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Part 2 Publication 334 (2009), Guide Small Bussine
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 Posted 12:17 PM Feb. 28, 2010 This part explains whether you have to file an income tax return and when you file it. It also explains how you pay the tax. You have to file an income tax return for 2009 if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions. File your income tax return on Form 1040 and attach Schedule C or Schedule C-EZ. Enter the net profit or loss from Schedule C or Schedule C-EZ on page 1 of Form 1040. Use Schedule C to figure your net profit or loss from your business. If you operated more than one business as a sole proprietorship, you must attach a separate Schedule C for each business. You can use the simpler Schedule C-EZ if you operated only one business as a sole proprietorship, you did not have a net loss, and you meet the other requirements listed in Part I of the schedule.
You may be able to file your tax returns electronically using an IRS e-file option. Table 1-1 lists the benefits of IRS e-file. IRS e-file uses automation to replace most of the manual steps needed to process paper returns. As a result, the processing of e-file returns is faster and more accurate than the processing of paper returns. As with a paper return, you are responsible for making sure your return contains accurate information and is filed on time. Using e-file does not affect your chances of an IRS examination of your return. You can file most commonly used business forms using IRS e-file. For more information, visit the IRS website at www.irs.gov. Electronic signatures. Paperless filing is easier than you think and it's available to most taxpayers who file electronically—including those first-time filers who were 16 or older at the end of 2009. If you file electronically using tax preparation software or a tax professional, you will participate in the Self-Select PIN (personal identification number) program. If you are married filing jointly, you and your spouse will each need to create a PIN and enter these PINs as your electronic signatures.
To create a PIN, you must know your adjusted gross income (AGI) from your originally filed 2008 income tax return (not from an amended return, Form 1040X, or any math error notice from the IRS). You will also need to provide your date of birth (DOB). Make sure your DOB is accurate and matches the information on record with the Social Security Administration before you e-file. To do this, check your annual Social Security Statement. With a Self-Select PIN, there is nothing to sign and nothing to mail—not even your Forms W-2. For more details on the Self-Select PIN program, visit the IRS website at www.irs.gov.
State returns. In most states, you can file an electronic state return simultaneously with your federal return. For more information, check with your local IRS office, state tax agency, tax professional, or the IRS website at www.irs.gov.
Refunds. You can have your refund check mailed to you, or you can have your refund deposited directly to your checking or savings account.
With e-file, your refund will be issued in half the time as when filing on paper. Most refunds are issued within 3 weeks. If you choose Direct Deposit, you can receive your refund in as few as 10 days.
Offset against debts. As with a paper return, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. You will be notified if the refund you claimed has been offset against your debts.
Refund inquiries. You can check the status of your refund if it has been at least 3 weeks from the date you filed your return. Be sure to have a copy of your tax return available because you will need to know the filing status, the first social security number shown on the return, and the exact whole-dollar amount of the refund. To check on your refund, do one of the following.
Balance due. If you owe tax, you must pay it by April 15, 2010, to avoid late-payment penalties and interest. You can make your payment electronically by scheduling an electronic funds withdrawal from your checking or savings account or by credit card.
Many tax professionals can electronically file paperless returns for their clients. You have two options.
You will be asked to complete Form 8879, IRS e-file Signature Authorization, to authorize the provider to enter your self-selected PIN on your return. Depending on the provider and the specific services requested, a fee may be charged. To find an authorized IRS e-file provider near you, go to www.irs.gov or look for an “Authorized IRS e-file Provider” sign. A computer with Internet access is all you need to file your tax return using IRS e-file. When you use your personal computer, you can e-file your return from your home any time of the day or night. Sign your return electronically using a self-selected PIN to complete the process. There is no signature form to submit or Forms W-2 to send in. Free Internet filing options. More taxpayers can now prepare and e-file their individual income tax returns free using commercial tax preparation software accessible through www.irs.gov or www.usa.gov. The IRS is partnering with the tax software industry to offer free preparation and filing services to a significant number of taxpayers. Security and privacy certificate programs will assure tax data is safe and secure. To see if you qualify for these services, visit the Free Internet Filing Homepage at www.irs.gov.
If you cannot use the free services, you can buy tax preparation software at various electronics stores or computer and office supply stores. You can also download software from the Internet or prepare and file your return completely online by using tax preparation software available on the Internet.
Some businesses offer free e-file to their employees, members, or customers. Others offer it for a fee. Ask your employer or financial institution if they offer IRS e-file as an employee, member, or customer benefit. Free help in preparing your return is available nationwide from IRS-trained volunteers. The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers, and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 or older with their tax returns. Some locations offer free electronic filing. Table 1-1. Benefits of IRS e-file
Form 1040 for calendar year 2009 is due by April 15, 2010. If you use a fiscal year (explained in chapter 2), your return is due by the 15th day of the 4th month after the end of your fiscal year. If you file late, you may have to pay penalties and interest. If you cannot file your return on time, use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to request an automatic 6-month extension. For calendar year taxpayers, this will extend the tax filing due date until October 15. Filing an extension does not extend the time to pay your taxes, only the time to file the tax return. Federal income tax is a pay-as-you-go tax. You must pay it as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax (discussed later), of $1,000 or more when you file your return. Use Form 1040-ES to figure and pay the tax. If you do not have to make estimated tax payments, you can pay any tax due when you file your return. For more information on estimated tax, see Publication 505, Tax Withholding and Estimated Tax. What are my payment options? You can pay your estimated tax electronically using various options. If you pay electronically, there is no need to mail in Form 1040-ES payment vouchers. These options include:
EFTPS
Penalty for underpayment of tax. If you did not pay enough income tax and self-employment tax for 2009 by withholding or by making estimated tax payments, you may have to pay a penalty on the amount not paid. The IRS will figure the penalty for you and send you a bill. Or you can use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you have to pay a penalty and to figure the penalty amount. For more information, see Publication 505.
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. If you earned income as a statutory employee, you do not pay SE tax on that income.
Social security coverage. Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
By not reporting all of your self-employment income, you could cause your social security benefits to be lower when you retire.
How to become insured under social security. You must be insured under the social security system before you begin receiving social security benefits. You are insured if you have the required number of credits (also called quarters of coverage), discussed next.
Earning credits in 2009 and 2010. For 2009, you received one credit, up to a maximum of four credits, for each $1,090 ($1,120 for 2010) of income subject to social security taxes. Therefore, for 2009, if you had income (self-employment and wages) of $4,360 that was subject to social security taxes, you received four credits ($4,360 ÷ $1,090).
For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office.
The Social Security Administration (SSA) time limit for posting self-employment income. Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. The SSA will not change its records to increase your self-employment income.
Who must pay self-employment tax. You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits.
SE tax rate. The SE tax rate on net earnings is 15.3% (12.4% social security tax plus 2.9% Medicare tax).
Maximum earnings subject to SE tax. Only the first $106,800 of your combined wages, tips, and net earnings in 2009 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2009 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax. If your wages and tips are subject to either social security or railroad retirement (tier 1) tax, or both, and total at least $106,800, do not pay the 12.4% social security part of the SE tax on any of your net earnings. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings.
Deduct one-half of your SE tax as an adjustment to income on line 27 of Form 1040.
More information. For information on methods of calculating SE tax, see Chapter 10, Self-Employment Tax.
Table 1-2. Which Forms Must I File?
 If you have employees, you will need to file forms to report employment taxes. Employment taxes include the following items.
For more information, see Publication 15 (Circular E), Employer's Tax Guide. That publication explains your tax responsibilities as an employer. To help you determine whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. That publication has information to help you determine whether an individual is an independent contractor or an employee. If you incorrectly classify an employee as an independent contractor, you may be held liable for employment taxes for that worker plus a penalty.
An independent contractor is someone who is self-employed. You do not generally have to withhold or pay any taxes on payments to an independent contractor. This section identifies some of the excise taxes you may have to pay and the forms you have to file if you do any of the following.
For more information on excise taxes, see Publication 510, Excise Taxes. Form 720. The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following.
Form 2290. There is a federal excise tax on the use of certain trucks, truck tractors, and buses on public highways. The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. For more information, see the Instructions for Form 2290.
If you make or receive payments in your business, you may have to report them to the IRS on information returns. The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. You must give a copy of each information return you are required to file to the recipient or payer. In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns (1098, 1099, 3921, 3922, 5498, and W-2G). Form 1099-MISC. Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your business. These payments include the following items.
Form W-2. You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes, and advance earned income credit payments. For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3.
Penalties. The law provides for the following penalties if you do not file Form 1099-MISC or Form W-2 or do not correctly report the information. For more information, see the General Instructions for Certain Information Returns (1098, 1099, 3921, 3922, 5498, and W-2G).
Waiver of penalties. These penalties will not apply if you can show that the failure was due to reasonable cause and not willful neglect.
In addition, there is no penalty for failure to include all required information, or for including incorrect information, on a de minimis (small) number of information returns if you correct the errors by August 1 of the year the returns are due. (A de minimis number of returns is the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year.)
Form 8300. You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction, or two or more related business transactions. Cash includes U.S. and foreign coin and currency. It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Cash does not include a check drawn on an individual's personal account (personal check). For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business).
Penalties. There are civil and criminal penalties, including up to 5 years in prison, for not filing Form 8300, filing (or causing the filing of) a false or fraudulent Form 8300, or structuring a transaction to evade reporting requirements.
Table 1-3. Going Out of Business Checklists
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