Important Dates

You should take the action indicated on or before the dates listed. Saturdays, Sundays, and legal holidays have been taken into account, but statewide holidays have not. A statewide legal holiday delays a due date only if the IRS office where you are required to file is located in that state.

Due dates for deposits of withheld income taxes, social security taxes, and Medicare taxes are not listed here. For these dates, see Publication 509, Tax Calendars for 2003.

Fiscal year taxpayers.   Generally, the due dates listed apply whether you use a calendar or a fiscal year. However, if you have a fiscal year, refer to Publication 509 for certain exceptions that may apply to you.

2003 Calendar Year

During January

Farm employers.   Give your employees their copies of Form W-2 for 2002 by January 31, 2003.

January 15

Farmers.   Pay your estimated tax for 2002 using Form 1040-ES. You have until April 15 to file your 2002 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2002 return and pay any tax due by March 3, 2003, to avoid an estimated tax penalty.

January 31

Farm employers.   Give your employees their copies of Form W-2 for 2002. If an employee agreed to receive Form W-2 electronically, have it posted on a web site and notify the employee of the posting.

Social security, Medicare, and withheld income tax.   File Form 943 to report social security and Medicare taxes and withheld income tax for 2002. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return. (Do not report wages for nonagricultural services on Form 943.)

All farm businesses.   Give annual information statements to recipients of certain payments you made during 2002. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. For more information, see Information Returns in chapter 2.

Federal unemployment (FUTA) tax.   File Form 940 (or 940-EZ) for 2002. If your undeposited tax is $100 or less, you can either pay it with your return or deposit it. If it is more than $100, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return. For more information on FUTA tax, see chapter 16.

February 10

Social security, Medicare, and withheld income tax.   File Form 943 to report social security, Medicare, and withheld income tax for 2002. This due date applies only if you deposited the tax for the year in full and on time.

Federal unemployment (FUTA) tax.   File Form 940 (or 940-EZ) for 2002. This due date applies only if you deposited the tax for the year in full and on time.

February 28

All farm businesses.   File information returns (Form 1099) for certain payments you made during 2002. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for different types of payments.

If you file Forms 1099 electronically (not by magnetic media), your due date for filing them with the IRS is extended to March 31. The due date for giving the recipient these forms is still January 31.

Farm employers.   File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2002.

If you file Forms W-2 electronically (not by magnetic media), your due date for filing them with the Social Security Administration (SSA) is extended to March 31. The due date for giving the recipient these forms is still January 31.

For more information, see Form W-2 under Information Returns in chapter 2.

March 3

Farmers.   File your 2002 income tax return (Form 1040) and pay any tax due. However, you have until April 15 to file if you paid your 2002 estimated tax by January 15, 2003.

March 17

Corporations.   File a 2002 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. For more information, see Paying and Filing Income Taxes in Publication 542, Corporations.

March 31

Electronic filing of Forms 1099 and W-2.   File Forms 1099 with the IRS and Forms W-2 with the SSA. This due date applies only if you file electronically (not by magnetic media). Otherwise, the due date is February 28.

The due date for giving the recipient these forms is still January 31.

For information about filing Forms 1099 electronically, see Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and W-2 Magnetically or Electronically. For information about filing Forms W-2 electronically with the Social Security Administration, call 1-800-772-6270.

April 15

Farmers.   File an income tax return (Form 1040) for 2002 and pay any tax due if you did not file by March 3.

Partnerships.   File a 2002 calendar year return (Form 1065). For more information, see Partnership Return (Form 1065) in Publication 541, Partnerships.

April 30

Federal unemployment (FUTA) tax.   If you are liable for FUTA tax, deposit the tax owed through March if more than $100.

July 31

Federal unemployment (FUTA) tax.   If you are liable for FUTA tax, deposit the tax owed through June if more than $100.

October 31

Federal unemployment (FUTA) tax.   If you are liable for FUTA tax, deposit the tax owed through September if more than $100.

Importance of Good Records

Introduction

A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. This chapter explains why you must keep records, what kinds of records you must keep, and how long you must keep them for federal tax purposes.

Tax records are not the only type of records you need to keep for your farming business. You should also keep records that measure your farm's financial performance. This publication only discusses tax records.

For information on financial recordkeeping, you may want to get a copy of Financial Guidelines for Agricultural Producers. You can order it from Countryside Marketing, Inc., by calling 1-630-637-0199 or you can write to:

Farm Financial Standards Council
PMB 316
1212 S. Naper Blvd., #119
Naperville, IL 60540

You can also download the publication at www.ffsc.org.

Topics This chapter discusses:

• Why you should keep records
• What records to keep
• How long to keep records

Useful Items You may want to see:

Publication

• 51   Circular A, Agricultural Employer's Tax Guide
• 463   Travel, Entertainment, Gift, and Car Expenses

See chapter 21 for information about getting publications.

Why Keep Records?

Everyone in business, including farmers, must keep records. Good records will help you do the following.

Monitor the progress of your farming business.   You need good records to monitor the progress of your farming business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.

Prepare your financial statements.   You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you to manage your farm business.

Identify source of receipts.   You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate farm from nonfarm receipts and taxable from nontaxable income.

Keep track of deductible expenses.   You may forget expenses when you prepare your tax return unless you record them when they occur.

Prepare your tax returns.   You need good records to prepare your tax return. For example, these records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your farming business and prepare your financial statements.

Support items reported on tax returns.   You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.

Kinds of Records To Keep

Except in a few cases, the law does not require any special kind of records. You can choose any recordkeeping system suited to your farming business that clearly shows, for example, your income and expenses.

You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. See chapter 3. If you are in more than one business, you should keep a complete and separate set of records for each business. A corporation should keep minutes of board of directors' meetings.

Your recordkeeping system should include a summary of your business transactions. This summary is ordinarily made in accounting journals and ledgers. For example, they must show your gross income, as well as your deductions and credits. In addition, you must keep supporting documents. Purchases, sales, payroll, and other transactions you have in your business generate supporting documents such as invoices and receipts. These documents contain the information you need to record in your journals and ledgers.

It is important to keep these documents because they support the entries in your journals and ledgers and on your tax return. Keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.

Travel, transportation, entertainment, and gift expenses.   Special recordkeeping rules apply to these expenses. For more information, see Publication 463.

Employment taxes.   There are specific employment tax records you must keep. For a list, see Publication 51 (Circular A).

Excise taxes.   See How To Claim a Credit or Refund in chapter 18 for the specific records you must keep to verify your claim for credit or refund of excise taxes on certain fuels.

Assets.   Assets are the property, such as machinery and equipment, you own and use in your business. You must keep records to verify certain information about your business assets. You need records to figure your annual depreciation deduction and the gain or loss when you sell the assets. Your records should show all the following.

• When and how you acquired the asset.
• Purchase price.
• Cost of any improvements.
• Section 179 deduction taken.
• Deductions taken for depreciation.
• Deductions taken for casualty losses, such as losses resulting from fires or storms.
• How you used the asset.
• When and how you disposed of the asset.
• Selling price.
• Expenses of sale.

The following are examples of records that may show this information.

• Purchase and sales invoices.
• Real estate closing statements.
• Canceled checks.

Financial account statements as proof of payment.   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. These include account statements prepared for the financial institution by a third party. These account statements must be highly legible. The following table lists acceptable account statements.

IF payment is by...	THEN the statement must show the...
check	check number. amount. payee's name. date the check amount was posted to the account by the financial institution.
electronic funds transfer	amount transferred. payee's name. date the transfer was posted to the account by the financial institution.
credit card	amount charged. payee's name. transaction date.

Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. You should also keep other documents, such as credit card sales slips and invoices to show that you also incurred the cost.

How Long To Keep Records

You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out.

The period of limitations is the period of time in which you can amend your return to claim a credit or refund or the IRS can assess additional tax. The following table contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period beginning after the return was filed. Returns filed before the due date are treated as being filed on the due date.

  

IF you...		THEN the period is...
1	Owe additional tax and (2), (3), and (4) do not apply to you	3 years
2	Do not report income that you should report and it is more than 25% of the gross income shown on your return	6 years
3	File a fraudulent return	No limit
4	Do not file a return	No limit
5	File a claim for credit or refund after you filed your return	Later of 3 years or 2 years after tax was paid
6	File a claim for a loss from worthless securities	7 years

Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you later file an amended return.

Employment taxes.   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later.

Assets.   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

Records for nontax purposes.   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.

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