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            Department of the Treasury                       Contents
            Internal Revenue Service
                                                             Future Developments                       
                                                             Introduction                               
Publication 583
(Rev. January 2021)                                          What New Business Owners Need To Know                           
Cat. No. 15150B
                                                             Determining Which Type of Business to Use                       
                                                             Getting a Taxpayer Identification Number       
Starting a                                                   Employer Identification Number (EIN)             
                                                             Payee's Identification Number                  
                                                             Designating a Tax Year                     
Business and
                                                             Choosing an Accounting Method                 
Keeping                                                      Business Taxes                             
                                                             Income Tax                                  
                                                             Self-Employment Tax                        
Records
                                                             Employment Taxes                          
                                                             Excise Taxes                               
                                                             Depositing Taxes                           
                                                             Information Returns                        
                                                             Penalties                                
                                                             Deducting Business Expenses                    
                                                             Business Start-Up Costs                            
                                                             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-
Get forms and other information faster and easier at:        ments about this publication and suggestions for future 
• IRS.gov (English)         • IRS.gov/Korean (한국어) 
• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)      editions.
• IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (TiếngViệt) 

Feb 03, 2021

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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- What New Business Owners
tion Ave. NW, IR-6526, Washington, DC 20224.
Need To Know
Although we can’t respond individually to each com-
ment received, we do appreciate your feedback and will
As a new business owner, you need to know your federal
consider your comments and suggestions as we revise
tax responsibilities. Table 1 can help you learn what those
our tax forms, instructions, and publications. Do not send
responsibilities are. Ask yourself each question listed in
tax questions, tax returns, or payments to the above ad-
the table, then see the related discussion to find the an-
dress.
swer.
Getting answers to your tax questions. If you have In addition to knowing about federal taxes, you need to
a tax question not answered by this publication or the How make some basic business decisions. Ask yourself:
To Get Tax Help section at the end of this publication, go
to the IRS Interactive Tax Assistant page at IRS.gov/ • What are my financial resources?
Help/ITA where you can find topics by using the search • What products and services will I sell?
feature or viewing the categories listed.
• How will I market my products and services?
Getting tax forms, instructions, and publications. • How will I develop a strategic business plan?
Visit IRS.gov/Forms to download current and prior-year
forms, instructions, and publications. • How will I manage my business on a day-to-day ba-
sis?
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instruc- • How will I recruit employees?
tions, and publications; call 800-829-3676 to order The Small Business Administration (SBA) is a federal
prior-year forms and instructions. The IRS will process agency that can help you answer these types of ques-
your order for forms and publications as soon as possible. tions. For information about the SBA, see SBA.gov.
Do not resubmit requests you’ve already sent us. You can
get forms and publications faster online.
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 See Designating a Tax Year.
any other month?
What method can I use to account for my income and See Choosing an Accounting Method.
expenses?
What kinds of federal taxes will I have to pay? How should I See Business Taxes.
pay my 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 See Deducting Business Expenses.
tax return?
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 explanation of "material participation," see the instructions
tax considerations are discussed in this Pub. . for Schedule C, line G.
To make this election, you must divide all items of in-
Your form of business determines which income
come, gain, loss, deduction, and credit attributable to the
TIP tax return form you have to file. See Table 2 to
business between you and your spouse in accordance
find out which form you have to file.
with your respective interests in the venture. Each of you
must file a separate Schedule C and a separate Sched-
Sole proprietorships. A sole proprietorship is an unin- ule SE. For more information, see Qualified Joint Venture
corporated business that is owned by one individual. It is in the Instructions for Schedule SE.
the simplest form of business organization to start and
maintain. The business has no existence apart from you, Corporations. In forming a corporation, prospective
the owner. Its liabilities are your personal liabilities. You shareholders exchange money, property, or both, for the
undertake the risks of the business for all assets owned, corporation's capital stock. A corporation generally takes
whether or not used in the business. You include the in- the same deductions as a sole proprietorship to figure its
come and expenses of the business on your personal tax taxable income. A corporation can also take special de-
return. ductions.
More information. For more information on sole pro- C corporations. The profit of a C corporation is taxed
prietorships, see Pub. 334, Tax Guide for Small Business to the corporation when earned, and then is taxed to the
(For Individuals Who Use Schedule C). If you are a shareholders when distributed as dividends. However,
farmer, see Pub. 225, Farmer's Tax Guide. shareholders cannot deduct any loss of the corporation.
For more information on corporations, see Pub. 542, Cor-
Partnerships. A partnership is the relationship existing porations.
between two or more persons who join to carry on a trade
or business. Each person contributes money, property, la- S corporations. An eligible domestic corporation (or a
bor, or skill, and expects to share in the profits and losses domestic entity eligible to elect to be treated as a corpora-
of the business. tion) can avoid double taxation (once to the corporation
A partnership must file an annual information return to and again to the shareholders) as long as it meets certain
report the income, deductions, gains, losses, etc., from its tests and elects to be treated as an S corporation. Gener-
operations, but it does not pay income tax. Instead, it ally, an S corporation is exempt from federal income tax
“passes through” any profits or losses to its partners. Each other than tax on certain capital gains and passive in-
partner includes his or her share of the partnership's items come. On their tax returns, the S corporation's sharehold-
on his or her tax return. ers include their share of the corporation's separately sta-
ted items of income, deduction, loss, and credit, and their
More information. For more information on partner- share of nonseparately stated income or loss. For more
ships, see Pub. 541, Partnerships. information on S corporations and the tests that need to
be met to be eligible to elect to be an S corporation, see
Business owned and operated by spouses. If you and
the instructions for Form 2553, Election by a Small Busi-
your spouse jointly own and operate an unincorporated
ness Corporation, and Form 1120-S, U.S. Income Tax Re-
business and share in the profits and losses, you are part-
turn for an S Corporation.
ners in a partnership, whether or not you have a formal
partnership agreement. Do not use Schedule C. Instead, Limited liability company. A limited liability company
file Form 1065, U.S. Return of Partnership Income. For (LLC) is an entity formed under state law by filing articles
more information, see Pub. 541, Partnerships. of organization as an LLC. The members of an LLC are
Exception—Community Income. If you and your not personally liable for its debts. An LLC may be classi-
spouse wholly own an unincorporated business as com- fied for federal income tax purposes as either a partner-
munity property under the community property laws of a ship, a corporation, or an entity disregarded as separate
state, foreign country, or U.S. possession, you can treat from its owner by applying the rules in Regulations section
the business either as a sole proprietorship or a partner- 301.7701-3.
ship. States with community property laws include Ari- More information. For more information on LLCs, see
zona, California, Idaho, Louisiana, Nevada, New Mexico, the Instructions for Form 8832, Entity Classification Elec-
Texas, Washington, and Wisconsin. See Pub. 555 for tion.
more information about community property laws.
Exception—Qualified joint venture. If you and your
spouse each materially participate as the only members of Getting a Taxpayer
an unincorporated, jointly owned and operated business,
and you file a joint return for the tax year, you can make a Identification Number
joint election to be treated as a qualified joint venture in-
stead of a partnership for the tax year. Making this elec- You must have a taxpayer identification number so the
tion will allow you to avoid the complexity of Form 1065 IRS can process your returns. Two of the most common
but still give each spouse credit for social security earn-
ings on which retirement benefits are based. For an

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kinds of taxpayer identification numbers are the social se- not sure which to use, contact the Internal Revenue Serv-
curity number (SSN) and the employer identification num- ice Center where you file your return. Give the numbers
ber (EIN). you have, the name and address to which each was as-
• An SSN is issued to individuals by the Social Security signed, and the address of your main place of business.
Administration (SSA) and is in the following format: The IRS will tell you which number to use.

000–00–0000. More information. For more information about EINs, see
• An EIN is issued to individuals (sole proprietors), part- Pub. 1635, Understanding Your EIN.
nerships, corporations, and other entities by the IRS
and is in the following format: 00–0000000. Payee's Identification Number

Providing your identification number to others. You In the operation of a business, you will probably make cer-
must include your taxpayer identification number (SSN or tain payments you must report on information returns (dis-
EIN) on all returns and other documents you send to the cussed later under Information Returns). The forms used
IRS. You must also give your number to other persons to report these payments must include the payee's identi-
who use your identification number on any returns or fication number.
documents they send to the IRS. This includes returns or
documents filed to report the following information. Employee. If you have employees, you must get an SSN
from each of them. Record the name and SSN of each
1. Interest, dividends, royalties, etc., paid to you.
employee exactly as they are shown on the employee's
2. Any amount paid to you as a dependent care pro- social security card. If the employee's name is not correct
vider. as shown on the card, the employee should request a new
card from the SSA. This may occur, for example, if the
3. Certain other amounts paid to you that total $600 or
employee's name has changed due to marriage or di-
more for the year.
vorce.
If you do not furnish your identification number as re- If your employee does not have an SSN, he or she
quired, you may be subject to penalties. See Penalties, should file Form SS-5, Application for a Social Security
later. Card, with the SSA. This form is available at SSA offices
or by calling 800-772-1213. It is also available from the
Employer Identification Number (EIN) SSA website at SSA.gov.

EINs are assigned to sole proprietors, LLCs, corporations, Other payee. If you make payments to someone who is
and partnerships for tax filing and reporting purposes. See not your employee and you must report the payments on
Form SS-4 and its instructions for more information and to an information return, get that person's SSN. If you make
see which businesses must get an EIN. reportable payments to an organization, such as a corpo-
ration or partnership, you must get its EIN.
Applying for an EIN. You may apply for an EIN: To get the payee's SSN or EIN, use Form W-9, Re-
quest for Taxpayer Identification Number and Certifica-
• Online—Click on the Employer ID Numbers (EINs) link tion. For more information, see IRS.gov/FormW9.
at IRS.gov/businesses/small. The EIN is issued imme-
diately once the application information is validated. If the payee does not provide you with an identifi-
cation number, you may have to withhold part of
• By mailing or faxing Form SS-4, Application for Em- CAUTION! the payments as backup withholding. For informa-
ployer Identification Number. tion on backup withholding, see the Instructions for the
• International applicants may call 267-941-1099 (not a Requester of Form W-9 and the General Instructions for
toll-free number). Certain Information Returns.

When to apply. You should apply for an EIN early
enough to receive the number by the time you must file a Designating a Tax Year
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 You must figure your taxable income and file an income
EIN. If you apply by telephone or through the IRS website, tax return based on an annual accounting period called a
you can get an EIN immediately. If you apply by fax, you tax year. A tax year is usually 12 consecutive months.
can get an EIN within 4 business days. There are two kinds of tax years.
If you do not receive your EIN by the time a return is
1. Calendar tax year. A calendar tax year is 12 consec-
due, file your return anyway. Write “Applied for” and the
utive months beginning January 1 and ending De-
date you applied for the number in the space for the EIN.
cember 31.
Do not use your social security number as a substitute for
an EIN on your tax returns. 2. Fiscal tax year. A fiscal tax year is 12 consecutive
months ending on the last day of any month except
More than one EIN. You should have only one EIN for a December. A 52-53-week tax year is a fiscal tax year
business entity. If you have more than one EIN and are

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that varies from 52 to 53 weeks but does not have to For other methods, see Pub. 538.
end on the last day of a month.
If an inventory is necessary to account for your income,
If you file your first tax return using the calendar tax you must generally use an accrual method of accounting
year and you later begin business as a sole proprietor, be- for purchases and sales. Inventories include goods held
come a partner in a partnership, or become a shareholder for sale in the normal course of business. They also in-
in an S corporation, you must continue to use the calendar clude raw materials and supplies that will physically be-
year unless you get IRS approval to change it or are other- come a part of merchandise intended for sale. Inventories
wise allowed to change it without IRS approval. are explained in Pub. 538.
You must use a calendar tax year if: Certain small business taxpayers can use the
• You keep no books or records. TIP cash method of accounting and can also account
for inventoriable items as materials and supplies
• You have no annual accounting period.
that are not incidental. For more information, see Pub.
• Your present tax year does not qualify as a fiscal year. 538.
• You are required to use a calendar year by a provision
of the Internal Revenue Code or the Income Tax Reg- You must use the same accounting method to figure
ulations. your taxable income and to keep your books. Also, you
must use an accounting method that clearly shows your
For more information, see Pub. 538, Accounting Peri-
income. In general, any accounting method that consis-
ods and Methods.
tently uses accounting principles suitable for your trade or
First-time filer. If you have never filed an income tax re- business clearly shows income. An accounting method
turn for your business, you can adopt either a calendar tax clearly shows income only if it treats all items of gross in-
year or a fiscal tax year. Although, some partnerships and come and expense the same from year to year.
S corporations must use a particular tax year. See Pub.
More than one business. When you own more than one
538 for more information.
business, you can use a different accounting method for
You adopt a tax year by filing your first income tax re-
each business if the method you use for each clearly
turn using that tax year. You have not adopted a tax year if
shows your income. You must keep a complete and sepa-
all you did was one or more of the following.
rate set of books and records for each business.
• Filed an application for an extension of time to file an
income tax return. Changing your method of accounting. Once you have
set up your accounting method, you must generally get
• Filed an application for an employer identification
IRS approval before you can change to another method. A
number.
change in accounting method not only includes a change
• Paid estimated taxes for that tax year. in your overall system of accounting, but also a change in
the treatment of any material item. For examples of
Changing your tax year. Once you have adopted your changes that require approval and information on how to
tax year, you may have to get IRS approval to change it. get approval for the change, see Pub. 538.
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.
Business Taxes

The form of business you operate determines what taxes
Choosing an Accounting you must pay and how you pay them. The following are
the four general kinds of business taxes.
Method
• Income tax.
An accounting method is a set of rules used to determine • Self-employment tax.
when and how income and expenses are reported. You
choose an accounting method for your business when you • Employment taxes.
file your first income tax return. There are two basic ac- • Excise taxes.
counting methods.
See Table 2 for the forms you file to report these taxes.
1. Cash method. Under the cash method, you report in-
come in the tax year you receive it. You usually de- You may want to get Pub. 509. It has tax calen-
duct or capitalize expenses in the tax year you pay TIP dars that tell you when to file returns and make
them. tax payments.
2. Accrual method. Under an accrual method, you gen-
erally report income in the tax year you earn it, even Income Tax
though you may receive payment in a later year. You
deduct or capitalize expenses in the tax year you All businesses except partnerships must file an annual in-
incur them, whether or not you pay them that year. come tax return. Partnerships file an information return.

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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 1
(Schedule F for farm business)1

Self-employment tax 1040 or 1040-SR, and Schedule SE
Estimated tax 1040-ES
Employment taxes:
• Social security and Medicare 941 or 944 (943 for farm employees)
taxes and income tax
withholding
• Federal unemployment (FUTA) 940
tax
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 2

Self-employment tax 1040 or 1040-SR, and Schedule SE
Estimated tax 1040-ES
C corporation or S corporation Income tax 1120 (C corporation) 2
1120-S (S corporation) 2

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 2

Estimated tax 1040-ES

1 File a separate schedule for each business.
2 Various other schedules may be needed.

Which form you use depends on how your business is or- Sole proprietors, partners, and S corporation
ganized. See Table 2 to find out which return you have to shareholders. You generally have to make estimated tax
file. payments if you expect to owe tax of $1,000 or more
when you file your return. Use Form 1040-ES, Estimated
The federal income tax is a pay-as-you-go tax. You
Tax for Individuals, to figure and pay your estimated tax.
must pay the tax as you earn or receive income during the
For more information, see Pub. 505, Tax Withholding and
year. An employee usually has income tax withheld from
Estimated Tax.
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 Corporations. You generally have to make estimated
pay estimated tax. If you are not required to make estima- tax payments for your corporation if you expect it to owe
ted tax payments, you may pay any tax due when you file tax of $500 or more when you file its return. Use Form
your return. 1120-W, Estimated Tax for Corporations, to figure the es-
timated tax. You must deposit the payments as explained
Reminder. If your business is an LLC, how you elected to later under Depositing Taxes. For more information, see
have the LLC treated for tax purposes (either as a corpo- Pub. 542.
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. Self-Employment Tax

Estimated tax. Generally, you must pay taxes on in- Self-employment tax (SE tax) is a social security and
come, including self-employment tax (discussed next), by Medicare tax primarily for individuals who work for them-
making regular payments of estimated tax during the year. selves. Your payments of SE tax contribute to your cover-
age under the social security system. Social security

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coverage provides you with retirement benefits, disability Federal Income, Social Security, and
benefits, survivor benefits, and hospital insurance (Medi- Medicare Taxes
care) benefits.
You generally must withhold federal income tax from your
You must pay SE tax and file Schedule SE (Form 1040)
employee's wages. To figure how much federal income
if either of the following applies.
tax to withhold from each wage payment, use the employ-
1. Your net earnings from self-employment were $400 or ee's Form W-4 (discussed later under Hiring Employees)
more. and the methods described in Publication 15-T, Federal
Income Tax Withholding Methods. Pub. 15-T provides in-
2. You had church employee income of $108.28 or
structions about how to apply Form W-4 to calculate with-
more.
holding on the employee.
Use Schedule SE (Form 1040) to figure your SE tax. For
more information, see Pub. 334. Social security and Medicare taxes pay for benefits that
workers and their families receive under the Federal Insur-
You can deduct a portion of your SE tax as an ad- ance Contributions Act (FICA). Social security tax pays for
TIP justment to income on your Form 1040 or benefits under the old-age, survivors, and disability insur-
1040-SR. ance part of FICA. Medicare tax pays for benefits under
the hospital insurance part of FICA. You withhold part of
The Social Security Administration (SSA) time limit these taxes from your employee's wages and you pay a
for posting self-employment income. Generally, the part yourself. To find out how much social security and
SSA will give you credit only for self-employment income Medicare tax to withhold and to pay, see Pub. 15.
reported on a tax return filed within 3 years, 3 months, and
15 days after the tax year you earned the income. If you Which form do I file? Report these taxes on Form 941,
file your tax return or report a change in your self-employ- Employer's QUARTERLY Federal Tax Return, or Form
ment income after this time limit, the SSA may change its 944, Employer's ANNUAL Federal Tax Return. (Farm em-
records, but only to remove or reduce the amount. The ployers use Form 943, Employer's Annual Federal Tax
SSA will not change its records to increase your self-em- Return for Agricultural Employees.)
ployment income.
Federal Unemployment (FUTA) Tax
Employment Taxes
The federal unemployment tax is part of the federal and
This section briefly discusses the employment taxes you state program under the Federal Unemployment Tax Act
must pay, the forms you must file to report them, and (FUTA) that pays unemployment compensation to work-
other forms that must be filed when you have employees. ers who lose their jobs. You report and pay FUTA tax sep-
arately from social security and Medicare taxes and with-
Employment taxes include the following. held income tax. You pay FUTA tax only from your own
• Social security and Medicare taxes. funds. Employees do not pay this tax or have it withheld
from their pay.
• Federal income tax withholding.
• Federal unemployment (FUTA) tax. Which form do I file? Report federal unemployment tax
on Form 940, Employer's Annual Federal Unemployment
If you have employees, you will need to get Pub. 15 (FUTA) Tax Return. See Pub. 15 to find out if you can use
(Circular E), Employer's Tax Guide. If you have agricul- this form.
tural employees, get Pub. 51 (Circular A), Agricultural Em-
ployer's Tax Guide. These publications explain your tax Hiring Employees
responsibilities as an employer.
Have the employees you hire fill out Form I-9 and Form
If you are not sure whether the people working for you
W-4.
are your employees, see Pub. 15-A, Employer's Supple-
mental Tax Guide. That publication has information to Form I-9. You must verify that each new employee is le-
help you determine whether an individual is an employee gally eligible to work in the United States. Both you and
or an independent contractor. Also, people who provide a the employee must complete the U.S. Citizenship and Im-
service generally associated with the sharing (or on-de- migration Services (USCIS) Form I-9, Employment Eligi-
mand, gig, or access) economy are, under certain circum- bility Verification. You can get the form from USCIS offices
stances, independent contractors. An independent con- or from the USCIS website at USCIS.gov. Call the USCIS
tractor is someone who is self-employed. Generally, you at 800-375-5283 for more information about your respon-
do not have to withhold or pay any taxes on payments to sibilities.
an independent contractor. If you wrongly classify an em-
ployee as an independent contractor, you can be held lia- Form W-4. Each employee must fill out Form W-4, Em-
ble for employment taxes for that worker plus a penalty. 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- You must use an electronic funds transfer (EFT) to
formation, see Pub. 15-T. make all federal tax deposits. Generally, an EFT is made
using the Electronic Federal Tax Payment System
Form W-2 Wage Reporting (EFTPS). If you don't want to use EFTPS, you can arrange
for your tax professional, financial institution, payroll serv-
After the calendar year is over, you must furnish copies of ice, or other trusted third party to make electronic deposits
Form W-2, Wage and Tax Statement, to each employee on your behalf.
to whom you paid wages during the year. You must also
Any business that has a federal tax obligation and re-
send copies to the Social Security Administration. See In-
quests a new EIN will automatically be enrolled in EFTPS.
formation Returns, later, for more information on Form
Through the mail, the business will receive an EFTPS PIN
W-2.
package that contains instructions for activating its EFTPS
enrollment.
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- Information Returns
lowing.
If you make or receive payments in your business, you
• Manufacture or sell certain products. may have to report them to the IRS on information returns.
• Operate certain kinds of businesses. The IRS compares the payments shown on the informa-
tion returns with each person's income tax return to see if
• Use various kinds of equipment, facilities, or products.
the payments were included in income. You must give a
• Receive payment for certain services. copy of each information return you are required to file to
For more information on excise taxes, see Pub. 510, Ex- the recipient or payer. In addition to the forms described
cise Taxes. below, you may have to use other returns to report certain
kinds of payments or transactions. For more details on in-
Form 720. The federal excise taxes reported on Form formation returns and when you have to file them, see the
720, Quarterly Federal Excise Tax Return, consist of sev- General Instructions for Certain Information Returns.
eral broad categories of taxes, including the following.
Form 1099-MISC. Use Form 1099-MISC, Miscellaneous
• Environmental taxes. Income, to report certain payments you make in your
• Communications and air transportation taxes. trade or business. These payments include the following
items.
• Fuel taxes.
• Royalty payments of $10 or more.
• Tax on the first retail sale of heavy trucks, trailers, and
tractors. • Rent payments of $600 or more, other than rents paid
to real estate agents.
• Manufacturers taxes on the sale or use of a variety of
different articles. • Prizes and awards of $600 or more that are not for
services, such as winnings on TV or radio shows.
Form 2290. There is a federal excise tax on certain
trucks, truck tractors, and buses used on public highways. • Payments to certain crew members by operators of
fishing boats.
The tax applies to vehicles having a taxable gross weight
of 55,000 pounds or more. Report the tax on Form 2290, • Cash payments of $600 or more for fish (or other
Heavy Highway Vehicle Use Tax Return. For more infor- aquatic life) you purchase from anyone engaged in the
mation, see the Instructions for Form 2290. trade or business of catching fish.
Either the Form 1099-MISC or Form 1099-NEC can be
Form 730. If you are in the business of accepting wagers
used to report sales totaling $5,000 or more of consumer
or conducting a wagering pool or lottery, you may be liable
products to a person on a buy-sell, deposit-commission,
for the federal excise tax on wagering. Use Form 730,
or other commission basis for resale anywhere other than
Monthly Tax Return for Wagers, to figure the tax on the
in a permanent retail establishment. For more information
wagers you receive.
on what to report on Form 1099-MISC, see the Instruc-
Form 11-C. Use Form 11-C, Occupational Tax and Reg- tions for Forms 1099-MISC and 1099-NEC.
istration Return for Wagering, to register for any wagering
Form 1099-NEC. Use Form 1099-NEC, Nonemployee
activity and to pay the federal occupational tax on wager-
Compensation, to report certain payments you make in
ing.
your trade or business. These payments include the fol-
lowing items.
Depositing Taxes
• Payments of $600 or more for services performed by
You generally have to deposit federal employment taxes, someone who is not your employee.
certain excise taxes, corporate income tax, and S
corporation taxes before you file your return.

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• If you withheld certain federal income tax under the • Failure to furnish correct payee statements. A
backup withholding rules regardless of the amount of penalty applies if you do not furnish a required state-
the payment. ment to a payee by the due date, if you do not include
You may choose to report direct sales of $5,000 or more all required information, or if you report incorrect infor-
of consumer goods to a person for resale on Form mation.
1099-NEC rather than Form 1099-MISC. For more infor- Waiver of penalty. These penalties will not apply if
mation on what to report on Form 1099-NEC, see the In- you can show that the failures were due to reasonable
structions for Forms 1099-MISC and 1099-NEC. cause and not willful neglect.
In addition, there is no penalty for failure to include all
Form W-2. You must file Form W-2, Wage and Tax the required information, or for including incorrect informa-
Statement, to report payments to your employees, such tion, on a de minimis number of information returns if you
as wages, tips, and other compensation, withheld income, correct the errors by August 1 of the year the returns are
social security, and Medicare taxes. For more information due. (To be considered de minimis, the number of returns
on what to report on Form W-2, see the Instructions for cannot exceed the greater of 10 or / of 1% of the total 1 2
Forms W-2 and W-3. number of returns you are required to file for the year.)
Form 8300. You must file Form 8300, Report of Cash There is also no penalty, and no need for a corrected re-
Payments Over $10,000 Received in a Trade or Business, turn to be filed, for incorrect dollar amounts where no sin-
if you receive more than $10,000 in cash in one transac- gle amount differs from the correct amount by more than
tion or two or more related business transactions. Cash in- $100 ($25 for tax withheld).

cludes U.S. and foreign coin and currency. It also includes Failure to supply taxpayer identification number. If
certain monetary instruments such as cashier's and travel- you do not include your taxpayer identification number
er's checks and money orders. For more information, see (SSN or EIN) or the taxpayer identification number of an-
Pub. 1544, Reporting Cash Payments of Over $10,000. 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-
Penalties alty if you do not give your taxpayer identification number
to another person when it is required on a return, state-
The law provides penalties for not filing returns or paying ment, or other document.
taxes as required. Criminal penalties may be imposed for
willful failure to file, tax evasion, or making a false state-
ment.
Deducting Business Expenses
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 You can deduct business expenses on your business or
penalty is based on the tax not paid by the due date. See personal income tax return, depending on the form of your
your tax return instructions for more information about this business. These are the current operating costs of running
penalty. your business. To be deductible, a business expense
must be both ordinary and necessary. An ordinary ex-
Failure to pay tax. If you do not pay your taxes by the pense is one that is common and accepted in your field of
due date, you will have to pay a penalty for each month, or business, trade, or profession. A necessary expense is
part of a month, that your taxes are not paid. For more in- one that is helpful and appropriate for your business,
formation, see your tax return instructions. trade, or profession. An expense does not have to be in-
dispensable to be considered necessary.
Failure to withhold, deposit, or pay taxes. If you do The following are brief explanations of some expenses
not withhold income, social security, or Medicare taxes that are of interest to people starting a business. There
from employees, or if you withhold taxes but do not de- are many other expenses that you may be able to deduct.
posit them or pay them to the IRS, you may be subject to See your form instructions and Pub. 535, Business Ex-
a penalty of the unpaid tax, plus interest. You may also be penses.
subject to penalties if you deposit the taxes late. For more
information, see Pub. 15.
Business Start-Up Costs
Failure to follow information reporting requirements.
The following penalties apply if you are required to file in- Business start-up costs are the expenses you incur before
formation returns. For more information, see the General you actually begin business operations. Your business
Instructions for Certain Information Returns. start-up costs will depend on the type of business you are
starting. They may include costs for advertising, travel,
• Failure to file information returns. A penalty ap- surveys, and training. These costs are generally capital
plies if you do not file information returns by the due expenses.
date, if you do not include all required information, or if
you report incorrect information. 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- a. Your principal place of business (defined later),
ganizational costs. The $10,000 deduction for business
b. A place where you meet or deal with patients, cli-
start-up costs is reduced by the amount your total start-up
ents, or customers in the normal course of your
costs exceed $60,000. The $5,000 deduction for organi-
trade or business, or
zational costs is reduced by the amount your total organi-
zational costs exceed $50,000. Any remaining costs must c. A separate structure (not attached to your home)
be amortized. you use in connection with your trade or business.

For more information about amortizing start-up and or- Exclusive use. To qualify under the exclusive use test,
ganizational costs, see chapter 7 in Pub. 535. you must use a specific area of your home only for your
trade or business. The area used for business can be a
Depreciation room or other separately identifiable space. The space
does not need to be marked off by a permanent partition.
If property you acquire to use in your business has a use- You do not meet the requirements of the exclusive use
ful life that extends substantially beyond the year it is test if you use the area in question both for business and
placed in service, you generally cannot deduct the entire for personal purposes.
cost as a business expense in the year you acquire it. You
must spread the cost over more than one tax year and de- Exceptions to exclusive use. You do not have to meet
duct part of it each year. This method of deducting the the exclusive use test if either of the following applies.
cost of business property is called depreciation.
1. You use part of your home for the storage of inventory
Business property you must depreciate includes the or product samples.
following items.
2. You use part of your home as a daycare facility.
• Office furniture.
For an explanation of these exceptions, see Pub. 587,
• Buildings. Business Use of Your Home (Including Use by Daycare
• Machinery and equipment. Providers).

You can choose to deduct a limited amount of the cost Principal place of business. Your home office will qual-
of certain depreciable property in the year you place the ify as your principal place of business for deducting ex-
property in service. This deduction is known as the “sec- penses for its use if you meet the following requirements.
tion 179 deduction.” For more information about deprecia-
tion and the section 179 deduction, see Pub. 946, How To • You use it exclusively and regularly for administrative
Depreciate Property. or management activities of your trade or business.
Depreciation must be taken in the year it is allow- • You have no other fixed location where you conduct
TIP able. Allowable depreciation not taken in a prior substantial administrative or management activities of
year cannot be taken in the current year. If you do your trade or business.
not deduct the correct depreciation, you may be able to Alternatively, if you use your home exclusively and reg-
make a correction by filing Form 1040-X, Amended U.S. ularly for your business, but your home office does not
Individual Income Tax Return, or by changing your ac- qualify as your principal place of business based on the
counting method. For more information on how to correct previous rules, you determine your principal place of busi-
depreciation deductions, see chapter 1, How Do You Cor- ness based on the following factors.
rect Depreciation Deductions?, in Pub. 946.
• The relative importance of the activities performed at
each location.
Business Use of Your Home • If the relative importance factor does not determine
your principal place of business, the time spent at
To deduct expenses related to the business use of your each location.
home, you must meet specific requirements. However,
even if you meet the requirements your deduction may still If, after considering your business locations, your home
be limited. cannot be identified as your principal place of business,
you cannot deduct home office expenses. However, for
To qualify to claim expenses for business use of your other ways to qualify to deduct home office expenses, see
home, you must meet both the following tests. Pub. 587.
1. Your use of the business part of your home must be:
Simplified method. The simplified method is an alterna-
a. Exclusive (however, see Exceptions to exclusive tive to the calculation, allocation, and substantiation of ac-
use, later), tual expenses normally required to determine your home
b. Regular, office expense deduction. With this method, you will gen-
erally figure your deduction by multiplying $5, the prescri-
c. For your trade or business, AND bed rate, by the area of your home (measured in square
2. The business part of your home must be one of the feet) used for a qualified business. The area you use to
following: figure your deduction is limited to 300 square feet. For

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more information about the simplified method, see Reve- Choosing the standard mileage rate. If you want to
nue Procedure 2013-13, 2013-06 I.R.B. 478, available at use the standard mileage rate for a car you own, you must
IRS.gov/irb/2013-06_IRB#RP-2013-13. 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-
Which form do I file? If you file Schedule C (Form ther the standard mileage rate or actual expenses.
1040), use Form 8829, Expenses for Business Use of If you use the standard mileage rate for a car you lease,
Your Home. However, if you elect to use the simplified you must choose to use it for the entire lease period (in-
method, use the Simplified Method Worksheet in the In- cluding renewals).
structions for Schedule C or Pub. 587.
If you file Schedule F (Form 1040) or are a partner, you Additional information. For more information about the
should use the Worksheet To Figure the Deduction for rules for claiming car and truck expenses, see Pub. 463,
Business Use of Your Home in Pub. 587. However, if you Travel, Entertainment, Gift, and Car Expenses.
elect to use the simplified method, use the Simplified
Method Worksheet in Pub. 587.
More information. For more information about business Recordkeeping
use of your home, see Pub. 587.
This part explains why you must keep records, what kinds
of records you must keep, and how to keep them. It also
Car and Truck Expenses explains how long you must keep your records for federal
tax purposes. A sample recordkeeping system is illustra-
If you use your car or truck in your business, you can de-
ted at the end of this part.
duct the costs of operating and maintaining it. You gener-
ally can deduct either your actual expenses or the stand-
ard mileage rate. Why Keep Records?

Actual expenses. If you deduct actual expenses, you Everyone in business must keep records. Good records
can deduct the cost of the following items: will help you do the following.

Monitor the progress of your business. You need
Depreciation Lease payments Registration good records to monitor the progress of your business.
Garage rent Licenses Repairs Records can show whether your business is improving,
Gas Oil Tires which items are selling, or what changes you need to
Insurance Parking fees Tolls make. Good records can increase the likelihood of busi-
ness success.
If you use your vehicle for both business and personal
purposes, you must divide your expenses between busi- Prepare your financial statements. You need good re-
ness and personal use. You can divide your expenses cords to prepare accurate financial statements. These in-
based on the miles driven for each purpose. clude income (profit and loss) statements and balance
sheets. These statements can help you in dealing with
Example. You are the sole proprietor of a flower shop. your bank or creditors and help you manage your busi-
You drove your van 20,000 miles during the year. 16,000 ness.
miles were for delivering flowers to customers and 4,000
miles were for personal use. You can claim only 80% • An income statement shows the income and expen-
(16,000 ÷ 20,000) of the cost of operating your van as a ses of the business for a given period of time.
business expense. • A balance sheet shows the assets, liabilities, and your
equity in the business on a given date.
Standard mileage rate. Instead of figuring actual expen-
ses, you may be able to use the standard mileage rate to Identify source of receipts. You will receive money or
figure the deductible costs of operating your car, van, property from many sources. Your records can identify the
pickup, or panel truck for business purposes. You can use source of your receipts. You need this information to sep-
the standard mileage rate for a vehicle you own or lease. arate business from nonbusiness receipts and taxable
The standard mileage rate is a specified amount of money from nontaxable income.
you can deduct for each business mile you drive. It is an-
nounced annually by the IRS. To figure your deduction, Keep track of deductible expenses. You may forget
multiply your business miles by the standard mileage rate expenses when you prepare your tax return unless you re-
for the year. cord them when they occur.

Generally, if you use the standard mileage rate, Prepare your tax returns. You need good records to
! you cannot deduct your actual expenses. How- prepare your tax returns. These records must support the
CAUTION ever, you may be able to deduct business-related income, expenses, and credits you report. Generally,
parking fees, tolls, interest on your car loan, and certain these are the same records you use to monitor your busi-
state and local taxes. ness and prepare your financial statements.

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Support items reported on tax returns. You must keep you continue to maintain your original hard copy books
your business records available at all times for inspection and records in a manner that allows you and the IRS to
by the IRS. If the IRS examines any of your tax returns, determine your correct tax.
you may be asked to explain the items reported. A com- For details on electronic storage system requirements,
plete set of records will speed up the examination. see Revenue Procedure 97-22, available at IRS.gov/Tax-
Exempt-Bonds/Revenue-Procedures.
Kinds of Records To Keep
Supporting Documents
Except in a few cases, the law does not require any spe-
cific kind of records. You can choose any recordkeeping Purchases, sales, payroll, and other transactions you
system suited to your business that clearly shows your in- have in your business generate supporting documents.
come and expenses. Supporting documents include sales slips, paid bills, in-
voices, receipts, deposit slips, and canceled checks.
The business you are in affects the type of records you
These documents contain information you need to record
need to keep for federal tax purposes. You should set up
in your books.
your recordkeeping system using an accounting method
that clearly shows your income for your tax year. See It is important to keep these documents because they
Choosing an Accounting Method, earlier. If you are in support the entries in your books and on your tax return.
more than one business, you should keep a complete and Keep them in an orderly fashion and in a safe place. For
separate set of records for each business. A corporation instance, organize them by year and type of income or ex-
should keep minutes of board of directors' meetings. pense.
Your recordkeeping system should include a summary
of your business transactions. This summary is ordinarily Gross receipts. Gross receipts are the income you re-
made in your books (for example, accounting journals and ceive from your business. You should keep supporting
ledgers). Your books must show your gross income, as documents that show the amounts and sources of your
well as your deductions and credits. For most small busi- gross receipts. Documents that show gross receipts in-
nesses, the business checkbook (discussed later) is the clude the following.
main source for entries in the business books. In addition, • Cash register tapes.
you must keep supporting documents, explained later.
• Bank deposit slips.
Electronic records. All requirements that apply to hard • Receipt books.
copy books and records also apply to electronic storage
systems that maintain tax books and records. When you • Invoices.
replace hard copy books and records, you must maintain • Credit card charge slips.
the electronic storage systems for as long as they are ma-
terial to the administration of tax law. An electronic stor- • Forms 1099-MISC.
age system is any system for preparing or keeping your • Forms 1099-NEC.
records either by electronic imaging or by transfer to an
electronic storage media. The electronic storage system Inventory. Inventory is any item you buy and resell to
must index, store, preserve, retrieve, and reproduce the customers. If you are a manufacturer or producer, this in-
electronically stored books and records in legible format. cludes the cost of all raw materials or parts purchased for
All electronic storage systems must provide a complete manufacture into finished products. Your supporting docu-
and accurate record of your data that is accessible to the ments should show the amount paid and that the amount
IRS. Electronic storage systems are also subject to the was for inventory. Documents reporting the cost of inven-
same controls and retention guidelines as those imposed tory include the following.
on your original hard copy books and records. • Canceled checks.
The original hard copy books and records may be de-
stroyed provided that the electronic storage system has • Cash register tape receipts.
been tested to establish that the hard copy books and re- • Credit card sales slips.
cords are being reproduced in compliance with IRS re-
quirements for an electronic storage system and proce- • Invoices.
dures are established to ensure continued compliance These records will help you determine the value of your in-
with all applicable rules and regulations. You still have the ventory at the end of the year. See Pub. 538 for informa-
responsibility of retaining any other books and records tion on methods for valuing inventory.
that are required to be retained.
The IRS may test your electronic storage system, in- Expenses. Expenses are the costs you incur (other than
cluding the equipment used, indexing methodology, soft- the cost of inventory) to carry on your business. Your sup-
ware and retrieval capabilities. This test is not considered porting documents should show the amount paid and that
an examination and the results must be shared with you. If the amount was for a business expense. Documents for
your electronic storage system meets the requirements expenses include the following.
mentioned earlier, you will be in compliance. If not, you • Canceled checks.
may be subject to penalties for non-compliance, unless

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• Cash register tapes. THEN the statement must
• Account statements. IF payment is by... show the...
• Credit card sales slips. Check • Check number.
• Invoices. • Amount.
• Payee's name.
• Petty cash slips for small cash payments. • Date the check amount
was posted to the
A petty cash fund allows you to make small pay-
account by the financial
TIP ments without having to write checks for small institution.
amounts. Each time you make a payment from
this fund, you should make out a petty cash slip and at- Electronic funds transfer • Amount transferred.
tach it to your receipt as proof of payment. • Payee's name.
• Date the transfer was
Travel, transportation, and gift expenses. Specific posted to the account by
recordkeeping rules apply to these expenses. For more the financial institution.
information, see Pub. 463.
Credit card • Amount charged.
Employment taxes. There are specific employment • Payee's name.
tax records you must keep. For a list, see Pub. 15. • Transaction date.

Assets. Assets are the property, such as machinery and Proof of payment of an amount, by itself, does not
furniture you own and use in your business. You must ! establish you are entitled to a tax deduction. You
keep records to verify certain information about your busi- CAUTION should also keep other documents, such as credit
ness assets. You need records to figure the annual depre- card sales slips and invoices, to show that you also incur-
ciation and the gain or loss when you sell the assets. Your red the cost.
records should show the following information.
• When and how you acquired the asset. Recording Business Transactions
• Purchase price.
A good recordkeeping system includes a summary of your
• Cost of any improvements. business transactions. (Your business transactions are
• Section 179 deduction taken. shown on the supporting documents just discussed.)
Business transactions are ordinarily summarized in books
• Deductions taken for depreciation. called journals and ledgers. You can buy them over the In-
• Deductions taken for casualty losses, such as losses ternet and at your local stationery or office supply store.
resulting from fires or storms.
A journal is a book where you record each business
• How you used the asset. transaction shown on your supporting documents. You
• When and how you disposed of the asset. may have to keep separate journals for transactions that
occur frequently.
• Selling price.
• Expenses of sale. A ledger is a book that contains the totals from all of
your journals. It is organized into different accounts.
The following documents may show this information.
• Purchase and sales invoices. Whether you keep journals and ledgers and how you
keep them depends on the type of business you are in.
• Real estate closing statements. For example, a recordkeeping system for a small busi-
• Canceled checks. ness might include the following items.
• Business checkbook.
What if I don't have a canceled check? If you do not
have a canceled check, you may be able to prove pay- • Daily summary of cash receipts.
ment with certain financial account statements prepared • Monthly summary of cash receipts.
by financial institutions. These include account statements
prepared for the financial institution by a third party. These • Check disbursements journal.
account statements must be highly legible. The following • Depreciation worksheet.
table lists acceptable account statements.
• Employee compensation record.
The business checkbook is explained next. The other
items are illustrated later under Recordkeeping System
Example.

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The system you use to record business transac- After checking your figures, the result should agree with
TIP tions will be more effective if you follow good re- your checkbook balance at the end of the month. If the re-
cordkeeping practices. For example, record ex- sult does not agree, you may have made an error in re-
penses when they occur, and identify the source of cording a check or deposit. You can find the error by do-
recorded receipts. Generally, it is best to record transac- ing the following.
tions on a daily basis.
1. Adding the amounts on your check stubs and com-
paring that total with the total in the “amount of check”
Business checkbook. One of the first things you should column in your check disbursements journal. If the to-
do when you start a business is open a business checking tals do not agree, check the individual amounts to see
account. You should keep your business account sepa- if an error was made in your check stub record or in
rate from your personal checking account. the related entry in your check disbursements journal.
The business checkbook is your basic source of infor-
mation for recording your business expenses. You should 2. Adding the deposit amounts in your checkbook. Com-
deposit all daily receipts in your business checking ac- pare that total with the monthly total in your cash re-
count. You should check your account for errors by recon- ceipt book, if you have one. If the totals do not agree,
ciling it. See Reconciling the checking account, later. check the individual amounts to find any errors.
Consider using a checkbook that allows enough space If your checkbook and journal entries still disagree,
to identify the source of deposits as business income, per- then refigure the running balance in your checkbook to
sonal funds, or loans. You should also note on the deposit make sure additions and subtractions are correct.
slip the source of the deposit and keep copies of all slips. When your checkbook balance agrees with the balance
You should make all payments by check to document figured from the journal entries, you may begin reconciling
business expenses. Write checks payable to yourself only your checkbook with the bank statement. Many banks
when making withdrawals from your business for personal print a reconciliation worksheet on the back of the state-
use. Avoid writing checks payable to cash. If you must ment.
write a check for cash to pay a business expense, include To reconcile your account, follow these steps.
the receipt for the cash payment in your records. If you
cannot get a receipt for a cash payment, you should make 1. Compare the deposits listed on the bank statement
an adequate explanation in your records at the time of with the deposits shown in your checkbook. Note all
payment. differences in the dollar amounts.
Use the business account for business purposes 2. Compare each canceled check, including both check
TIP only. Indicate the source of deposits and the type number and dollar amount, with the entry in your
of expense in the checkbook. checkbook. Note all differences in the dollar amounts.
Mark the check number in the checkbook as having
Reconciling the checking account. When you re- cleared the bank. After accounting for all checks re-
ceive your bank statement, make sure the statement, your turned by the bank, those not marked in your check-
checkbook, and your books agree. The statement balance book are your outstanding checks.
may not agree with the balance in your checkbook and
3. Prepare a bank reconciliation. One is illustrated later
books if the statement:
under Recordkeeping System Example.
• Includes bank charges you did not enter in your books
and subtract from your checkbook balance, or 4. Update your checkbook and journals for items shown
on the reconciliation as not recorded (such as service
• Does not include deposits made after the statement charges) or recorded incorrectly.
date or checks that did not clear your account before
the statement date. At this point, the adjusted bank statement balance should
equal your adjusted checkbook balance. If you still have
By reconciling your checking account, you will: differences, check the previous steps to find the errors.
• 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
TIP 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.

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General Journal
Bookkeeping System
Date Description of Entry Debit Credit
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 Oct. 5 Rent expense 780.00
suitable for everyone. You may find the double-entry sys-
tem better because it has built-in checks and balances to Cash 780.00
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: Computerized System

1. A daily summary of cash receipts, and There are computer software packages you can use for
recordkeeping. They can be purchased over the Internet
2. Monthly summaries of cash receipts and disburse- and in many retail stores. These packages are very help-
ments. ful and relatively easy to use; they require very little knowl-
Double-entry. A double-entry bookkeeping system uses edge of bookkeeping and accounting.
journals and ledgers. Transactions are first entered in a
journal and then posted to ledger accounts. These ac- If you use a computerized system, you must be able to
counts show income, expenses, assets (property a busi- produce sufficient legible records to support and verify en-
ness owns), liabilities (debts of a business), and net worth tries made on your return and determine your correct tax
(excess of assets over liabilities). You close income and liability. To meet this qualification, the machine-sensible
expense accounts at the end of each tax year. You keep records must reconcile with your books and return. These
asset, liability, and net worth accounts open on a perma- records must provide enough detail to identify the underly-
nent basis. ing source documents.
In the double-entry system, each account has a left
side for debits and a right side for credits. It is self-balanc- You must also keep all machine-sensible records and a
ing because you record every transaction as a debit entry complete description of the computerized portion of your
in one account and as a credit entry in another. recordkeeping system. This documentation must be suffi-
Under this system, the total debits must equal the total ciently detailed to show all of the following items.
credits after you post the journal entries to the ledger ac- • Functions being performed as the data flows through
counts. If the amounts do not balance, you have made an the system.
error and you must find and correct it.
An example of a journal entry exhibiting a payment of • Controls used to ensure accurate and reliable pro-
cessing.
rent in October is shown next.
• 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 6 years
income shown on the return
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 the Change and Petty Cash Fund at the beginning of the
day.
You must keep your records as long as they may be nee-
ded for the administration of any provision of the Internal Henry takes the cash sales entry from his cash register
Revenue Code. Generally, this means you must keep re- tape. If he had no cash register, he would simply total his
cords that support an item of income or deduction on a re- cash sale slips and any other cash received that day.
turn until the period of limitations for that return runs out.
He carries the total receipts shown in this summary for
The period of limitations is the period of time in which January 3 ($267.80), including cash sales ($263.60) and
you can amend your return to claim a credit or refund, or sales tax ($4.20), to the Monthly Summary of Cash Re-
the IRS can assess additional tax. Table 3 contains the ceipts.
periods of limitations that apply to income tax returns. Un-
less otherwise stated, the years refer to the period after Petty cash fund. Henry uses a petty cash fund to make
the return was filed. Returns filed before the due date are small payments without having to write checks for small
treated as filed on the due date. amounts. Each time he makes a payment from this fund,
Keep copies of your filed tax returns. They help in he makes out a petty cash slip and attaches it to his re-
TIP preparing future tax returns and making computa- ceipt as proof of payment. He sets up a fixed amount
tions if you file an amended return. ($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
Employment taxes. If you have employees, you must
petty cash slips approach the fixed amount, he brings the
keep all employment tax records for at least 4 years after
cash in the fund back to the fixed amount by writing a
the date the tax becomes due or is paid, whichever is
check to “Petty Cash” for the total of the outstanding slips.
later. For more information about recordkeeping for em-
(See the Check Disbursements Journal entry for check
ployment taxes, see Pub. 15.
number 92.) This restores the fund to its fixed amount of
Assets. Keep records relating to property until the period $50. He then summarizes the slips and enters them in the
of limitations expires for the year in which you dispose of proper columns in the monthly check disbursements jour-
the property in a taxable disposition. You must keep these nal.
records to figure any depreciation, amortization, or deple-
tion deduction, and to figure your basis for computing gain 2. Monthly Summary of Cash Receipts
or loss when you sell or otherwise dispose of the property.
Generally, if you received property in a nontaxable ex- This shows the income activity for the month. Henry car-
change, your basis in that property is the same as the ba- ries the total monthly net sales shown in this summary for
sis of the property you gave up, increased by any money January ($4,865.05) to his Annual Summary.
you paid. You must keep the records on the old property,
as well as on the new property, until the period of limita- To figure total monthly net sales, Henry reduces the to-
tions expires for the year in which you dispose of the new tal monthly receipts by the sales tax imposed on his cus-
property in a taxable disposition. tomers and turned over to the state. He cannot take a de-
duction for sales tax turned over to the state because he
Records for nontax purposes. When your records are only collected the tax. He does not include the tax in his
no longer needed for tax purposes, do not discard them income.
until you check to see if you have to keep them longer for
other purposes. For example, your insurance company or 3. Check Disbursements Journal
creditors may require you to keep them longer than the
IRS does. Henry enters checks drawn on the business checking ac-
count in the Check Disbursements Journal each day. All
Recordkeeping System Example checks are prenumbered and each check number is listed
and accounted for in the column provided in the journal.
This example illustrates a single-entry system used by
Henry Brown, who is the sole proprietor of a small auto- Frequent expenses have their own headings across the
mobile body shop. Henry uses part-time help, has no in- sheet. He enters in a separate column expenses that re-
ventory of items held for sale, and uses the cash method quire comparatively numerous or large payments each
of accounting. month, such as materials, gross payroll, and rent. Under
the General Accounts column, he enters small expenses
These sample records should not be viewed as a rec- that normally have only one or two monthly payments,
ommendation of how to keep your records. They are in- such as licenses and postage.
tended only to show how one business keeps its records.
Henry does not pay personal or nonbusiness expenses
1. Daily Summary of Cash Receipts by checks drawn on the business account. If he did, he
would record them in the journal, even though he could
This summary is a record of cash sales for the day. It ac- not deduct them as business expenses.
counts for cash at the end of the day over the amount in

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Henry carries the January total of expenses for materi- 6. Depreciation Worksheet
als ($1,083.50) to the Annual Summary. Similarly, he en-
ters the monthly total of expenses for telephone, truck/ This worksheet shows the information used in figuring the
auto, etc., in the appropriate columns of that summary. depreciation allowed on assets used in Henry's business.
Henry figures the depreciation using the modified acceler-
4. Employee Compensation Record ated cost recovery system (MACRS). He purchased and
placed in service several used assets that do not qualify
This record shows the following information. for the section 179 deduction. Depreciation and the sec-
tion 179 deduction are discussed in Pub. 946. Henry uses
• The number of hours Henry's employee worked in a
the information in the worksheet to complete Form 4562,
pay period.
Depreciation and Amortization (not illustrated).
• The employee's total pay for the period.
• The deductions Henry withheld in figuring the employ- 7. Bank Reconciliation
ee's net pay.
Henry reconciles his checkbook with his bank statement
• The monthly gross payroll. and prepares a bank reconciliation for January as follows.
Henry carries the January gross payroll ($520) to the An- 1. Henry begins by entering his bank statement balance.
nual Summary.
2. Henry compares the deposits listed on the bank state-
5. Annual Summary ment with deposits shown in his checkbook. Two de-
posits shown in his checkbook— $701.33 and
This annual summary of monthly cash receipts and ex- $516.08—were not on his bank statement. He enters
pense totals provides the final amounts to enter on these two amounts on the bank reconciliation. He
Henry's tax return. He figures the cash receipts total from adds them to the bank statement balance of
the total of monthly cash receipts shown in the Monthly $1,458.12 to arrive at a subtotal of $2,675.53.
Summary of Cash Receipts. He figures the expense totals
3. After comparing each canceled check with his check-
from the totals of monthly expense items shown in the
book, Henry found four outstanding checks totaling
Check Disbursements Journal. As in the journal, he keeps
$526.50. He subtracts this amount from the subtotal
each major expense in a separate column.
in (2). The result of $2,149.03 is the adjusted bank
Henry carries the cash receipts total shown in the an- statement balance.
nual summary ($47,440.95) to Part I of Schedule C (not il- 4. Henry enters his checkbook balance on the bank rec-
lustrated). He carries the total for materials ($10,001.00) onciliation.
to Part II of Schedule C.
5. Henry discovered that he mistakenly entered a de-
A business that keeps materials and supplies on posit of $600.40 in his checkbook as $594.40. He
! hand generally must complete the inventory lines adds the difference ($6.00) to the checkbook balance
CAUTION in Part III of Schedule C. However, there are no
of $2,153.03. There was a $10.00 bank service
inventories of materials and supplies in this example. charge on his bank statement that he subtracts from
Henry buys parts and supplies on a per-job basis; he does the checkbook balance. The result is the adjusted
not keep them on hand. checkbook balance of $2,149.03. This equals his ad-
justed bank statement balance computed in (3).
Henry enters annual totals for interest, rent, taxes, and
wages on the appropriate lines in Part II of Schedule C. The only book adjustment Henry needs to make is to
The total for taxes and licenses includes the employer's the Check Disbursements Journal for the $10 bank serv-
share of social security and Medicare taxes, and the busi- ice charge. He does not need to adjust the Monthly Sum-
ness license fee. He enters the total of other annual busi- mary of Cash Receipts because he correctly entered the
ness expenses on the “Other expenses” line of Sched- January 8 deposit of $600.40 in that record.
ule C.

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Daily Cash Receipts
                   1. Daily Summary of Cash Receipts

                   Date       January 3, 20 —

                   Cash sales                                     263.60

                   Sales tax                                       4.20

                                         TOTAL RECEIPTS           267.80

                   Cash on hand

                   Cash in register (including unspent petty cash)

                        Coins                 23.75

                        Bills                 143.00

                        Checks                134.05              

                   TOTAL CASH IN REGISTER                         300.80

                   Add: Petty cash slips                           17.00

                                              TOTAL CASH          317.80

                   Less: Change and petty cash

                   Petty cash slips           17.00

                   Coins and bills            33.00
                   (unspent petty cash)                           

                   TOTAL CHANGE AND PETTY CASH FUND               50.00

                               TOTAL CASH RECEIPTS                267.80

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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

                                                                    Federal 
                                                                    Withheld  FICA Social FICA 
                                   Amount of           Gross        Income  Security      Medicare 
Day      Paid To           Check # Check     Materials Payroll      Tax     Reserve       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         80   74.50     29.50
        Station
6       ABC Auto Paint        81   137.50    137.50
7       Henry Brown           82   225.00
14      Telephone Co.         83   27.00
        National Bank (Tax 
15      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            95   300.00
        Properties
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               10.00
        charge
TOTALS                             3,488.67  1,083.50 520.00        -0-       -0-                                        -0- 

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3. Check Disbursements Journal (Continued)

 State    Employer's 
 Withheld   FICA                                        Truck/
Income Tax Tax       Electric Interest  Rent  Telephone        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

Name      John E. Marks                                                        Full Time             Soc. Sec. No.     567-00-8901

          1 Elm St., Anytown, NJ 07101                                                                                 12-21-65
Address                                                                    X   Part Time             Date of Birth
Phone        555-6075                                                                                Filing Status                 Single

                     Hours Worked                                     Earnings                       Deductions
Pay                                                  Total                                                                    Federal   State
Period  Date                                         Regular          Regular  Overtime              Social                   Income    Income
Ending  Paid         S M T W T F S S M T W T F S     Hours   Overtime Rate     Rate        Total     Security        Medicare Tax       Tax     Net Pay
   1 - 1     1 - 4     5  555      5     5 4 6         40             $6.50          .     $260.00   $16.12 $3.77             $20.00    $6.00   $214.11
   1 - 15     1 - 18   444442      4 3 4 4 3           40             $6.50          .     $260.00 $16.12 $3.77               $20.00    $6.00   $214.11
                                                     80                 .            .     $520.00 $32.24 $7.54                 $40.00  $12.00 $428.22

                                                                        .            .          .    .               .           .         .       .
                        QUARTERLY TOTALS                                .            .     $1,262.40 $78.23          $18.31 $100.00 $30.00      $1,035.86

5. Annual Summary

             Cash       Materials/ Gross     FICA    Bank                                                    Truck/              Ofﬁce  Taxes/
Month        Receipts   Supplies   Payroll   Taxes   Charges Electric Interest Insurance   Rent   Telephones o t u A Advertising Expenses Licenses . c s i M

January      $4,865.05  $1,083.50 $520.00    $39.78 $10.00   $175.30 $18.09          .     $300.00 $27.00 $45.00 $85.00 $36.00 $100.00             $2.00
February     3,478.32   874.93     235.40    17.68   7.50    153.10 18.09 210.00           300.00  21.50 28.50                .       .       .             .
March        3,942.00   724.90     507.00    38.08 11.25     145.81 18.09            .     300.00  32.10 51.30                .       .       .             .

December     3,656.52   609.23     520.00    39.78   10.00 169.00     18.09          .     300.00  23.13 37.62                .   4.00        .    71.91
TOTALS       $47,440.95 $10,001.00 $5,434.00 $408.09 $92.30 $1,642.37 $217.08  $420.00 $3,600.00   $324.09 $571.46 $85.00$40.00 $218.00            $344.00

6. Depreciation Worksheet
                                                                Section 179
                                                     Business/  Deduction      Depreci-
                        Date Placed      Cost or     Investment and Special    ation Prior Basis for Method/         Recovery      Rate or    Depreciation
Description of Property in Service       Other Basis Use %      Allowance      Years       Depreciation Convention   Period        Table %    Deduction
Used Equipment—
Transmission Jack       1 - 3              3,000     100%             —        —           3,000     200 DB/HY         7           14.29%          $429
Used Pickup Truck                 1 - 3    8,000     100%             —        —           8,000     200 DB/HY         5              20%
Tow Truck                         1 - 3    30,000    100%             —                    30,000
Used Heavy Duty                                                                —                     200 DB/HY                5       20%
Used Equipment—
Engine Hoist                      1 - 3    4,000     100%             —        —           4,000     200 DB/HY                7    14.29%          572
                                                                                                                                                $8,601

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Bank Reconciliation
                   7. Bank Reconciliation as of

                   Date             January 31, 20 —

                   Closing balance shown on bank statement       1,458.12

                   Add deposits not credited:
                                         1/28           701.33

                                         1/31           516.08
                                                                 
                               TOTAL DEPOSITS NOT CREDITED       1,217.41

                   Subtotal                                      2,675.53

                   Subtract outstanding checks:

                               No.       90             66.70

                                         91                  9.80

                                         94             150.00

                                         95             300.00   

                               TOTAL OUTSTANDING CHECKS          526.50

                   Adjusted balance per bank statement           2,149.03

                   Balance shown in checkbook                    2,153.03
                                    Deposit of $600.40 for
                               Add: 1/8 entered as                6.00
                                    $594.40 (difference)
                                                                 2,159.03

                               Subtract: Bank service charge     10.00

                   Adjusted checkbook balance                    2,149.03

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                                                                Using online tools to help prepare your return.          Go to 
                                                                IRS.gov/Tools for the following.
How To Get Tax Help
                                                                • The Earned Income Tax Credit Assistant IRS.gov/ (
If you have questions about a tax issue, need help prepar-        EITCAssistant) determines if you’re eligible for the 
ing your tax return, or want to download free publications,       earned income credit (EIC).
forms, or instructions, go to IRS.gov and find resources        • The Online EIN Application IRS.gov/EIN ( ) helps you 
that can help you right away.                                     get an employer identification number (EIN).
Preparing and filing your tax return.  After receiving all      • The Tax Withholding Estimator IRS.gov/W4app (          ) 
your wage and earnings statements (Form W-2, W-2G,                makes it easier for everyone to pay the correct amount 
1099-R,  1099-MISC,  1099-NEC,  etc.);  unemployment              of tax during the year. The tool is a convenient, online 
compensation statements (by mail or in a digital format) or       way to check and tailor your withholding. It’s more 
other government payment statements (Form 1099-G);                user-friendly for taxpayers, including retirees and 
and interest, dividend, and retirement statements from            self-employed individuals. The features include the 
banks and investment firms (Forms 1099), you have sev-            following.
eral options to choose from to prepare and file your tax re-      – Easy to understand language.
turn. You can prepare the tax return yourself, see if you 
qualify for free tax preparation, or hire a tax professional to   – The ability to switch between screens, correct pre-
prepare your return.                                                vious entries, and skip screens that don’t apply.
                                                                  – Tips and links to help you determine if you qualify 
Free options for tax preparation.  Go to IRS.gov to see             for tax credits and deductions.
your options for preparing and filing your return online or 
in your local community, if you qualify, which include the        – A progress tracker.
following.                                                        – A self-employment tax feature.
• Free File. This program lets you prepare and file your          – Automatic calculation of taxable social security ben-
  federal individual income tax return for free using               efits.
  brand-name tax-preparation-and-filing software or 
  Free File fillable forms. However, state tax preparation      • The First Time Homebuyer Credit Account Look-up 
  may not be available through Free File. Go to IRS.gov/          (IRS.gov/HomeBuyer) tool provides information on 
  FreeFile to see if you qualify for free online federal tax      your repayments and account balance.
  preparation, e-filing, and direct deposit or payment op-      • The Sales Tax Deduction Calculator IRS.gov/ (
  tions.                                                          SalesTax) figures the amount you can claim if you 
• VITA. The Volunteer Income Tax Assistance (VITA)                itemize deductions on Schedule A (Form 1040).
  program offers free tax help to people with                            Getting answers to your tax questions. On 
  low-to-moderate incomes, persons with disabilities,                    IRS.gov, you can get up-to-date information on 
  and limited-English-speaking taxpayers who need                        current events and changes in tax law.
  help preparing their own tax returns. Go to IRS.gov/
  VITA, download the free IRS2Go app, or call                   • IRS.gov/Help: A variety of tools to help you get an-
  800-906-9887 for information on free tax return prepa-          swers to some of the most common tax questions.
  ration.                                                       • IRS.gov/ITA: The Interactive Tax Assistant, a tool that 
• TCE. The Tax Counseling for the Elderly (TCE) pro-              will ask you questions on a number of tax law topics 
  gram offers free tax help for all taxpayers, particularly       and provide answers.
  those who are 60 years of age and older. TCE volun-           • IRS.gov/Forms: Find forms, instructions, and publica-
  teers specialize in answering questions about pen-              tions. You will find details on 2020 tax changes and 
  sions and retirement-related issues unique to seniors.          hundreds of interactive links to help you find answers 
  Go to IRS.gov/TCE, download the free IRS2Go app,                to your questions.
  or call 888-227-7669 for information on free tax return 
                                                                • You may also be able to access tax law information in 
  preparation.
                                                                  your electronic filing software.
• 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         Need someone to prepare your tax return?                 There are 
  OneSource.                                                    various types of tax return preparers, including tax prepar-
  Also, the IRS offers Free Fillable Forms, which can           ers, enrolled agents, certified public accountants (CPAs), 
  be completed online and then filed electronically re-         attorneys, and many others who don’t have professional 
  gardless of income.                                           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 (including the Instructions for Forms 1040 and 1040-SR)
on mobile devices as an eBook at IRS.gov/eBooks. Or
• Required to include their preparer tax identification
you can go to IRS.gov/OrderForms to place an order.
number (PTIN).
Although the tax preparer always signs the return, Access your online account (individual taxpayers
you're ultimately responsible for providing all the informa- only). Go to IRS.gov/Account to securely access infor-
tion required for the preparer to accurately prepare your mation about your federal tax account.
return. Anyone paid to prepare tax returns for others • View the amount you owe, pay online, or set up an on-
should have a thorough understanding of tax matters. For line payment agreement.
more information on how to choose a tax preparer, go to
Tips for Choosing a Tax Preparer on IRS.gov. • Access your tax records online.
• Review your payment history.
Coronavirus. Go to IRS.gov/Coronavirus for links to in-
formation on the impact of the coronavirus, as well as tax • Go to IRS.gov/SecureAccess to review the required
relief available for individuals and families, small and large identity authentication process.
businesses, and tax-exempt organizations.
Using direct deposit. The fastest way to receive a tax
Tax reform. Tax reform legislation affects individuals, refund is to file electronically and choose direct deposit,
businesses, and tax-exempt and government entities. Go which securely and electronically transfers your refund di-
to IRS.gov/TaxReform for information and updates on rectly into your financial account. Direct deposit also
how this legislation affects your taxes. avoids the possibility that your check could be lost, stolen,
or returned undeliverable to the IRS. Eight in 10 taxpayers
Employers can register to use Business Services On- use direct deposit to receive their refunds. The IRS issues
line. The Social Security Administration (SSA) offers on- more than 90% of refunds in less than 21 days.
line service at SSA.gov/employer for fast, free, and secure
online W-2 filing options to CPAs, accountants, enrolled Getting a transcript of your return. The quickest way
agents, and individuals who process Form W-2, Wage to get a copy of your tax transcript is to go to IRS.gov/
and Tax Statement, and Form W-2c, Corrected Wage and Transcripts. Click on either “Get Transcript Online” or “Get
Tax Statement. Transcript by Mail” to order a free copy of your transcript.
If you prefer, you can order your transcript by calling
IRS social media. Go to IRS.gov/SocialMedia to see the 800-908-9946.
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod- Reporting and resolving your tax-related identity
ucts, and services. At the IRS, privacy and security are theft issues.
paramount. We use these tools to share public informa- • Tax-related identity theft happens when someone
tion with you. Don’t post your SSN or other confidential in- steals your personal information to commit tax fraud.
formation on social media sites. Always protect your iden- Your taxes can be affected if your SSN is used to file a
tity when using any social networking site. fraudulent return or to claim a refund or credit.
The following IRS YouTube channels provide short, in-
formative videos on various tax-related topics in English, • The IRS doesn’t initiate contact with taxpayers by
Spanish, and ASL. email, text messages, telephone calls, or social media
channels to request personal or financial information.
• Youtube.com/irsvideos. This includes requests for personal identification num-
• Youtube.com/irsvideosmultilingua. bers (PINs), passwords, or similar information for
credit cards, banks, or other financial accounts.
• Youtube.com/irsvideosASL.
• Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Watching IRS videos. The IRS Video portal Central webpage, for information on identity theft and
(IRSVideos.gov) contains video and audio presentations data security protection for taxpayers, tax professio-
for individuals, small businesses, and tax professionals. nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related
Online tax information in other languages. You can identity theft, you can learn what steps you should
find information on IRS.gov/MyLanguage if English isn’t take.
your native language.
• Get an Identity Protection PIN (IP PIN). IP PINs are
Free interpreter service. Multilingual assistance, provi- six-digit numbers assigned to eligible taxpayers to
ded by the IRS, is available at Taxpayer Assistance Cen- help prevent the misuse of their SSNs on fraudulent
ters (TACs) and other IRS offices. Over-the-phone inter- federal income tax returns. When you have an IP PIN,
preter service is accessible in more than 350 languages. it prevents someone else from filing a tax return with
your SSN. To learn more, go to IRS.gov/IPPIN.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms, instruc- Checking on the status of your refund.
tions, and publications you may need. You can also down- • Go to IRS.gov/Refunds.
load and view popular tax publications and instructions

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• The IRS can’t issue refunds before mid-February 2021 ded returns. Please note that it can take up to 3 weeks
for returns that claimed the EIC or the additional child from the date you filed your amended return for it to show
tax credit (ACTC). This applies to the entire refund, up in our system, and processing it can take up to 16
not just the portion associated with these credits. weeks.

• Download the official IRS2Go app to your mobile de- Understanding an IRS notice or letter you’ve re-
vice to check your refund status. ceived. Go to IRS.gov/Notices to find additional informa-
• Call the automated refund hotline at 800-829-1954. tion about responding to an IRS notice or letter.

Making a tax payment. The IRS uses the latest encryp- Contacting your local IRS office. Keep in mind, many
tion technology to ensure your electronic payments are questions can be answered on IRS.gov without visiting an
safe and secure. You can make electronic payments on- IRS Taxpayer Assistance Center (TAC). Go to IRS.gov/
line, by phone, and from a mobile device using the LetUsHelp for the topics people ask about most. If you still
IRS2Go app. Paying electronically is quick, easy, and need help, IRS TACs provide tax help when a tax issue
faster than mailing in a check or money order. Go to can’t be handled online or by phone. All TACs now pro-
IRS.gov/Payments for information on how to make a pay- vide service by appointment, so you’ll know in advance
ment using any of the following options. that you can get the service you need without long wait
• IRS Direct Pay: Pay your individual tax bill or estima- times. Before you visit, go to IRS.gov/TACLocator to find
ted tax payment directly from your checking or sav- the nearest TAC and to check hours, available services,
ings account at no cost to you. and appointment options. Or, on the IRS2Go app, under
the Stay Connected tab, choose the Contact Us option
• Debit or Credit Card: Choose an approved payment and click on “Local Offices.”
processor to pay online, by phone, or by mobile de-
vice.
The Taxpayer Advocate Service (TAS)
• Electronic Funds Withdrawal: Offered only when filing
Is Here To Help You
your federal taxes using tax return preparation soft-
ware or through a tax professional. What Is TAS?

• Electronic Federal Tax Payment System: Best option TAS is an independent organization within the IRS that
for businesses. Enrollment is required. helps taxpayers and protects taxpayer rights. Their job is
• Check or Money Order: Mail your payment to the ad- to ensure that every taxpayer is treated fairly and that you
dress listed on the notice or instructions. know and understand your rights under the Taxpayer Bill
• Cash: You may be able to pay your taxes with cash at of Rights.
a participating retail store.
How Can You Learn About Your Taxpayer
• Same-Day Wire: You may be able to do same-day
Rights?
wire from your financial institution. Contact your finan-
cial institution for availability, cost, and cut-off times. The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
What if I can’t pay now? Go to IRS.gov/Payments for
TaxpayerAdvocate.IRS.gov to help you understand what
more information about your options.
these rights mean to you and how they apply. These are
• Apply for an online payment agreement IRS.gov/ ( your rights. Know them. Use them.
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once What Can TAS Do For You?
you complete the online process, you will receive im-
mediate notification of whether your agreement has TAS can help you resolve problems that you can’t resolve
been approved. with the IRS. And their service is free. If you qualify for
• Use the Offer in Compromise Pre-Qualifier to see if their assistance, you will be assigned to one advocate
you can settle your tax debt for less than the full who will work with you throughout the process and will do
amount you owe. For more information on the Offer in everything possible to resolve your issue. TAS can help
Compromise program, go to IRS.gov/OIC. you if:
• Your problem is causing financial difficulty for you,
Filing an amended return. You can now file Form your family, or your business;
1040-X electronically with tax filing software to amend
2019 Forms 1040 and 1040-SR. To do so, you must have • You face (or your business is facing) an immediate
e-filed your original 2019 return. Amended returns for all threat of adverse action; or
prior years must be mailed. See Tips for taxpayers who • You’ve tried repeatedly to contact the IRS but no one
need to file an amended tax return and go to IRS.gov/ has responded, or the IRS hasn’t responded by the
Form1040X for information and updates. date promised.
Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen-

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How Can You Reach TAS? Low Income Taxpayer Clinics (LITCs)

TAS has offices in every state, the District of Columbia, LITCs are independent from the IRS. LITCs represent in-
and Puerto Rico. Your local advocate’s number is in your dividuals whose income is below a certain level and need
local directory and at TaxpayerAdvocate.IRS.gov/ to resolve tax problems with the IRS, such as audits, ap-
Contact-Us. You can also call them at 877-777-4778. peals, and tax collection disputes. In addition, clinics can
provide information about taxpayer rights and responsibili-
How Else Does TAS Help Taxpayers? ties in different languages for individuals who speak Eng-
lish as a second language. Services are offered for free or
TAS works to resolve large-scale problems that affect a small fee for eligible taxpayers. To find a clinic near you,
many taxpayers. If you know of one of these broad issues, visit www.TaxpayerAdvocate.IRS.gov/about-us/Low-
please report it to them at IRS.gov/SAMS. Income-Taxpayer-Clinics-LITC/ or see IRS Pub. 4134,
Low Income Taxpayer Clinic List.
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.

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                   To help us develop a more useful index, please let us know if you have ideas for index entries.
Index              See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                 1099–NEC   8
A                                1128  5                            P
Accounting method:               11-C  8                            Partnership 3
  Accrual method  5              2290  8                            Penalties 9
  Cash method   5                720 8                              Publications (See Tax help)
Assistance (See Tax help)        730 8
                                 8300  9
                                 8829  11                           R
B                                I-9 7                              Recordkeeping   11
Business:                        SS-4  4                            Records, how long to keep                            16
  Expenses   9                   W-2 8 9, 
  Start-up costs 9               W-4 7
  Taxes 5                        W-9 4                              S
  Use of car 11                Forms of business  2                 S corporation 3
  Use of home  10              FUTA tax  7                          Self-employment tax  6
                                                                    Social security tax 7
                                                                    Sole proprietorship  3
C                              G                                    Start-up costs 9
Car and truck expenses 11      Getting a taxpayer identification 
C corporation  3                 number   3
Corporation  3                                                      T
                                                                    Taxes:
                               I                                     Employment    7
D                              Income tax  5 7,                      Estimated  6
Depositing taxes  8            Information returns 8                 Excise  8
Depreciation 10                Inventories 5                         How to deposit 8
                                                                     Income   5
                                                                     Self-employment    6
E                              L                                     Unemployment (FUTA)              7
Employer identification number Limited liability company 3          Tax help 24
  (EIN) 3 4,                                                        Tax year 4
Employment taxes:
  Defined 7                    M
  Records to keep  13          Medicare tax 7                       U
Estimated tax  6                                                    Unemployment (FUTA) tax                              7
Excise taxes 8
                               O
                               Office in home   10
F
Form:
  1099-MISC  8

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