Introduction

This chapter explains the business taxes you may have to pay and the forms you may have to file. It also discusses taxpayer identification numbers.

Table 1-2 lists the federal taxes you may have to pay, their due dates, and the forms you use to report them.

Table 1-3 provides checklists that highlight the typical forms and schedules you may need to file if you ever go out of business.

You may want to get Publication 509, Tax Calendars for 2003. It has tax calendars that tell you when to file returns and make tax payments.

Useful Items

You may want to see:

Publication

• 505   Tax Withholding and Estimated Tax

Form (and Instructions)

• 1040   U.S. Individual Income Tax Return
• 1040-ES   Estimated Tax for Individuals
• Sch C (Form 1040)   Profit or Loss From Business
• Sch C-EZ (Form 1040)   Net Profit From Business
• Sch SE (Form 1040)   Self-Employment Tax

See chapter 12 for information about getting publications and forms.

Identification Numbers

This section explains three types of taxpayer identification numbers, who needs them, when to use them, and how to get them.

Social security number (SSN).   Generally, use your SSN as your taxpayer identification number. You must put this number on each of your individual income tax forms, such as Form 1040 and its schedules.

To apply for an SSN, use Form SS-5, Application for a Social Security Card. This form is available at Social Security Administration (SSA) offices or by calling 1-800-772-1213. It is also available from the SSA web site at www.ssa.gov.

Individual taxpayer identification number (ITIN).   The IRS will issue an ITIN if you are a nonresident or resident alien and you do not have and are not eligible to get an SSN. To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. It usually takes about 4-6 weeks to get an ITIN. Enter it wherever an SSN is requested on a tax return. If you must include another person's SSN on your return and that person does not have and cannot get an SSN, enter that person's ITIN.

An ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder's employment or immigration status.

Employer identification number (EIN).   You must also have an EIN to use as a taxpayer identification number if you do either of the following.

• Pay wages to one or more employees.
• File pension or excise tax returns.

If you must have an EIN, include it along with your SSN on your Schedule C or C-EZ.

You can get an EIN by mail, telephone, or by fax. But first you must fill out Form SS-4, Application for Employer Identification Number. You can get Form SS-4 at SSA offices or by calling the IRS at 1-800-829-3676. It is also available from the IRS web site at www.irs.gov.

New EIN.   You may need to get a new EIN if either the form or the ownership of your business changes. For more information, see Publication 1635, Understanding Your EIN.

When you need identification numbers of other persons.   In operating your business, you will probably make certain payments you must report on information returns. These payments are discussed under Information Returns, later in this chapter. You must give the recipient of these payments (the payee) a statement showing the total amount paid during the year. You must include the payee's identification number and your identification number on the returns and statements.

Employee.   If you have employees, you must get an SSN from each of them. Record the name and SSN of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. This may occur if the employee's name was changed due to marriage or divorce.

If your employee does not have an SSN, he or she should file Form SS-5 with the SSA.

Other payee.   If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. If you must report payments to an organization, such as a corporation or partnership, you must get its EIN.

To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification.

A payee who does not provide you with an identification number may be subject to backup withholding. For information on backup withholding, see the Form W-9 instructions and the General Instructions for Forms 1099, 1098, 5498, and W-2G.

Income Tax

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.

Do I Have To File
an Income Tax Return?

You have to file an income tax return for 2002 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.

How Do I File?

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. (Part I of Schedule C-EZ is printed in chapter 10.)

IRS e-file (Electronic Filing)

E-file logo

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.

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 2002. If you file electronically using tax preparation software or a tax professional, you may be able to 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 2001 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.

If you use a Self-Select PIN, there's 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 Web Site at www.irs.gov.

Forms 8453 and 8453-OL.   Your return is not complete without your signature. If you are not eligible or choose not to sign your return electronically, you must complete, sign, and file Form 8453, U.S. Individual Income Tax Declaration for an e-file Return, or Form 8453-OL, U.S. Individual Income Tax Declaration for an IRS e-file On-Line Return, whichever applies.

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 web site at www.irs.gov.

Refunds.   You can have a 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.

• Go to www.irs.gov, and click on Where's My Refund.
• Call 1-800-829-4477 for automated refund information, and follow the recorded instructions.
• Call 1-800-829-1954 during the hours shown in your form instructions.

Balance due.   If you owe tax, you must pay it by April 15, 2003, 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.

Using an Authorized IRS e-file Provider

Many tax professionals can electronically file paperless returns for their clients. You have two options.

1. You can prepare your return, take it to an authorized IRS e-file provider, and have the provider transmit it electronically to the IRS.
2. You can have an authorized IRS e-file provider prepare your return and transmit it for you electronically.

You will be asked to complete Form 8879 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.

Using Your Personal Computer

A computer with a modem or Internet access is all you need to file your tax return using IRS e-file. Best of all, when you use your personal computer, you can e-file your return from the comfort of 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.firstgov.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 on-line by using a tax preparation software package available on the Internet.

Through Employers and Financial Institutions

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 With Your Return

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.

When Is My Tax Return Due?

Form 1040 for calendar year 2002 is due by April 15, 2003. 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 4-month extension.

How Do I Pay Income Tax?

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 may pay any tax due when you file your return. For more information on estimated tax, see Publication 505.

What are my payment options?   You may pay your estimated tax electronically using various options. If you pay electronically, there is no need to mail in Form 1040-ES. These options include:

1. Paying electronically through the Electronic Federal Tax Payment System (EFTPS).
2. Paying by authorizing an electronic funds withdrawal when you file Form 1040 electronically.
3. Paying by credit card over the phone or by Internet.

Other options include crediting an overpayment from your 2002 return to your 2003 estimated tax, and mailing a check or money order with a Form 1040-ES payment voucher.

Penalty for underpayment of tax.   If you did not pay enough income tax and self-employment tax for 2002 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.

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