Publication 595

(Rev. November 2004) Contents

Cat. No. 15171E

Department Introduction ..................... 1

of the

Treasury Important Changes for 2003 ......... 2

Internal Tax Highlights Important Reminder ............... 2

Revenue

Service for Commercial Important Dates for 2004 ............ 2

What Is Gross Income From Fishermen Fishing? .................... 2

Which Fishing Expenses Can You

Deduct? ..................... 3

For use in preparing What Forms Must You File? ......... 3

2003 Returns When Do Fishermen Pay

Estimated Tax and File Tax

Returns? .................... 5

Attention: This publication will not be revised for use in What Is the Capital Construction preparing 2004 returns. For the next revision, we are considering Fund? ...................... 7

using a new format that will not require annual updates. Since

the tax law this publication covers generally does not How Do You Claim Fuel Tax

significantly change from year to year, you can use this 2003 text Credits and Refunds? ........... 9

as a general guide to prepare 2004 returns. To find changes that Schedule C Example .............. 10 may affect 2004 returns, see What’s New in your income tax

return instructions; Publication 553, Highlights of 2004 Tax How To Get Tax Help .............. 12 Changes; or What’s Hot In Tax Forms, Pubs, and Other Tax

Products at www.irs.gov/formspubs. To comment on this Index .......................... 14

revision process, see Comments and Suggestions on page 2.

Introduction

This publication highlights some special tax

rules that may apply to you if you have your own

fishing trade or business. The following persons

have their own fishing trade or business.

• Fishing boat owners or operators who use

their boats to fish for profit.

• Certain fishermen who work for a share of

the catch.

• Other individuals who receive gross income from fishing.

Generally, you report your profit or loss from

fishing on Schedule C or Schedule C–EZ of

Form 1040. An example with a filled-in Schedule

C, shown later, provides details on how to complete this form.

This publication does not contain all the tax

rules that may apply to your fishing trade or

business. For general information about the federal tax laws that apply to individuals who file

Schedule C or C–EZ, see Publication 334, Tax

Guide for Small Business. If your trade or busiGet forms and other information ness is a partnership or corporation, see Publication 541, Partnerships, or Publication 542, faster and easier by:

Corporations.

Internet • www.irs.gov If you are just starting out in a fishing

business or you need information on FAX • 703 – 368 – 9694 (from your fax

machine) keeping books and records, see Publi- RECORDS

cation 583, Starting a Business and Keeping

Records.

Please note that this publication uses the

www.irs.gov/efile term fisherman because it is the commonly

accepted term in the fishing industry. In the
following discussions it represents both men an estimated tax penalty. See March 1, later, if Form (and Instructions)

and women. you do not pay two-thirds of your tax by this ❏ Schedule C (Form 1040) Profit or Loss date. From Business Comments and suggestions. We welcome If less than two-thirds of your gross income your comments about this publication and your ❏ Schedule C–EZ (Form 1040) Net Profit is from fishing, you generally must make quar- suggestions for future editions. From Business terly estimated tax payments. See Due Dates

You can email us at *taxforms@irs.gov. for Nonqualified Fishermen, later. ❏ 1040–ES Estimated Tax for Individuals Please put “Publications Comment” on the subject line. ❏ 1099–MISC Miscellaneous Income

You can write to us at the following address: February 2 ❏ 2210–F Underpayment of Estimated Tax

Fishing boat operators. Fishing boat oper- by Farmers and Fishermen Internal Revenue Service

ators must give a 2003 Form 1099–MISC, Business Forms and Publications ❏ 4136 Credit for Federal Tax Paid on

Miscellaneous Income, to certain crew mem- SE:W:CAR:MP:T:B Fuels

bers who were self-employed. 1111 Constitution Ave. NW ❏ 8849 Claim for Refund of Excise Taxes Washington, DC 20224

March 1 See How To Get Tax Help near the end of

this publication for information about getting We respond to many letters by telephone. Fishing boat operators. Use Form 1096, publications and forms. Therefore, it would be helpful if you would in- Annual Summary and Transmittal of U.S. In- clude your daytime phone number, including the formation Returns, to send Copy A of Forms area code, in your correspondence. 1099–MISC to IRS.

If you file Forms 1099 electronically (not by What Is Gross Income

magnetic media), your due date for filing them

with the IRS will be extended to March 31. The From Fishing? Important Changes due date for giving the recipient these forms is Gross income from fishing includes amounts for 2003 still February 2. you receive from catching, taking, harvesting,

Fishermen. If at least two-thirds of your cultivating, or farming any of the following Additional depreciation. You may be able to 2002 or 2003 gross income was from fishing, aquatic resources. claim an additional 50% special depreciation you can file your 2003 Form 1040 by this date allowance for property acquired after May 5, • Fish. and pay your tax in full without incurring an 2003. For more information, see Depreciation. estimated tax penalty. • Shellfish (such as clams and mussels).

Nonqualified capital construction fund with- • Crustacea (such as lobsters, crabs, and

drawals. For tax years ending after May 5, April 15 shrimp).

2003, the maximum tax rate applied to nonquali- • Sponges. fied withdrawals from the capital gain account in Fishermen. If you have not filed your Form

a capital construction fund decreases from 20% 1040, you should file it by April 15 and pay • Seaweeds.

to 15%. your tax in full. If you need more time to file, • Other aquatic forms of animal or vegetable you can request an extension of time to file life. with Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income You generally figure your gross income from Important Reminder Tax Return, or you can get an extension by fishing in Part I of Schedule C (Form 1040). For Internet or phone. more information on Schedule C, see What

Photographs of missing children. The Inter- More information. For more information on Forms Must You File, later.

nal Revenue Service is a proud partner with the important dates, see When Do Fishermen National Center for Missing and Exploited Chil- Wages. Wages you receive as an employee in Pay Estimated Tax and File Tax Returns, dren. Photographs of missing children selected a fishing business are not gross income from later. by the Center may appear in this publication on fishing.

pages that would otherwise be blank. You can If you work on a boat with an operating crew Useful Items help bring these children home by looking at the that is normally made up of fewer than 10 indiphotographs and calling 1–800–THE–LOST You may want to see: viduals, you may be considered a self-employed

(1–800–843–5678) if you recognize a child. individual instead of an employee. As a self-emPublication ployed individual you may receive gross income

from fishing. For more information, see Which ❏ 15 Circular E, Employer’s Tax Guide fishermen are considered self-employed? under

❏ 15–A Employer’s Supplemental Tax Form 1099–MISC, later. Important Dates Guide

Patronage dividends. Patronage dividends for 2004 ❏ 15–B Employer’s Tax Guide to Fringe you receive from your fishing business activities Benefits are generally included in your gross income This section highlights important due dates for ❏ 334 Tax Guide for Small Business from fishing. However, do not include in gross the 2004 calendar year. For other important income amounts you receive from a cooperative dates, see Publication 509, Tax Calendars for ❏ 378 Fuel Tax Credits and Refunds association relating to the purchase of capital 2004.

❏ 463 Travel, Entertainment, Gift, and Car assets or depreciable property used in your fishExpenses ing business. Reduce the basis of these assets

January 15 by the dividends received. ❏ 505 Tax Withholding and Estimated Tax

Fishermen. If at least two-thirds of your Fuel tax credits and refunds. You may have ❏ 533 Self-Employment Tax 2002 or 2003 gross income was from fishing, to include fuel tax credits and refunds you reyou may want to pay at least two-thirds of your ceive from your fishing business activities in ❏ 535 Business Expenses

2003 tax by this date, using Form 1040–ES, your gross income from fishing. For more infor- ❏ 583 Starting a Business and Keeping to meet your estimated tax requirement for mation, see Including the Credit or Refund in Records 2003. You have until April 15 to file your 2003 Income under How Do You Claim Fuel Tax

Form 1040 and pay any remaining tax without ❏ 946 How To Depreciate Property Credits and Refunds, later.

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tion 179 deduction. For more information, see cation 15–B. This generally includes

Which Fishing Publication 946. meals you provide to employees at your

place of business if more than half of Special depreciation allowance You may Expenses Can these employees are provided the meals be able to claim an additional 30% special de- for your convenience. preciation allowance for property acquired after You Deduct? September 10, 2001. You may be able to claim • Meals whose value you include in an

an additional 50% special depreciation allow- employee’s wages. You generally can deduct ordinary and neces- ance for property acquired after May 5, 2003. • Meals whose value you include in the in- sary fishing expenses as business expenses in The special depreciation allowance is an addi- Part II of Schedule C (Form 1040). An ordinary come of a self-employed individual who tional deduction you can take before you figure performs services for your business. You fishing expense is one that is common and ac- MACRS depreciation for the year you place the must generally include the value of meals cepted in a fishing trade or business. A neces- property in service. For more information, see you furnish to that individual in his or her sary fishing expense is one that is helpful and the Instructions for Form 4562 or Publication income. To deduct 100% of these meals, appropriate for a fishing trade or business. An 946.

expense does not have to be indispensable to you must report their value on any Form

1099–MISC you file to report your pay- be considered necessary. Travel and Transportation ments for services. The following discussions give a brief overview of three types of business expenses that This section briefly explains some of the rules for • Meals you are required by federal law to

are of special interest to fishermen: deprecia- deducting travel and transportation expenses. furnish to crew members of certain comtion, travel, and transportation expenses. The For more information about travel and transpor- mercial vessels (or would be required to

most common business expenses for small provide if the vessels were operated at tation expenses, see Publication 463. That pubbusinesses are listed in Part II of Schedule C. sea). lication also explains what records to keep.

For more information on business expenses,

see Publication 535. There is also information Local transportation expenses. Local transThe federal law that generally requires on specific business expenses in Publication portation expenses include the ordinary and meals to be furnished to crew mem- 334. necessary costs of getting from one workplace bers of commercial vessels does not CAUTION

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to another in the course of your business when apply to fishing vessels. you are traveling within the city or general area Depreciation that is your tax home.

If property you acquire to use in your business Tax home. Generally, your tax home is your

has a useful life that extends substantially beyond the year it is placed in service, you generregular place of business, regardless of where What Forms Must you maintain your family home. It includes the

ally cannot deduct the entire cost as a business

expense in the year you acquire it. You must

entire city or general area in which your busi- You File? ness is located.

spread the cost over more than one year and Commuting expenses. You cannot If you have a fishing trade or business, you may deduct part of it each year. This method of de- deduct the costs of traveling between need to file the following forms. ducting the cost of business property is called your home and your main or regular CAUTION

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depreciation. Use Form 4562, Depreciation and

Amortization, to report depreciation. place of business. These costs are personal Schedule C (Form 1040) commuting expenses. You cannot deduct com- Publication 946 contains the rules you need muting expenses no matter how far your home is Use Schedule C (Form 1040) to figure your net to depreciate certain property. The following list from your regular place of business. You cannot profit or loss from a fishing business you operate highlights items of special interest to fishermen. deduct commuting expenses even if you work or a trade you practice as a self-employed indi-

• Fishing boats. during the trip. vidual. To figure your net profit or loss, subtract You generally can depre- your deductible fishing expenses from your ciate a fishing boat used in your fishing Travel expenses. For tax purposes, travel ex- gross income from fishing. File Schedule C with trade or business as 7-year property using penses are the ordinary and necessary ex- your Form 1040. the Modified Accelerated Cost Recovery penses of traveling away from home for your System (MACRS). You may be able to use the simpler business, profession, or job. You are traveling Schedule C–EZ (Form 1040), in- • Nets, pots, and traps. You generally away from home if you meet the following re- stead of Schedule C, if you made a

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can depreciate a net, pot, or trap used in quirements. profit and had fishing expenses of $2,500 or your fishing trade or business as 7-year • Your duties require you to be away from less. For more information, see Part I of Sched- property using MACRS depreciation. How- the general area of your tax home (defined ule C–EZ. ever, if based on your own experience, earlier) substantially longer than an ordi- you determine that any of these items will nary day’s work. Who is self-employed? You are self-em- not be used for more than one year in your ployed if you own an unincorporated business or business, you may be able to deduct the • You need to sleep or rest to meet the practice a trade by yourself. You do not have to cost in the current year. demands of your work while away from carry on regular full-time business activities to home. • Repair or improvement. If a repair or be self-employed. Your trade or business may

replacement increases the value of your consist of part-time work, including work you do

property, makes it more useful, or length- Limited deduction for meals. You generally in addition to your regular job.

ens its life, it is an improvement. You must can deduct only 50% of the costs of the following If you work on a fishing boat with an operatdepreciate the cost of improvements. If the meals. ing crew normally made up of fewer than 10

repair or replacement does not increase individuals, you may be considered self-em- • Meals you provide to either employees or the value of your property, make it more ployed. For more information, see Which fisher- self-employed individuals who provide useful, or lengthen its life, it is a repair. men are considered self-employed? under Form services to your fishing trade or business. You deduct the cost of repairs as a busi- 1099–MISC, later.

ness expense. • Your own meals while you are traveling What is a trade or business? A trade or away from home for business. business is generally an activity that is your

Section 179 deduction. Instead of depreciat- livelihood or that you do in good faith to make a Exceptions to limit. You can deduct the full ing property, you can choose to deduct a limited profit. The facts and circumstances of each case costs of the following meals. amount of the cost of certain depreciable prop- determine whether or not an activity is a trade or

erty in the year you place it in service in your • Meals that qualify as a de minimus fringe business. Regularity of activities and transacbusiness. This deduction is known as the sec- benefit as discussed in section 2 of Publi- tions and the production of income are important

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Table 1. Employment Tax Treatment of Fishing Activities and Certain Fishermen

Treatment Under Employment Taxes

Social Security and Medicare Federal Unemployment Tax

Activity or Person Income Tax Withholding Taxes (FUTA)

a. Catching salmon or halibut. Withhold unless c applies. Taxable unless c applies. Taxable unless c applies.

b. Catching other fish, sponges, Withhold unless c applies. Taxable unless c applies. Taxable if vessel is more than 10 net

etc. tons and c does not apply.

c. I n d i v i d u a l c o n s i d e r e d Exempt Exempt Exempt

self-employed. (See Which

fishermen are considered

self-employed?)

d. Native American exercising Exempt Exempt Exempt

fishing rights.

elements. You do not need to actually make a Even if you do not have to file Schedule earned income, which could increase your

profit to be in a trade or business as long as you SE, it may be to your benefit to file it earned income credit.)

have a profit motive. You do need, however, to and use an optional method in Part II of

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make ongoing efforts to further the interests of Long Schedule SE (Section B). For more infor- Using the optional methods will in- mation, see Optional methods, later. your business. crease your SE tax. CAUTION

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Self-employment tax (SE tax). The SE tax is

Husband and wife business. If you and your a social security and Medicare tax primarily for spouse jointly own and operate an unincorpor- individuals who work for themselves. It is similar Estimated tax. You may have to pay esti- ated fishing business and share in the profits to the social security and Medicare taxes with- mated tax. This depends on how much income and losses, you are partners in a partnership, held from the pay of wage earners. and SE taxes you expect for the year and how whether or not you have a formal partnership much of your income will be subject to withhold- agreement. You and your spouse must report Social security coverage. Social security ing. The SE tax is treated and collected as part the business income and expenses on Form benefits are available to self-employed persons of the income tax. For more information, see 1065, U.S. Return of Partnership Income. Do just as they are to wage earners. Your payments When Do Fishermen Pay Estimated Tax and not of SE tax contribute to your coverage under the use Schedule C or C-EZ. For more informa- File Tax Returns, later. social security system. Social security coverage tion, see Publication 541, Partnerships. provides you with retirement benefits, disability Reporting self-employment tax. Figure your Exception. If you and your spouse wholly benefits, survivor benefits, and hospital insur- SE tax on Schedule SE. Then, report the tax on own an unincorporated business as community ance (Medicare) benefits. line 55 of Form 1040 and attach Schedule SE to

property under the community property laws of You must be insured under the social secur- Form 1040. If you file a joint return and you both a state, foreign country, or U.S. possession, you ity system before you begin receiving social se- have SE income, each of you must complete a

may treat the business either as a sole proprie- curity benefits. You are insured if you have the separate Schedule SE.

torship or a partnership. The only states with required number of credits (also called quarters Husband and wife partnership. If you and community property laws are Arizona, Califor- of coverage). your spouse operate a fishing business as a nia, Idaho, Louisiana, Nevada, New Mexico, partnership, each of you should include your Texas, Washington, and Wisconsin. A change in Earning credits in 2003 and 2004. You can respective share of SE income on a separate earn a maximum of four credits per year. For your reporting position will be treated as a con- Schedule SE. 2003, you earn one credit for each $890 ($900 version of the entity. However, if your spouse is not your partner, for 2004) of income subject to social security

Not-for-profit fishing. but your employee, you must pay employment You must have taxes. You need $3,560 ($890 x 4) of self-emthe intention of making a profit in order taxes for him or her. For more information, see ployment income and wages to earn four credits Employment Tax Forms, later. to report your fishing income and ex- in 2003. For 2004, you will need $3,600 ($900 x CAUTION

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penses on Schedule C. You do not need to 4) of self-employment income and wages to Self-employment tax deduction. You can

actually make a profit as long as you are making earn four credits. deduct one-half of your SE tax as a business

a good faith effort. If you are not fishing for profit, For an explanation of the number of credits expense in figuring your adjusted gross income.

report your fishing income and expenses as you must have to be insured and the benefits This deduction only affects your income tax. It

explained under Not-for-Profit Activities in chap- available to you and your family under the social does not affect either your net earnings from

ter 1 of Publication 535. security program, contact your nearest Social self-employment or your SE tax.

Security Administration (SSA) office. To deduct the tax, enter on Form 1040, line

28, the amount shown on the Deduction for

More information. For specific information on Optional methods. You may want to use one one-half of self-employment tax line of the

completing Schedule C, see Schedule C Exam- of the optional methods in Part II of Long Sched- Schedule SE.

ple and the filled-in Schedule C, later. ule SE (Section B) when you have a loss or a More information. For more information on small net profit and any of the following apply. self-employment tax, see Publication 533. Schedule SE (Form 1040) • You want to receive credit for social security benefit coverage. Use Schedule SE (Form 1040) to figure and Form 1099–MISC • You incurred child or dependent care ex- report your self-employment tax. See Self-empenses for which you could claim a credit. Give Form 1099–MISC to each person to whom ployment tax (SE tax), later. Most fishermen can you have paid the following during the year. This (This method may increase your earned use Section A — Short Schedule SE to figure form can be filed electronically if the recipient income, which could increase your credit their self-employment tax. You must file Sched- consents. for these expenses.) ule SE with your Form 1040 if you were self-employed and your net earnings from • You are entitled to the earned income 1. A share of your catch (or a share of the

self-employment were $400 or more. credit. (This method may increase your proceeds from the sale of your catch) to an

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individual who is not your employee

(self-employed). For information about individuals considered to be self-employed,

see Which fishermen are considered

self-employed, later.

2. At least $600 in rents, services, and other

income payments to an individual who is

not your employee (self-employed).

3. Cash payments of at least $600 to a commercial fisherman for the purchase of fish

for resale. See the instructions for Form

1099–MISC for definitions of cash and

fish and for information about the recordkeeping requirements for resale buyers.

Which fishermen are considered

self-employed? Certain fishermen who work

on a fishing boat are considered to be self-employed for purposes of employment and self-employment taxes. A fisherman is considered

self-employed if he meets all of the following

conditions.

1. He receives a share of the catch or a

share of the proceeds from the sale of the

catch.

2. His share depends on the amount of the

catch.

3. He receives his share from a boat (or from

each boat in the case of a fishing operation

involving more than one boat) with an operating crew normally made up of fewer

than 10 individuals. This requirement is

Figure 1. Estimated Tax for Fishermen

Start Here:

Do you expect to owe

$1,000 or more after

subtracting your

withholding and credits?

Do you expect

your income tax

withholding and

credits to be at

least 100% of

the tax shown

on your 2002

return?

You do not have to

pay estimated tax.

Do you expect

your income tax

withholding and

credits to be at

least 662⁄3% of

the tax shown

on your 2003

return?

Will you file

your income

tax return and

pay the tax in

full by

March 1?

You must pay

your estimated

tax (your

required annual

payment) by

January 15.

Was at least 662⁄3%

of all your gross

income in 2002 or

2003 from fishing?

Follow the general

estimated tax rules.

Yes 

No



Yes



No



No



No



Yes



Yes



Yes





No

considered to be met if the average num- sidered self-employed. You must file Form If you incorrectly classify an employee ber of crew members on trips the boat

made during the last 4 calendar quarters 1099–MISC to report amounts you pay to them. as an independent contractor, you can

be held liable for employment taxes for CAUTION

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was less than 10.

Example 2. The facts are the same as in that worker, plus a penalty.

4. He does not get any money for his work Example 1 except that all the crew members but An independent contractor is someone (other than his share of the catch or of the the captain receive an extra $100 for each trip who is self-employed. You do not generally have proceeds from the sale of the catch), un- that brings back a certain minimum catch. to withhold or pay any taxes on payments to an less the pay meets all of the following con- For purposes of employment and self-em- independent contractor. ditions. ployment taxes, the captain, mate, engineer, Individuals you employ to work on a boat that and cook are self-employed individuals. The normally has an operating crew of fewer than 10 a. He does not get more than $100 per other five crew members who receive this extra individuals may be considered self-employed. trip. payment in addition to the proceeds from the For more information, see Which fishermen are

b. He is paid only if there is a minimum sale of the catch are employees. They are em- considered self-employed? under Form

catch. ployees because the $100 payment is not paid 1099–MISC, earlier.

solely for additional duties for which additional c. He is paid solely for additional duties cash pay is traditional in the fishing industry. Table 1. See Table 1, shown earlier, for infor- (such as for services performed as mation on the employment tax treatment of fish- mate, engineer, or cook) for which addi- Employment Tax Forms ing activities and certain fishermen. tional cash payments are traditional in

the fishing industry. You are generally required to withhold federal

income tax, social security tax, and Medicare tax

Example 1. You hire a captain, a mate, an from your employee’s wages. You also must pay When Do Fishermen

the employer’s share of social security and engineer, a cook, and five other crew members

to work on your fishing boat. The proceeds from Medicare taxes. In addition, you may be re- Pay Estimated Tax and quired to pay federal unemployment tax under the sale of the catch offset boat operating expenses such as bait, ice, and fuel. You divide the Federal Unemployment Tax Act (FUTA). If File Tax Returns?

you have employees, you will need to file forms 60% of the balance among the captain, the

mate, and the crew members. You divide the to report these employment taxes. For more When you must pay estimated tax and file

information, see Publication 15, which explains your tax return depends on how much of your other 40% between yourself and the captain. your payroll tax responsibilities as an employer. gross income comes from fishing. See Figure 1 The mate, engineer, and cook also each receive To help you determine whether the people to determine if you have to pay estimated tax. an extra $100 for each trip that brings back a working for you are your employees, see Publi- Gross income is discussed later. certain minimum catch. The crew members do cation 15–A. It has information to help you de- not receive any additional pay between voyages, but they must do certain work, such as termine whether an individual is an independent General Rule for Making contractor or an employee. repairing nets, splicing cable, and transporting Estimated Tax Payments the catch.

For purposes of employment and self-em- You must make estimated tax payments for

ployment taxes, each crew member (including 2003 if you expect to owe at least $1,000 in tax,

the captain, mate, engineer, and cook) is con- after subtracting your withholding and credits,

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and you expect your withholding and credits to • Your distributive share of gross income the tax due, you will not be penalized for

be less than the smaller of the following. from a partnership, or limited liability com- failure to pay estimated tax.

pany treated as a partnership, from

1. 90% of the tax to be shown on your 2003 Schedule K–1 (Form 1065). Required annual payment. If at least tax return. • Your pro rata share of gross income from two-thirds of your gross income for 2002 or 2003

2. 100% of the tax shown on your 2002 tax an S corporation from Schedule K–1 was from fishing, only one estimated tax payreturn. Your 2002 tax return must cover all (Form 1120S). ment is due. The required annual payment is the

12 months for this rule to apply. smaller of the following amounts. • Unemployment compensation from Form

If at least two-thirds of your gross income for 1040, line 19. • 662

/3% (.6667) of your total tax for 2003. 2002 or 2003 is from fishing, substitute 662

/3% • Other income reported on Form 1040, line for 90% in (1) above. • 100% of the total tax shown on your 2002 21, not included with any of the items return. (The return must cover all 12 If you receive at least two-thirds of your total listed above. months.) gross income from fishing in the current or prior

year, special estimated tax and return due dates

apply to you. See the discussion under Due Percentage From Fishing 2004 tax. If at least two-thirds of your

Dates for Qualified Fishermen, later. gross income for 2003 or 2004 is from Figure your gross income from all sources. Then fishing, you can choose either of the

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figure your gross income from fishing. Divide What Is Gross Income? following options for 2004. your fishing gross income by your total gross

income to determine the percentage of gross • Make your required annual payment by Gross income is all income you receive in the income from fishing. January 18, 2005, and file your Form 1040 form of money, goods, property, and services by April 15, 2005. that is not exempt from tax. Gross income is Example 1. James Smith had the following not the same as total income shown on line 22 • File Form 1040 by March 1, 2005, and pay total gross income and fishing gross income in of Form 1040. On a joint return, you must add all the tax due. 2003. your spouse’s gross income to your gross income. To decide whether two-thirds of your Gross Income gross income for 2003 was from fishing, use as Fiscal year fishermen. If you qualify to use

your gross income the total amount of the follow- Total Fishing these special rules but your tax year does not

ing income (not loss) items from your tax return. start on January 1, you can file your return and Taxable interest ...... $3,000 pay the tax by the first day of the 3rd month after • Wages, salaries, tips, etc., from Form Dividends . . . . . . . . . . 500

Rental income (Sch E) 41,500 the close of your tax year. Or you can make your 1040, line 7.

Fishing income (Sch C) 75,000 $75,000 required annual payment within 15 days after • Taxable interest from Form 1040, line 8a. Schedule D ......... 5,000 the end of your tax year. Then file your return

and pay any balance due by the 15th day of the • Ordinary dividends from Form 1040, line Total ............. $125,000 $75,000

9a. 4th month after the end of your tax year.

Schedule D showed gain from the sale of a • Taxable refunds, credits, or offsets of state rental house carried over from Form 4797 Due Dates for and local income taxes from Form 1040,

line 10. ($5,000) in addition to a loss from the sale of Nonqualified Fishermen corporate stock ($2,000). However, that loss is

• Alimony from Form 1040, line 11. not netted against the gain to figure Mr. Smith’s If less than two-thirds of your gross income for

total gross income or his gross fishing income. 2002 and 2003 was from fishing, you cannot use • Gross business income from Schedule C His gross fishing income is 60% of his total gross the special estimated tax payment and return (Form 1040), line 7 (includes gross fishing income ($75,000 ÷ $125,000 = .60). Therefore, due dates for your 2003 tax year. Instead, you income). based on his 2003 income, he does not qualify should have made quarterly estimated tax pay- • Gross business receipts from Schedule to use the special estimated tax payment and ments on April 15, June 16, and September 15, C–EZ (Form 1040), line 1 (includes gross return due dates for 2003, discussed next. How- 2003, and on January 15, 2004. You must file fishing income). ever, he would qualify if at least two-thirds of his your return by April 15, 2004. 2002 gross income was from fishing. • Capital gains from Form 1040, line 13a, If less than two-thirds of your gross income

including gains from Schedule D (Form for 2003 and 2004 is from fishing, you cannot Example 2. Assume the same facts as in 1040). Losses are not netted against use the special estimated tax payment and re- Example 1 except that Mr. Smith received only gains. turn due dates for your 2004 tax year. You gen- $21,500, instead of $41,500, rental income. This

made his total gross income $105,000. He quali- erally must make quarterly estimated tax • Gains on sales of business property from payments on April 15, June 15, and September Form 1040, line 14. fies to use the special estimated tax payment

and return due dates, discussed next, since 15, 2004, and on January 18, 2005. You must • Taxable IRA distributions, pensions, annu- 71.4% (at least two-thirds) of his gross income is file your return by April 15, 2005. ities, and social security benefits. from fishing ($75,000 ÷ $105,000 = .714). For more information on estimated taxes,

• Gross rental income from Schedule E see Publication 505.

(Form 1040), line 3. Due Dates for

• Gross royalty income from Schedule E Qualified Fishermen Estimated Tax Penalty

(Form 1040), line 4. for 2003

If at least two-thirds of your gross income for • Taxable net income from an estate or trust 2002 or 2003 was from fishing, you are a quali- If you did not pay all your required estimated tax reported on Schedule E (Form 1040), line fied fisherman and can choose either of the for 2003 by January 15, 2004, or file your 2003 37. following options for your 2003 tax. return and pay the tax by March 1, 2004, you

• should use Form 2210–F, Underpayment of Income from a REMIC reported on Sched- • Make your required annual payment, dis- ule E (Form 1040), line 39. Estimated Tax by Farmers and Fishermen, to

cussed next, by January 15, 2004, and file determine if you owe a penalty. If you owe a • Gross farm rental income from Form 4835, your Form 1040 by April 15, 2004. penalty but do not file Form 2210–F with your line 7. • File Form 1040 by March 1, 2004, and pay return and pay the penalty, you will get a notice

• Gross farm income from Schedule F all the tax due. You are not required to from the IRS. You should pay the penalty as

(Form 1040), line 11. make the annual payment. If you pay all instructed by the notice.

Page 6
If you file your return by April 15 and account. They also discuss the income tax treat- • Be used commercially in the fisheries of

pay the bill within 21 calendar days (10 ment of CCF deposits, earnings, and withdraw- the United States.

business days if the bill is $100,000 or als.

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more) after the notice date, the IRS will not Deferring tax on CCF deposits and earnings. charge you interest on the penalty. CCF Accounts You can use a CCF account to defer income tax

Do not ignore a penalty notice, even by taking the following actions. This section explains who can open a CCF ac- if you think it is in error. You may get count and how to use the account to defer in- • Making deposits to your CCF account CAUTION a penalty notice even though you filed

!

come tax. from taxable income. your return on time, attached Form 2210–F, and

met the gross income from fishing requirement. Opening a CCF account. • Excluding from income deposits assigned If you are a U.S. If you receive a penalty notice for underpaying to certain accounts (discussed later). citizen and you own or lease one or more eligible estimated tax that you think is in error, write to vessels (defined later), you can open a CCF • Making withdrawals from your CCF ac- the address on the notice and explain why you account. However, before you open your CCF count when you acquire, build, or rebuild think the notice is in error. Include a computa- account, you must enter into an agreement with fishing vessels. tion, similar to the one in Example 1 (under the Secretary of Commerce through the NMFS. Percentage From Fishing, earlier), showing that This agreement will establish the following. • Reducing the basis of fishing vessels you

you met the gross income from fishing require- acquire, build, or rebuild to recapture

ment. • Agreement vessels. Eligible vessels amounts previously excluded from tax.

named in the agreement that will be the

basis for the deferral of income tax. Other Filing Information Reporting requirements. Beginning

for 2003 • Planned use of withdrawals. Use of CCF with the tax year in which you establish

funds to acquire, build, or rebuild a vessel. your agreement, you must report anTIP

nual deposit and withdrawal activity to the Payment date on holiday or weekend. If the • CCF depository. Where your CCF funds NMFS on NOAA Form 34-82. This form is due will be held. last day for filing your return or making a pay- within 30 days after you file your federal income ment falls on a Saturday, Sunday, or legal holi- tax return even if no deposits or withdrawals are day, your return or payment will be on time if it is You can request an application kit or made. For more information, contact the NMFS filed or made on the next business day. The get additional information from NMFS at the address or phone number given earlier. actual filing and payment due dates provided in at the following address. this publication generally reflect this adjustment

for Saturdays, Sundays, and legal holidays. NOAA/NMFS, Financial Services Division, Types of Accounts You Must

Extension of time to file Form 1040. If you F/CS2 Maintain Within a CCF

choose not to file your 2003 return by March 1, Capital Construction Fund Program

2004, the due date for your return will be April 1315 East-West Highway This section discusses the three types of book15, 2004. However, you generally can get an Silver Spring, MD 20910–3282 keeping accounts you must maintain when you

automatic 4-month extension of time to file your invest in a CCF account. Your total CCF depos- You can obtain information on the Cap- return. Your Form 1040 would then be due by its and earnings for any given year are limited to ital Construction Fund Program at the August 16, 2004. the amount attributed to these three accounts

following website: You can get this extension by filing Form for that year. www.nmfs.noaa.gov/ocs/financial_services/ 4868, Application for Automatic Extension of ccf.htm. Time To File U.S. Individual Income Tax Return, Capital account. The capital account consists

by April 15, 2004. You also can get an extension You can call NMFS to request an appli- primarily of amounts attributable to the following

by using IRS e-file. Form 4868 does not extend items. cation kit or get additional information the time for paying taxes. For more information, at (301) 713–2393. Their fax number

see the instructions for Form 4868. 1. Allowable depreciation deductions for is (301) 713–1306. agreement vessels. This extension does not extend the

March 1, 2004, due date for qualified Eligible vessels. There are two types of ves- 2. Any nontaxable return of capital from eifishermen who did not make the re- sels that may be considered eligible, those ther (a) or (b), below. CAUTION

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quired annual payment and want to avoid an weighing 5 tons or more and those weighing less

a. The sale or other disposition of agree- estimated tax penalty. Therefore, if you did not than 5 tons. For each type, certain requirements

make your required annual payment by January must be met. ment vessels.

15, 2004, and you file your tax return after March Vessel weighing 5 tons or more. To be b. Insurance or indemnity proceeds attrib- 1, 2004, you will be subject to a penalty for considered eligible, the vessel must meet all the utable to agreement vessels. underpaying your estimated tax, even if you get following requirements. an extension of time to file Form 1040. 3. Any tax-exempt interest earned on state or • Be built or rebuilt in the United States. local bonds in your CCF account.

• Be documented under the laws of the

What Is the Capital United States. Capital gain account. The capital gain ac-

• Be used commercially in the fisheries of count consists of amounts attributable to the

Construction Fund? the United States. following items reduced by any capital losses

from assets held in your CCF account for more • Be operated in the foreign or domestic than 6 months. The Capital Construction Fund (CCF) is a spe- commerce of the United States.

cial investment program administered by the 1. Any capital gain from either of the following National Marine Fisheries Service (NMFS) and Vessel weighing less than 5 tons. A small sources. the Internal Revenue Service (IRS). This pro- vessel, weighing at least 2 net tons but less than gram allows fishermen to defer paying income 5 net tons, must meet all the following require- a. The sale or other disposition of agree- tax on certain income they invest in a CCF ments to be considered eligible. ment vessels held for more than 6 account and later use to acquire, build, or rebuild months. fishing vessels. • Be built or rebuilt in the United States.

The following sections discuss CCF ac- b. Insurance or indemnity proceeds attrib- • Be owned by a U.S. citizen. counts and the types of bookkeeping accounts utable to agreement vessels held for

you must maintain when you invest in a CCF • Have a home port in the United States. more than 6 months.

Page 7
2. Any capital gain from assets held in your account. You subtract any part of the earnings Tax Treatment of CCF

CCF account for more than 6 months. you deposited into your CCF account from the Withdrawals amount you would otherwise enter as taxable

Ordinary income account. The ordinary in- income on line 40 (Form 1040). Next to line 40, This section discusses the tax treatment of

come account consists of amounts attributable write “CCF” and the amount of the deposits. Do amounts you withdraw from your CCF account

to the following items. not deduct these CCF deposits on Schedule C during the year.

or C–EZ (Form 1040).

1. Any earnings (without regard to the car- If you deposit earnings from operations ryback of any net operating or net capital Qualified Withdrawals into your CCF account and you must loss) from the operation of agreement ves- CAUTION complete other forms such as Form

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sels in the fisheries of the United States or A qualified withdrawal from a CCF account is 6251, Alternative Minimum Tax (Individuals), or in the foreign or domestic commerce of the one that is approved by NMFS for either of the

United States. a worksheet for Schedule D (Form 1040), you following uses. will need to make an extra computation. When 2. Any capital gain from the following sources the other form instructs you to use the amount • Acquiring, building, or rebuilding qualified reduced by any capital losses from assets from line 38, Form 1040, do not use that amount. vessels (defined next). held in your CCF account for 6 months or Instead, add lines 39 and 40, Form 1040, and • Making principal payments on the mort- less. use that amount. gage of a qualified vessel.

a. The sale or other disposition of agree- Self-employment tax. You must use your • NMFS will not approve amounts with- ment vessels held for 6 months or less. net profit or loss from your fishing business to drawn to purchase nets not continuously

b. Insurance or indemnity proceeds attrib- figure your self-employment tax. Do not reduce attached to the vessel, such as seine nets,

utable to agreement vessels held for 6 your net profit or loss by any earnings from gill set-nets, and gill drift-nets.

months or less. operations you deposit into your CCF account. • NMFS will approve amounts withdrawn to

c. Any capital gain from assets held in Partnerships and S corporations. purchase trawl nets.

your CCF account for 6 months or less. The deduction for partnership earnings

from operations deposited into a CCF

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Qualified vessel. This is any vessel that 3. Any ordinary income (such as depreciation account is separately stated on Schedule K meets all of the following requirements. recapture) from either of the following (Form 1065), line 11, and allocated to the partsources. ners on Schedule K–1 (Form 1065), line 11. • The vessel was built or rebuilt in the

The deduction for S corporation earnings United States. a. The sale or other disposition of agree- deposited into a CCF account is separately ment vessels. • The vessel is documented under the laws

stated on Schedule K (Form 1120S), line 10, of the United States. b. Insurance or indemnity proceeds attrib- and allocated to the shareholders on Schedule

utable to agreement vessels. K–1 (Form 1120S), line 10. • The person maintaining the CCF account

agrees with the Secretary of Commerce

4. Any interest (not including tax-exempt in- that the vessel will be operated in United

terest from state and local bonds), most Tax Treatment of CCF States foreign trade, Great Lakes trade,

dividends, and other ordinary income Earnings noncontiguous domestic trade, or the fishearned on the assets in your CCF account. eries of the United States.

This section explains the tax treatment of the

earnings from the assets in your CCF account Tax Treatment of CCF How to determine the source of qualified when the earnings are redeposited or left in your withdrawals. When you make a qualified Deposits account. However, if you choose to withdraw the withdrawal, the amount is treated as being with- earnings in the year earned, you must generally drawn in the following order from the accounts This section explains the tax treatment of in- pay income tax on them. listed below. come used as the basis for CCF deposits.

Capital gains. Do not report any capital gains 1. The capital account. Capital gains. Do not report any transaction from the sale of capital assets held in your CCF that produces a capital gain if you deposit the 2. The capital gain account. account. This includes capital gain distributions net proceeds into your CCF account. This treatment applies to either of the following transac- reported to you on Form 1099–DIV or a substi- 3. The ordinary income account.

tute statement. However, you should attach a tions. statement to your tax return to list the payers Excluding qualified withdrawals from tax. • The sale or other disposition of an agree- and the amounts and to identify the capital gains

ment vessel. Do not report on your income tax return any as “CCF account earnings.” qualified withdrawals from your CCF account. • The receipt of insurance or indemnity pro- Interest and dividends. Do not report any Reduce the depreciable basis of fish- ceeds attributable to an agreement vessel. ordinary income (such as interest and divi- ing vessels you acquire, build, or redends) you earn on the assets in your CCF CAUTION build when you make a qualified

!

Depreciation recapture. Do not report any account. However, you should attach a state- withdrawal from either the capital gain or the transaction that produces depreciation recap- ment to your return to list the payers and the ordinary income account. ture if you deposit the net proceeds into your amounts and to identify them as “CCF account CCF account. This treatment applies to either of earnings.” the following transactions. If you are required to file Schedule B (Form Nonqualified Withdrawals • The sale or other disposition of an agree- 1040), you can add these earnings to the list of

ment vessel. A nonqualified withdrawal from a CCF account payers and amounts on line 1 or line 5 and is generally any withdrawal that is not a qualified • The receipt of insurance or indemnity pro- identify them as “CCF earnings.” Then, subtract withdrawal. Qualified withdrawals are defined

ceeds attributable to an agreement vessel. the same amounts from the list and identify them under Qualified Withdrawals, earlier. as “CCF deposits.”

Earnings from operations. Report earnings Tax-exempt interest. Do not report tax-ex- Examples. Examples of nonqualified withfrom the operation of agreement vessels on your empt interest from state or local bonds you held drawals include the following amounts from eiSchedule C or C–EZ (Form 1040) even if you in your CCF account. You are not required to ther the ordinary income account or the capital

deposit part of these earnings into your CCF report this interest on line 8b of Form 1040. gain account.

Page 8
Reporting the additional tax and interest. • Amounts remaining in a CCF account • Use in a boat engaged in commercial fish- Attach a statement to your income tax return upon termination of your agreement with ing. showing your computation of the tax and the NMFS. interest on a nonqualified withdrawal. Include • Off-highway business use.

• Amounts you withdraw and use to make the tax and interest on line 60 of Form 1040. To

principal payments on the mortgage of a the left of line 60, write in the amount of tax and For information about other nontaxable uses vessel if the basis of that vessel and the interest and “CCF.” (not discussed in this section) for which a credit bases of other vessels you own have al- or refund may be claimed, see Publication 378. ready been reduced to zero. Tax benefit rule. If any portion of your nonqualified withdrawal is properly attributable to • Amounts determined by IRS to cause your Commercial fishing. A credit or refund may contributions (not earnings on the contributions) CCF account balance to exceed the be allowed for the excise tax on gasoline used in you made to the CCF account that did not re- amount appropriate to meet your planned a boat engaged in commercial fishing.

use of withdrawals. (You will generally be duce your tax liability for any tax year prior to the Boats engaged in commercial fishing include withdrawal year, the following tax treatment ap- given 3 years to revise your plans to cover only watercraft used in taking, catching, plies. processing, or transporting fish, shellfish, or this excess balance.)

other aquatic life for commercial purposes, such • The part that did not reduce your tax liabil- • Amounts you leave in your account for as selling or processing the catch, on a specific more than 25 years. (There is a graduated ity for any year prior to the withdrawal year trip basis. They include boats used in both fresh is not taxed. schedule under which the percentage ap- and salt water fishing. They do not include boats plied to determine the amount of the non- • That part is allowed as a net operating used for both sport fishing and commercial fish- qualified withdrawal increases from 20% in loss deduction. ing on the same trip. the 26th year to 100% in the 30th year.) Fuel used in aircraft to locate fish is not

More Information fuel used in commercial fishing. How to determine the source of nonqualified CAUTION

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withdrawals. When you make a nonqualified This section briefly discussed the CCF program. withdrawal from your CCF account, the amount For more detailed information, see the following Off-highway business use. A credit or refund is treated as being withdrawn in the following legislative authorities. may be allowed for the excise tax on fuel used order from the accounts listed below.

for off-highway business use. • Section 607 of the Merchant Marine Act of

1. The ordinary income account. Off-highway business use is any use of fuel 1936, as amended (46 U.S.C. 1177). in a trade or business or in an income-producing 2. The capital gain account. • Chapter 2, Part 259 of title 50 of the Code activity other than as a fuel in a highway vehicle

of Federal Regulations (50 C.F.R., Part 3. The capital account. registered or required to be registered for use on

259). public highways. Off-highway business use includes fuels used in any of the following ways. Paying tax on nonqualified withdrawals. In • Subchapter A, Part 3 of title 26 of the

general, nonqualified withdrawals are taxed Code of Federal Regulations (26 C.F.R., • In stationary machines such as generaPart 3). separately from your other gross income and at tors, compressors, power saws and similar

the highest marginal tax rate in effect for the equipment. • Section 7518 of the Internal Revenue

year of withdrawal. However, nonqualified with- Code (IRC 7518). • For cleaning purposes. drawals treated as made from the capital gain

account are taxed at a rate that cannot exceed The application kit you can obtain from NMFS at

15% for individuals and 34% for corporations. the address or phone number given earlier may Fuel used in a motorboat does not

contain copies of some of these sources of addi- qualify as fuel used for an off-highway Partnerships and S corporations. tional information. Also, see their web page at business use. CAUTION

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Taxable nonqualified partnership with- www.nmfs.noaa.gov/ocs/financial_services/ drawals are separately stated on

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ccf.htm. Schedule K (Form 1065), line 24, and allocated

to the partners on Schedule K–1 (Form 1065), How To Claim

line 25. Taxable nonqualified withdrawals by an a Credit or Refund

S corporation are separately stated on Schedule

K (Form 1120S), line 21, and allocated to the How Do You Claim This section tells you how and when to make a

shareholders on Schedule K–1 (Form 1120S), claim for a credit or refund of excise taxes on

line 23. Fuel Tax Credits and fuels.

Refunds? Credit or refund. A credit is an amount you Interest. You must pay interest on the addi- claim on your income tax return when you file it tional tax due to nonqualified withdrawals that You may be eligible to claim a credit on your at the end of the year. If you meet certain re- are treated as made from either the ordinary income tax return for federal excise tax imposed quirements (discussed later), you can claim a income or the capital gain account. The interest on certain fuels used for a nontaxable use. You refund during the year. period begins on the last date for paying tax for also may be eligible to claim a quarterly refund the year for which you deposited the amount you of the fuel taxes during the year, instead of Credit only. You can claim the following withdrew from your CCF account. The period waiting to claim a credit on your income tax taxes only as a credit. ends on the last date for paying tax for the year return. • Tax on fuels used for nontaxable uses if in which you make the nonqualified withdrawal. Instead of paying the fuel tax and filing for a the total for the tax year is less than $750. The interest rate on the nonqualified withdrawal credit or refund, you may be able to buy certain is simple interest. The rate is subject to change fuel tax free. For more information, see How To • Tax on fuel you did not include in any

annually and is published in the Federal Regis- Buy Fuel Tax Free, later. claim for refund previously filed for any

ter. quarter of the tax year.

You also can call NMFS at 301– Nontaxable Uses

713–2393 to get the current interest Claiming a Credit rate. This section discusses the nontaxable uses that

may be of particular interest to fishermen. The You make a claim for credit on Form 4136 and

Interest deduction. You can deduct the in- nontaxable uses of fuel for which a fisherman attach it to your income tax return. Do not claim

terest you pay on a nonqualified withdrawal as a may claim a credit or refund are generally the a credit for any amount for which you have filed

trade or business expense. following. a refund claim.

Page 9
When to file. You can claim a fuel tax credit on When to file. You must file a quarterly claim How To Buy Fuel Tax Free your income tax return for the year you used the by the last day of the first quarter following the

fuel. last quarter included in the claim. If you do not Instead of paying the fuel tax and filing a claim

file a timely refund claim for the fourth quarter of for credit or refund when the fuel is used for a

How to claim a credit. As an individual, you your tax year, you will have to claim a credit for nontaxable use, you may be eligible to buy it tax

claim the credit on line 67 of Form 1040. Check that amount on your income tax return, as dis- free.

box b on line 67. If you would not otherwise have cussed earlier.

Gasoline. Your supplier may be able to sell to file an income tax return, you must do so to

claim a fuel tax credit. you gasoline at a tax-free price only for use in a

Including the Credit or Refund in boat engaged in commercial fishing.

Your supplier may be eligible to claim a credit Income

Claiming a Refund or refund of the excise tax on the gasoline sold

Include any credit or refund of excise taxes on to you at a tax-free price. Refer your supplier to

You can file a claim for refund for any quarter of fuels in your gross income if you claimed the Credits or Refunds under Gasoline in Publicayour tax year for which you can claim $750 or total cost of the fuel (including the excise taxes) tion 510, Excise Taxes for 2004, for details.

more. This amount is the excise tax on all fuels as an expense deduction that reduced your in- To buy gasoline at a tax-free price, give your

used for any nontaxable use during that quarter come tax liability. supplier a signed certificate identifying you and

or any prior quarter (for which no other claim has If you use the cash method of accounting stating that you will use the gasoline in a boat

been filed) during the tax year. and file a claim for refund, include the refund in engaged in commercial fishing. You do not need

If you cannot claim at least $750 at the end of your gross income for the tax year in which you to renew the certificate as long as the informaa quarter, you carry the amount over to the next receive the refund. If you claim a credit on your tion it contains continues to be correct. See

quarter of your tax year to determine if you can income tax return, include the credit in gross Table 4 for a sample exemption certificate.

claim at least $750. If you cannot claim at least income for the tax year in which you file Form

$750 at the end of the fourth quarter of your tax 4136. If you file an amended return and claim a

year, you must claim a credit on your income tax credit, include the credit in gross income for the

return using Form 4136. Only one claim can be tax year in which you receive the credit. Schedule C Example filed for a quarter.

Example. Ed Brown, a cash basis fisher- Frank Carter is a sole proprietor who owns and How to file. You can claim a refund on Form man, filed his 2002 Form 1040 on March 3, operates a fishing boat. He uses the cash 8849. File the claim for refund by filling out 2003. On his Schedule C, Ed deducted the total method of accounting and files his return on a Schedule 1 (Form 8849) and attaching it to Form cost of gasoline (including $110 of excise taxes) calendar year basis. He keeps his business rec- 8849. Send it to the address shown in the in- used in his boat while engaged in commercial ords with a single-entry bookkeeping system, structions. Do not claim a refund on Form 8849 fishing operations. Then, on Form 4136, he similar to the sample record system illustrated in for any amount for which you have filed or will claimed the $110 as a credit. Ed reports the Publication 583.

file a claim on Schedule C (Form 720) or Form $110 as additional income on his 2003 Schedule Frank has two crew members, Nan Brown

4136. C (Form 1040). and Sandy Green, who are considered self-employed for social security, Medicare, and federal Table 4. Sample Exemption Certificate income tax withholding purposes. After certain

boat operating expenses are paid, the proceeds EXEMPTION CERTIFICATE from the sale of the catch are divided 75% to

(To support vendor’s claim for credit or payment under section 6421 of the Internal Revenue Code) Frank and 25% to his crew members.

Frank figures his net profit or loss from his

fishing business by subtracting his fishing ex- Name and Address of Seller penses from his gross income from fishing on

The undersigned buyer (“Buyer”) hereby certifies the following under penalties of perjury: Schedule C. He then reports the net profit or loss

on line 12, Form 1040.

A. Buyer will use the gasoline to which this certificate relates in a boat engaged in commercial

fishing.

Schedule C (Form 1040) B. Buyer bought or will buy the gasoline to which this certificate relates from the above named

seller at a price that does not include the excise tax. First, Frank fills in the information required at the

top of Schedule C. On line A he enters “Fishing”

C. This certificate applies to the following (complete as applicable): and on line B he enters 114110, the 6-digit

business code for commercial fishing shown in 1. If this is a single purchase certificate, check here ❏ and enter the number of gallons the instructions for Schedule C. He then com- of gasoline pletes items C through H.

2. If this is a certificate covering all purchases, check here ❏.

■ If Buyer uses the gasoline to which this certificate relates for a use other than stated in the Part I—Income certificate, Buyer will so notify the person to whom Buyer gives this certificate.

■ Buyer has not and will not claim a refund or credit under section 6421 of the Internal Frank figures his gross income from fishing in

Revenue Code for the excise tax on the gasoline to which this certificate relates. Part I.

■ Buyer understands that the fraudulent use of this certificate may subject Buyer and all Line 1. Frank had sales of $60,288 for the

parties making such fraudulent use of this certificate to a fine or imprisonment, or both, year. This includes all the fish he caught and together with the costs of prosecution. sold during the year. He enters his total sales on

line 1.

Signature and Date Signed Line 3. Frank did not have any returns and

allowances to report on line 2, so line 3 is the

Printed or Typed Name and Title of Buyer same as line 1.

Line 5. Because Frank did not have any cost

Name, Address, and Taxpayer Identification Number of Buyer of goods sold to report on line 4, line 5 is the

same as line 3.

Page 10
1 1 1 0 0 1 1 1 1

41 1 0

1 09999999

FRANK CARTER

FISHING

CAP’N FRANK’S

215 Seagull Drive

Hometown, OR 97331





60,288

60,288

60,288

712

61,000

600

4,593

6,464

35

10,992

6,367

42,439

18,561

18,561

2,763

6,534

3,291

800

1 1

SCHEDULE C OMB No. 1545-0074

(Form 1040)

Profit or Loss From Business

(Sole Proprietorship)

Partnerships, joint ventures, etc., must file Form 1065 or 1065-B.

Department of the Treasury

Internal Revenue Service

Attachment

Attach to Form 1040 or 1041. See Instructions for Schedule C (Form 1040). Sequence No. 09

Name of proprietor Social security number (SSN)

A Principal business or profession, including product or service (see page C-2 of the instructions) B Enter code from pages C-7, 8, & 9



C Business name. If no separate business name, leave blank. D Employer ID number (EIN), if any

Accounting method:

E

F

G Yes No

H

Did you “materially participate” in the operation of this business during 2003? If “No,” see page C-3 for limit on losses

If you started or acquired this business during 2003, check here 

Income

Gross receipts or sales. Caution. If this income was reported to you on Form W-2 and the “Statutory

employee” box on that form was checked, see page C-3 and check here 

1

1

2 Returns and allowances 2

3 Subtract line 2 from line 1 3

4 Cost of goods sold (from line 42 on page 2) 4

5 Gross profit. Subtract line 4 from line 3 5

6 Other income, including Federal and state gasoline or fuel tax credit or refund (see page C-3) 6

7 Gross income. Add lines 5 and 6 7

Expenses. Enter expenses for business use of your home only on line 30.

8

21 Repairs and maintenance 21

8 Advertising

22 Supplies (not included in Part III) 22

23

9

23 Taxes and licenses

10

24 Travel, meals, and entertainment:

Car and truck expenses

(see page C-3)

9

24a

11

a Travel

10 Commissions and fees

12 Depletion 12

Meals and

entertainment

b

Depreciation and section 179

expense deduction (not included

in Part III) (see page C-4)

13

Enter nondeductible amount included on line 24b

(see page C-5)

c

13

14 Employee benefit programs

(other than on line 19)

24d

14

d Subtract line 24c from line 24b

25

15

25 Utilities

15 Insurance (other than health)

26 Wages (less employment credits) 26

16 Interest:

a Mortgage (paid to banks, etc.) 16a

Other expenses (from line 48 on

page 2)

27

b Other 16b

17

Legal and professional

services

17

18 Office expense 18

19 Pension and profit-sharing plans 19

20 Rent or lease (see page C-5):

a Vehicles, machinery, and equipment 20a

b Other business property 20b

28 Total expenses before expenses for business use of home. Add lines 8 through 27 in columns 28

31

31

32a All investment is at risk.

32

Some investment is not

at risk.

32b

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule C (Form 1040) 2003

(1) Cash (2) Accrual (3) Other (specify) 

Business address (including suite or room no.) 

City, town or post office, state, and ZIP code

Cat. No. 11334P

29

30

Tentative profit (loss). Subtract line 28 from line 7

Expenses for business use of your home. Attach Form 8829

29

30



Part I

Part II

27

Net profit or (loss). Subtract line 30 from line 29.

● If a profit, enter on Form 1040, line 12, and also on Schedule SE, line 2 (statutory employees,

see page C-6). Estates and trusts, enter on Form 1041, line 3.

● If a loss, you must go to line 32.

If you have a loss, check the box that describes your investment in this activity (see page C-6).

● If you checked 32a, enter the loss on Form 1040, line 12, and also on Schedule SE, line 2

(statutory employees, see page C-6). Estates and trusts, enter on Form 1041, line 3.

● If you checked 32b, you must attach Form 6198.



(99)

2003

Contract labor

(see page C-4)

11

Page 11
Line 6. Frank’s entry of $712 represents a • Send us comments or request help by

$612 patronage dividend he received from his email. How To Get Tax Help local cooperative and a $100 fuel tax credit he • Sign up to receive local and national tax claimed on the 2002 Form 1040 he filed on You can get help with unresolved tax issues, news by email. March 3, 2003. The patronage dividend was order free publications and forms, ask tax ques- reported to him on Form 1099–PATR, Taxable • Get information on starting and operating tions, and get more information from the IRS in Distributions Received From Cooperatives. a small business. several ways. By selecting the method that is

best for you, you will have quick and easy ac- Line 7. Frank’s gross income from fishing in- You can also reach us using File Transfer cess to tax help. cludes his gross profit from line 5 and his other Protocol at ftp.irs.gov.

income from line 6. Contacting your Taxpayer Advocate. If you

have attempted to deal with an IRS problem Fax. You can get over 100 of the most

unsuccessfully, you should contact your Tax- requested forms and instructions 24

Part II — Expenses payer Advocate. hours a day, 7 days a week, by fax.

The Taxpayer Advocate independently rep- Just call 703–368–9694 from your fax maFrank enters his fishing expenses in Part II. chine. Follow the directions from the prompts. resents your interests and concerns within the When you order forms, enter the catalog num- IRS by protecting your rights and resolving Line 9. Frank used his truck 65% for business problems that have not been fixed through nor- ber for the form you need. The items you request during the year. He spent a total of $4,250 for mal channels. While Taxpayer Advocates can- will be faxed to you. gas, oil, insurance, tags, repairs, and upkeep. not change the tax law or make a technical tax For help with transmission problems, call He can deduct $2,763 (65% × $4,250), the busi- decision, they can clear up problems that re- 703–487–4608.

ness portion of these expenses, on line 9. sulted from previous contacts and ensure that Long-distance charges may apply.

your case is given a complete and impartial Line 10. Frank paid his crew members total Phone. Many services are available by review. crew shares of $10,992 for the year. phone. To contact your Taxpayer Advocate:

Line 13. Frank enters $6,534 depreciation • Call the Taxpayer Advocate toll free at • Ordering forms, instructions, and publica- from Form 4562 (not shown). 1–877–777–4778.

tions. Call 1–800–829–3676 to order

Line 15. Frank’s $3,291 deduction is for insur- • Call, write, or fax the Taxpayer Advocate current-year forms, instructions, and publiance on his business property (65% of his truck office in your area. cations and prior-year forms and instrucinsurance is included on line 9). The deduction is tions. You should receive your order within • Call 1–800–829–4059 if you are a only for premiums that give him coverage for the 10 days. TTY/TDD user.

year. • Asking tax questions. Call the IRS with • Visit the website at www.irs.gov/advo- your tax questions at 1–800–829–1040. Line 16b. Frank borrowed money to buy his cate.

fishing boat. The interest on this loan was $800 • Solving problems. You can get

For more information, see Publication 1546, for the year. face-to-face help solving tax problems

The Taxpayer Advocate Service of the IRS. every business day in IRS Taxpayer AsLine 20b. His rent for his mooring space was sistance Centers. An employee can ex- Free tax services. To find out what services $50 a month, or $600 for the year. plain IRS letters, request adjustments to are available, get Publication 910, Guide to Free your account, or help you set up a pay- Tax Services. It contains a list of free tax publi- Line 21. He spent $3,600 for boat repairs and ment plan. Call your local Taxpayer Assis- cations and an index of tax topics. It also de- $993 for gear repairs for a total cost of $4,593. tance Center for an appointment. To find scribes other free tax information services, the number, go to www.irs.gov or look in

Line 22. He spent $1,713 for boat supplies including tax education and assistance pro- the phone book under “United States Gov- and $4,751 for bait and ice for a total cost of grams and a list of TeleTax topics. ernment, Internal Revenue Service.” $6,464. Internet. You can access the IRS web- • TTY/TDD equipment. If you have access site 24 hours a day, 7 days a week, at Line 23. Frank renewed his fishing license. He to TTY/TDD equipment, call www.irs.gov to: enters the $35 state fee on this line. 1–800–829–4059 to ask tax or account

• E-file. Access commercial tax preparation questions or to order forms and publicaLine 27. Frank enters the total of his other and e-file services available for free to eli- tions.

fishing expenses on this line. These expenses gible taxpayers. • TeleTax topics. Call 1–800–829–4477 to are not included on lines 8-26. He lists the type • Check the amount of advance child tax listen to pre-recorded messages covering and the amount of the expenses separately in credit payments you received in 2003. various tax topics. Part V of page 2 (not shown) and carries the

total entered on line 48 to line 27. His only entry • Check the status of your 2003 refund. • Refund information. If you would like to

on this line is the $6,367 he spent on fuel for his Click on “Where’s My Refund.” Be sure to check the status of your 2003 refund, call

fishing boat. wait at least 6 weeks from the date you 1–800–829–4477 for automated refund

filed your return (3 weeks if you filed elec- information and follow the recorded inLine 28. Frank adds all his expenses listed in tronically) and have your 2003 tax return structions or call 1–800–829–1954. Be

Part II and enters the total on this line. available because you will need to know sure to wait at least 6 weeks from the date

your filing status and the exact whole dol- you filed your return (3 weeks if you filed Line 29. He subtracts his total expenses, lar amount of your refund. electronically) and have your 2003 tax re- $42,439 (line 28) from his gross income from turn available because you will need to • Download forms, instructions, and publica- fishing, $61,000 (line 7). Frank has a tentative know your filing status and the exact profit of $18,561. tions. whole dollar amount of your refund.

• Order IRS products online. Line 30. Frank did not use any part of his

home for business, so he does not make an • See answers to frequently asked tax ques- Evaluating the quality of our telephone serventry here. tions. ices. To ensure that IRS representatives give

accurate, courteous, and professional answers, • Search publications online by topic or Line 31. Frank has a net profit of $18,561 (line we use several methods to evaluate the quality keyword. 29 minus line 30). He enters his net profit here, of our telephone services. One method is for a

on line 12 of Form 1040, and on line 2, Section A • Figure your withholding allowances using second IRS representative to sometimes listen

of Schedule SE (Form 1040), not shown. our Form W–4 calculator. in on or record telephone calls. Another is to ask

Page 12
some callers to complete a short survey at the Mail. You can send your order for • Internal Revenue Bulletins.

end of the call. forms, instructions, and publications to

the Distribution Center nearest to you Buy the CD-ROM from National Technical InWalk-in. Many products and services and receive a response within 10 workdays after formation Service (NTIS) on the Internet at

your request is received. Use the address that www.irs.gov/cdorders for $22 (no handling are available on a walk-in basis.

applies to your part of the country. fee) or call 1–877–233–6767 toll free to buy

the CD-ROM for $22 (plus a $5 handling fee). • Western part of U.S.: • Products. You can walk in to many post The first release is available in early January Western Area Distribution Center offices, libraries, and IRS offices to pick up and the final release is available in late Febru- Rancho Cordova, CA 95743–0001 certain forms, instructions, and publica- ary. tions. Some IRS offices, libraries, grocery • Central part of U.S.: stores, copy centers, city and county gov- Central Area Distribution Center CD-ROM for small businesses. IRS

ernment offices, credit unions, and office P.O. Box 8903 Publication 3207, Small Business Resupply stores have a collection of products Bloomington, IL 61702–8903 source Guide, is a must for every small

available to print from a CD-ROM or pho- business owner or any taxpayer about to start a

tocopy from reproducible proofs. Also, • Eastern part of U.S. and foreign business. This handy, interactive CD contains addresses: some IRS offices and libraries have the all the business tax forms, instructions and pub- Eastern Area Distribution Center Internal Revenue Code, regulations, Inter- lications needed to successfully manage a busi- P.O. Box 85074 nal Revenue Bulletins, and Cumulative ness. In addition, the CD provides an Richmond, VA 23261–5074 Bulletins available for research purposes. abundance of other helpful information, such as

how to prepare a business plan, finding financ- • Services. You can walk in to your local CD-ROM for tax products. You can ing for your business, and much more. The de- Taxpayer Assistance Center every busi- order IRS Publication 1796, Federal sign of the CD makes finding information easy ness day to ask tax questions or get help Tax Products on CD-ROM, and obtain: and quick and incorporates file formats and with a tax problem. An employee can ex- browsers that can be run on virtually any plain IRS letters, request adjustments to • Current-year forms, instructions, and pub- desktop or laptop computer. your account, or help you set up a pay- lications. It is available in early April. You can get a ment plan. You can set up an appointment • Prior-year forms and instructions. free copy by calling 1–800–829–3676 or by by calling your local Center and, at the visiting the website at www.irs.gov/smallbiz. prompt, leaving a message requesting • Frequently requested tax forms that may

Everyday Tax Solutions help. A represen- be filled in electronically, printed out for

tative will call you back within 2 business submission, and saved for recordkeeping.

days to schedule an in-person appointment at your convenience. To find the

number, go to www.irs.gov or look in the

phone book under “United States Government, Internal Revenue Service.”

Page 13
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.

A Expenses, fishing ............ 3 Husband and wife S

Assistance (See Tax help) business ................... 4 Schedule C ................... 3

F Schedule C–EZ .............. 3

B Fishing: L Schedule SE ................. 4

Business expenses, Boats, depreciation .......... 3 Local transportation .......... 3 Self-employment:

fishing ..................... 3 Expenses ................... 3 Certain fishermen ........... 5

Gross income ............... 2 Deduction for SE tax ......... 4 Business or trade defined .... 3 M

Form: Defined ..................... 3 Meals ........................ 3 1040–ES . . . . . . . . . . . . . . . . . . . 6 Husband and wife ........... 4

C More information (See Tax help) 1099–MISC ................ 4 Tax . . . . . . . . . . . . . . . . . . . . . . . . . 4

Capital construction fund .... 7 2210–F . . . . . . . . . . . . . . . . . . . . 6 Social security coverage ..... 4

Comments ................... 2 4136 ....................... 9 N Suggestions ................. 2

Commuting .................. 3 4868 ....................... 7 Nets, depreciation ............ 3

Credits: 8849 . . . . . . . . . . . . . . . . . . . . . . 10 Not-for-profit fishing ......... 4 T Fuel tax ..................... 9 Schedule C ................. 3 Tax help . . . . . . . . . . . . . . . . . . . . . 12 Social security coverage ..... 4 Schedule C–EZ ............. 3 P Tax home .................... 3 Schedule SE ................ 4

Partners, husband and Taxpayer Advocate . . . . . . . . . . 12 D Forms to file ................. 3

wife ........................ 4 Trade or business defined .... 3 Free tax services . . . . . . . . . . . . 12 Depreciation: Patronage dividends ......... 2 Transportation, local ......... 3 Fuel tax credits and Fishing boats ............... 3

refunds .................... 9 Penalty: Traps, depreciation ........... 3 Nets, pots, and traps ........ 3 Estimated tax ............... 6 Travel expenses .............. 3 Due dates: Notice ...................... 7 TTY/TDD information . . . . . . . . 12 Nonqualified fishermen ...... 6 G Pots, depreciation ............ 3 Qualified fishermen .......... 6 Gross income from Publications (See Tax help) ■

fishing ..................... 2

E R Employment tax forms ....... 5 H Repairs and replacements .... 3 Estimated tax ................ 5 Help (See Tax help) Return due date .............. 5

Page 14
Tax Publications for Business Taxpayers

General Guides

Commonly Used Tax Forms

Spanish Language Publications

Your Rights as a Taxpayer

Your Federal Income Tax (For

Individuals)

Farmer’s Tax Guide

Tax Guide for Small Business (For

Individuals Who Use Schedule C or

C-EZ)

Tax Calendars for 2005

Highlights of 2004 Tax Changes

Guide to Free Tax Services

(Circular E), Employer’s Tax Guide

Employer’s Supplemental Tax Guide

(Circular A), Agricultural Employer’s

Tax Guide

(Circular SS), Federal Tax Guide For

Employers in the U.S. Virgin Islands,

Guam, American Samoa, and the

Commonwealth of the Northern

Mariana Islands

Household Employer’s Tax Guide

Circular PR Guía Contributiva Federal

Para Patronos Puertorriqueños

Travel, Entertainment, Gift, and Car

Expenses

Tax Withholding and Estimated Tax

Excise Taxes for 2005

Withholding of Tax on Nonresident

Aliens and Foreign Entities

Social Security and Other Information

for Members of the Clergy and

Religious Workers

Residential Rental Property

Self-Employment Tax

Depreciating Property Placed in

Service Before 1987

Business Expenses

Net Operating Losses (NOLs) for

Individuals, Estates, and Trusts

Installment Sales

Accounting Periods and Methods

Corporations

Sales and Other Dispositions of Assets

Basis of Assets

Examination of Returns, Appeal Rights,

and Claims for Refund

Retirement Plans for Small Business

(SEP, SIMPLE, and Qualified Plans)

Determining the Value of Donated

Property

Starting a Business and Keeping

Records

The IRS Collection Process

Information on the United StatesCanada Income Tax Treaty

Bankruptcy Tax Guide

Direct Sellers

Passive Activity and At-Risk Rules

How To Depreciate Property

Reporting Cash Payments of Over

$10,000

The Taxpayer Advocate Service of the

IRS—How To Get Help With

Unresolved Tax Problems

Derechos del Contribuyente

Cómo Preparar la Declaración de

Impuesto Federal

English-Spanish Glossary of Words

and Phrases Used in Publications

Issued by the Internal Revenue

Service

Tax on Unrelated Business Income of

Exempt Organizations

Wage and Tax Statement

Itemized Deductions & Interest and

Ordinary Dividends*

Profit or Loss From Business*

Net Profit From Business*

Capital Gains and Losses*

Supplemental Income and Loss*

Profit or Loss From Farming*

Credit for the Elderly or the Disabled*

Estimated Tax for Individuals*

Self-Employment Tax*

Amended U.S. Individual Income Tax Return*

Capital Gains and Losses*

Partner’s Share of Income,

Deductions, Credits, etc.*

U.S. Corporation Income Tax Return*

U.S. Income Tax Return for an S Corporation

Employee Business Expenses*

Unreimbursed Employee Business

Expenses*

Power of Attorney and Declaration of

Representative*

Child and Dependent Care Expenses*

General Business Credit*

Application for Automatic Extension of Time To File

U.S. Individual Income Tax Return*

Moving Expenses*

Additional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored Accounts*

Installment Sale Income*

Noncash Charitable Contributions*

Change of Address*

Expenses for Business Use of Your Home*

Tax Highlights for Commercial

Fishermen

910

595

553

509

334

225

17

1

Nondeductible IRAs*

Passive Activity Loss Limitations*

15

15-A

51

80

179

926

378

463

505

510

515

517

527

533

534

535

536

537

541

538

542

Partnerships

544

551

556

560

561

583

594

597

598

901

911

925

946

947

908

1544

1546

1SP

850

579SP

594SP Comprendiendo el Proceso de Cobro

10134

Sch A & B

Sch C

Sch C-EZ

Sch D

Sch E

Sch F

Sch H Household Employment Taxes*

Sch R

Sch SE

1040-ES

1040X

Sch D

Sch K-1

1120

1120S

1065 U.S. Return of Partnership Income*

2106

2106-EZ

2441

2848

3800

4868

3903

5329

6252

8283

8582

8606

8822

8829

Specialized Publications

Fuel Tax Credits and Refunds

W-4 Employee’s Withholding Allowance Certificate*

Employer’s Annual Federal Unemployment

(FUTA) Tax Return*

940

940-EZ

1040 U.S. Individual Income Tax Return*

Employer’s Annual Federal Unemployment

(FUTA) Tax Return*

Business Use of Your Home (Including

Use by Daycare Providers)

587

U.S. Tax Treaties

Practice Before the IRS and Power of

Attorney

Tax Incentives for Distressed Employer’s Guides Communities

Certification for Reduced Tax Rates in

Tax Treaty Countries

686

954

Capital Gains and Losses and Built-In Gains

Shareholder’s Share of Income,

Deductions, Credits, etc.

Sch D

Sch K-1

Underpayment of Estimated Tax by Individuals,

Estates, and Trusts*

2210

Report of Cash Payments Over $10,000 Received

in a Trade or Business*

8300

4562 Depreciation and Amortization*

4797 Sales of Business Property*

Informe de Pagos en Efectivo en

Exceso de $10,000 (Recibidos en

una Ocupación o Negocio)

1544SP

U.S. Corporation Short-Form Income

Tax Return*

1120-A

See How To Get Tax Help for a variety of ways to get publications, including by

computer, phone, and mail.

See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone,

and mail. Items with an asterisk are available by fax. For these orders only, use the catalog number

when ordering.

Form Number and Title

Catalog

Number

W-2

10220

11234

10983

17001

11320

11330

11334

14374

11338

11344

11346

12187

11358

11340

11360

941 Employer’s Quarterly Federal Tax Return*

11359

Sch J Income Averaging for Farmers and Fishermen* 25513

11510

Catalog

Number

20604

11744

11862

11980

12392

12490

12906

13086

13141

13329

13601

62299

63966

12081

13232

63704

62133

11390

11393

11394

11450

11456

11700

11520

11516

Form Number and Title

Sch D-1 Continuation Sheet for Schedule D* 10424

Employer’s Tax Guide to Fringe

Benefits

15-B

Page 15