

If you prefer, you can order your transcript by calling

800-908-9946.

Reporting and resolving your tax-related identity

theft issues.

•

Tax-related identity theft happens when someone

steals your personal information to commit tax fraud.

Your taxes can be affected if your SSN is used to file a

fraudulent return or to claim a refund or credit.

•

The IRS doesn’t initiate contact with taxpayers by

email, text messages, telephone calls, or social media

channels to request personal or financial information.

This includes requests for personal identification num-

bers (PINs), passwords, or similar information for

credit cards, banks, or other financial accounts.

•

Go to IRS.gov/IdentityTheft, the IRS Identity Theft

Central webpage, for information on identity theft and

data security protection for taxpayers, tax professio-

nals, and businesses. If your SSN has been lost or

stolen or you suspect you’re a victim of tax-related

identity theft, you can learn what steps you should

take.

•

Get an Identity Protection PIN (IP PIN). IP PINs are

six-digit numbers assigned to eligible taxpayers to

help prevent the misuse of their SSNs on fraudulent

federal income tax returns. When you have an IP PIN,

it prevents someone else from filing a tax return with

your SSN. To learn more, go to IRS.gov/IPPIN.

Checking on the status of your refund.

•

Go to IRS.gov/Refunds.

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•

The IRS can’t issue refunds before mid-February 2021

for returns that claimed the EIC or the additional child

tax credit (ACTC). This applies to the entire refund,

not just the portion associated with these credits.

•

Download the official IRS2Go app to your mobile de-

vice to check your refund status.

•

Call the automated refund hotline at 800-829-1954.

Making a tax payment. The IRS uses the latest encryp-

tion technology to ensure your electronic payments are

safe and secure. You can make electronic payments on-

line, by phone, and from a mobile device using the

IRS2Go app. Paying electronically is quick, easy, and

faster than mailing in a check or money order. Go to

IRS.gov/Payments for information on how to make a pay-

ment using any of the following options.

•

IRS Direct Pay: Pay your individual tax bill or estima-

ted tax payment directly from your checking or sav-

ings account at no cost to you.

•

Debit or Credit Card: Choose an approved payment

processor to pay online, by phone, or by mobile de-

vice.

•

Electronic Funds Withdrawal: Offered only when filing

your federal taxes using tax return preparation soft-

ware or through a tax professional.

•

Electronic Federal Tax Payment System: Best option

for businesses. Enrollment is required.

•

Check or Money Order: Mail your payment to the ad-

dress listed on the notice or instructions.

•

Cash: You may be able to pay your taxes with cash at

a participating retail store.

•

Same-Day Wire: You may be able to do same-day

wire from your financial institution. Contact your finan-

cial institution for availability, cost, and cut-off times.

What if I can’t pay now? Go to IRS.gov/Payments for

more information about your options.

•

Apply for an online payment agreement (IRS.gov/

OPA) to meet your tax obligation in monthly install-

ments if you can’t pay your taxes in full today. Once

you complete the online process, you will receive im-

mediate notification of whether your agreement has

been approved.

•

Use the Offer in Compromise Pre-Qualifier to see if

you can settle your tax debt for less than the full

amount you owe. For more information on the Offer in

Compromise program, go to IRS.gov/OIC.

Filing an amended return. You can now file Form

1040-X electronically with tax filing software to amend

2019 Forms 1040 and 1040-SR. To do so, you must have

e-filed your original 2019 return. Amended returns for all

prior years must be mailed. See Tips for taxpayers who

need to file an amended tax return and go to IRS.gov/

Form1040X for information and updates.

Checking the status of your amended return. Go to

IRS.gov/WMAR to track the status of Form 1040-X amen-

ded returns. Please note that it can take up to 3 weeks

from the date you filed your amended return for it to show

up in our system, and processing it can take up to 16

weeks.

Understanding an IRS notice or letter you’ve re-

ceived. Go to IRS.gov/Notices to find additional informa-

tion about responding to an IRS notice or letter.

Contacting your local IRS office. Keep in mind, many

questions can be answered on IRS.gov without visiting an

IRS Taxpayer Assistance Center (TAC). Go to IRS.gov/

LetUsHelp for the topics people ask about most. If you still

need help, IRS TACs provide tax help when a tax issue

can’t be handled online or by phone. All TACs now pro-

vide service by appointment, so you’ll know in advance

that you can get the service you need without long wait

times. Before you visit, go to IRS.gov/TACLocator to find

the nearest TAC and to check hours, available services,

and appointment options. Or, on the IRS2Go app, under

the Stay Connected tab, choose the Contact Us option

and click on “Local Offices.”

The Taxpayer Advocate Service (TAS)

Is Here To Help You

What Is TAS?

TAS is an independent organization within the IRS that

helps taxpayers and protects taxpayer rights. Their job is

to ensure that every taxpayer is treated fairly and that you

know and understand your rights under the Taxpayer Bill

of Rights.

How Can You Learn About Your Taxpayer

Rights?

The Taxpayer Bill of Rights describes 10 basic rights that

all taxpayers have when dealing with the IRS. Go to

TaxpayerAdvocate.IRS.gov to help you understand what

these rights mean to you and how they apply. These are

your rights. Know them. Use them.

What Can TAS Do For You?

TAS can help you resolve problems that you can’t resolve

with the IRS. And their service is free. If you qualify for

their assistance, you will be assigned to one advocate

who will work with you throughout the process and will do

everything possible to resolve your issue. TAS can help

you if:

•

Your problem is causing financial difficulty for you,

your family, or your business;

•

You face (or your business is facing) an immediate

threat of adverse action; or

•

You’ve tried repeatedly to contact the IRS but no one

has responded, or the IRS hasn’t responded by the

date promised.

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How Can You Reach TAS?

TAS has offices in every state, the District of Columbia,

and Puerto Rico. Your local advocate’s number is in your

local directory and at TaxpayerAdvocate.IRS.gov/

Contact-Us. You can also call them at 877-777-4778.

How Else Does TAS Help Taxpayers?

TAS works to resolve large-scale problems that affect

many taxpayers. If you know of one of these broad issues,

please report it to them at IRS.gov/SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax professio-

nals, including tax law updates and guidance, TAS pro-

grams, and ways to let TAS know about systemic prob-

lems you’ve seen in your practice.

Low Income Taxpayer Clinics (LITCs)

LITCs are independent from the IRS. LITCs represent in-

dividuals whose income is below a certain level and need

to resolve tax problems with the IRS, such as audits, ap-

peals, and tax collection disputes. In addition, clinics can

provide information about taxpayer rights and responsibili-

ties in different languages for individuals who speak Eng-

lish as a second language. Services are offered for free or

a small fee for eligible taxpayers. To find a clinic near you,

visit www.TaxpayerAdvocate.IRS.gov/about-us/Low-

Income-Taxpayer-Clinics-LITC/ or see IRS Pub. 4134,

Low Income Taxpayer Clinic List.

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To help us develop a more useful index, please let us know if you have ideas for index entries.

See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Index

Accounting method:

Accrual method 5

Cash method 5

Assistance (See Tax help)

Business:

Expenses 9

Start-up costs 9

Taxes 5

Use of car 11

Use of home 10

Car and truck expenses 11

C corporation 3

Corporation 3

Depositing taxes 8

Depreciation 10

Employer identification number

(EIN) 3, 4

Employment taxes:

Defined 7

Records to keep 13

Estimated tax 6

Excise taxes 8

Form:

1099-MISC 8

1099–NEC 8

1128 5

11-C 8

2290 8

720 8

730 8

8300 9

8829 11

I-9 7

SS-4 4

W-2 8, 9

W-4 7

W-9 4

Forms of business 2

FUTA tax 7

Getting a taxpayer identification

number 3

Income tax 5, 7

Information returns 8

Inventories 5

Limited liability company 3

Medicare tax 7

Office in home 10

Partnership 3

Penalties 9

Publications (See Tax help)

Recordkeeping 11

Records, how long to keep 16

S corporation 3

Self-employment tax 6

Social security tax 7

Sole proprietorship 3

Start-up costs 9

Taxes:

Employment 7

Estimated 6

Excise 8

How to deposit 8

Income 5

Self-employment 6

Unemployment (FUTA) 7

Tax help 24

Tax year 4

Unemployment (FUTA) tax 7

Page 28 Publication 583 (January 2021)