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2009 Tax Forms

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2009 Tax Forms

2009 tax forms Publication 463 - Introductory Material Table of Contents Future Developments What's New Reminder IntroductionUsers of employer-provided vehicles. 2009 tax forms Volunteers. 2009 tax forms Ordering forms and publications. 2009 tax forms Tax questions. 2009 tax forms Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 463, such as legislation enacted after it was published, go to www. 2009 tax forms irs. 2009 tax forms gov/pub463. 2009 tax forms What's New Standard mileage rate. 2009 tax forms  For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. 2009 tax forms Car expenses and use of the standard mileage rate are explained in chapter 4. 2009 tax forms Depreciation limits on cars, trucks, and vans. 2009 tax forms  For 2013, the first-year limit on the total depreciation deduction for cars remains at $11,160 ($3,160 if you elect not to claim the special depreciation allowance). 2009 tax forms For trucks and vans the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). 2009 tax forms Depreciation limits are explained in chapter 4. 2009 tax forms Section 179 deduction. 2009 tax forms  For 2013, the section 179 deduction limit on qualifying property purchases (including cars, trucks, and vans) is a total of $500,000 and the limit on those purchases at which the deduction begins to be phased out is $2,000,000. 2009 tax forms Section 179 Deduction is explained in chapter 4. 2009 tax forms Special depreciation allowance. 2009 tax forms  For 2013, the special (“bonus”) depreciation allowance on qualified property (including cars, trucks, and vans) remains at 50%. 2009 tax forms Special Depreciation Allowance is explained in chapter 4. 2009 tax forms Reminder Photographs of missing children. 2009 tax forms  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2009 tax forms Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2009 tax forms You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2009 tax forms Per diem rates. 2009 tax forms  The IRS no longer updates Publication 1542, Per Diem Rates (For Travel Within the Continental United States). 2009 tax forms Instead, current per diem rates may be found on the U. 2009 tax forms S. 2009 tax forms General Services Administration (GSA) website at www. 2009 tax forms gsa. 2009 tax forms gov/perdiem. 2009 tax forms Introduction You may be able to deduct the ordinary and necessary business-related expenses you have for: Travel, Entertainment, Gifts, or Transportation. 2009 tax forms An ordinary expense is one that is common and accepted in your trade or business. 2009 tax forms A necessary expense is one that is helpful and appropriate for your business. 2009 tax forms An expense does not have to be required to be considered necessary. 2009 tax forms This publication explains: What expenses are deductible, How to report them on your return, What records you need to prove your expenses, and How to treat any expense reimbursements you may receive. 2009 tax forms Who should use this publication. 2009 tax forms   You should read this publication if you are an employee or a sole proprietor who has business-related travel, entertainment, gift, or transportation expenses. 2009 tax forms Users of employer-provided vehicles. 2009 tax forms   If an employer-provided vehicle was available for your use, you received a fringe benefit. 2009 tax forms Generally, your employer must include the value of the use or availability of the vehicle in your income. 2009 tax forms However, there are exceptions if the use of the vehicle qualifies as a working condition fringe benefit (such as the use of a qualified nonpersonal use vehicle). 2009 tax forms   A working condition fringe benefit is any property or service provided to you by your employer for which you could deduct the cost as an employee business expense if you had paid for it. 2009 tax forms   A qualified nonpersonal use vehicle is one that is not likely to be used more than minimally for personal purposes because of its design. 2009 tax forms See Qualified nonpersonal use vehicles under Actual Car Expenses in chapter 4. 2009 tax forms   For information on how to report your car expenses that your employer did not provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer provides), see Vehicle Provided by Your Employer in chapter 6. 2009 tax forms Who does not need to use this publication. 2009 tax forms   Partnerships, corporations, trusts, and employers who reimburse their employees for business expenses should refer to their tax form instructions and chapter 11 of Publication 535, Business Expenses, for information on deducting travel, meals, and entertainment expenses. 2009 tax forms   If you are an employee, you will not need to read this publication if all of the following are true. 2009 tax forms You fully accounted to your employer for your work-related expenses. 2009 tax forms You received full reimbursement for your expenses. 2009 tax forms Your employer required you to return any excess reimbursement and you did so. 2009 tax forms There is no amount shown with a code “L” in box 12 of your Form W-2, Wage and Tax Statement. 2009 tax forms If you meet all of these conditions, there is no need to show the expenses or the reimbursements on your return. 2009 tax forms If you would like more information on reimbursements and accounting to your employer, see chapter 6 . 2009 tax forms    If you meet these conditions and your employer included reimbursements on your Form W-2 in error, ask your employer for a corrected Form W-2. 2009 tax forms Volunteers. 2009 tax forms   If you perform services as a volunteer worker for a qualified charity, you may be able to deduct some of your costs as a charitable contribution. 2009 tax forms See Out-of-Pocket Expenses in Giving Services in Publication 526, Charitable Contributions, for information on the expenses you can deduct. 2009 tax forms Comments and suggestions. 2009 tax forms   We welcome your comments about this publication and your suggestions for future editions. 2009 tax forms   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2009 tax forms NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2009 tax forms Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2009 tax forms   You can send your comments from www. 2009 tax forms irs. 2009 tax forms gov/formspubs/. 2009 tax forms Click on “More Information” and then on “Comment on Tax Forms and Publications. 2009 tax forms ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2009 tax forms Ordering forms and publications. 2009 tax forms   Visit www. 2009 tax forms irs. 2009 tax forms gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2009 tax forms Internal Revenue Service 1201 N. 2009 tax forms Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2009 tax forms   If you have a tax question, check the information available on IRS. 2009 tax forms gov or call 1-800-829-1040. 2009 tax forms We cannot answer tax questions sent to either of the above addresses. 2009 tax forms Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 529 Miscellaneous Deductions 535 Business Expenses 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule C (Form 1040) Profit or Loss From Business Schedule C-EZ (Form 1040) Net Profit From Business Schedule F (Form 1040) Profit or Loss From Farming 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization See chapter 7, How To Get Tax Help , for information about getting these publications and forms. 2009 tax forms Prev  Up  Next   Home   More Online Publications

The 2009 Tax Forms

2009 tax forms 4. 2009 tax forms   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. 2009 tax forms Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. 2009 tax forms Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. 2009 tax forms Category 1. 2009 tax forms Category 2. 2009 tax forms Category 3. 2009 tax forms What's New for 2013 Standard mileage rate. 2009 tax forms  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. 2009 tax forms 5 cents. 2009 tax forms See Truck and Car Expenses , later. 2009 tax forms Simplified method for business use of home deduction. 2009 tax forms  The IRS now provides a simplified method to determine your expenses for business use of your home. 2009 tax forms For more information, see Schedule C (Form 1040), Part II, and its instructions. 2009 tax forms Introduction You can generally deduct the current costs of operating your farm. 2009 tax forms Current costs are expenses you do not have to capitalize or include in inventory costs. 2009 tax forms However, your deduction for the cost of livestock feed and certain other supplies may be limited. 2009 tax forms If you have an operating loss, you may not be able to deduct all of it. 2009 tax forms Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. 2009 tax forms Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. 2009 tax forms “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. 2009 tax forms Schedule F, Part II, lists some common farm expenses that are typically deductible. 2009 tax forms This chapter discusses many of these expenses, as well as others not listed on Schedule F. 2009 tax forms Reimbursed expenses. 2009 tax forms   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. 2009 tax forms If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. 2009 tax forms See Refund or reimbursement under Income From Other Sources in chapter 3. 2009 tax forms Personal and business expenses. 2009 tax forms   Some expenses you pay during the tax year may be part personal and part business. 2009 tax forms These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. 2009 tax forms   You must allocate these mixed expenses between their business and personal parts. 2009 tax forms Generally, the personal part of these expenses is not deductible. 2009 tax forms The business portion of the expenses is deductible on Schedule F. 2009 tax forms Example. 2009 tax forms You paid $1,500 for electricity during the tax year. 2009 tax forms You used 1/3 of the electricity for personal purposes and 2/3 for farming. 2009 tax forms Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. 2009 tax forms Reasonable allocation. 2009 tax forms   It is not always easy to determine the business and nonbusiness parts of an expense. 2009 tax forms There is no method of allocation that applies to all mixed expenses. 2009 tax forms Any reasonable allocation is acceptable. 2009 tax forms What is reasonable depends on the circumstances in each case. 2009 tax forms Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. 2009 tax forms Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. 2009 tax forms Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. 2009 tax forms However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. 2009 tax forms Poultry bought for resale and not resold during the year. 2009 tax forms Deduction limit. 2009 tax forms   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). 2009 tax forms This limit does not apply if you meet one of the exceptions described later. 2009 tax forms See Chapter 2 for a discussion of the cash method of accounting. 2009 tax forms   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. 2009 tax forms The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. 2009 tax forms The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. 2009 tax forms Example. 2009 tax forms You may not qualify for the exception described next. 2009 tax forms During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. 2009 tax forms Your total prepaid farm supplies expense for 2013 is $5,500. 2009 tax forms Your other deductible farm expenses totaled $10,000 for 2013. 2009 tax forms Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. 2009 tax forms The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. 2009 tax forms Exceptions. 2009 tax forms   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. 2009 tax forms Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. 2009 tax forms Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. 2009 tax forms   You are a farm-related taxpayer if any of the following tests apply. 2009 tax forms Your main home is on a farm. 2009 tax forms Your principal business is farming. 2009 tax forms A member of your family meets (1) or (2). 2009 tax forms For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. 2009 tax forms    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. 2009 tax forms Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. 2009 tax forms The payment is for the purchase of feed rather than a deposit. 2009 tax forms The prepayment has a business purpose and is not merely for tax avoidance. 2009 tax forms Deducting the prepayment does not result in a material distortion of your income. 2009 tax forms If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. 2009 tax forms If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. 2009 tax forms This rule does not apply to the purchase of commodity futures contracts. 2009 tax forms Payment for the purchase of feed. 2009 tax forms   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. 2009 tax forms It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. 2009 tax forms   The following are some factors that show a payment is a deposit rather than for the purchase of feed. 2009 tax forms The absence of specific quantity terms. 2009 tax forms The right to a refund of any unapplied payment credit at the end of the contract. 2009 tax forms The seller's treatment of the payment as a deposit. 2009 tax forms The right to substitute other goods or products for those specified in the contract. 2009 tax forms   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. 2009 tax forms Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. 2009 tax forms Business purpose. 2009 tax forms   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. 2009 tax forms The following are some examples of business benefits. 2009 tax forms Fixing maximum prices and securing an assured feed supply. 2009 tax forms Securing preferential treatment in anticipation of a feed shortage. 2009 tax forms   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. 2009 tax forms No material distortion of income. 2009 tax forms   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. 2009 tax forms Your customary business practice in conducting your livestock operations. 2009 tax forms The expense in relation to past purchases. 2009 tax forms The time of year you made the purchase. 2009 tax forms The expense in relation to your income for the year. 2009 tax forms Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. 2009 tax forms You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. 2009 tax forms The cost of boarding farm labor is a deductible labor cost. 2009 tax forms Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. 2009 tax forms If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. 2009 tax forms See chapter 13 for more information on employment taxes. 2009 tax forms Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. 2009 tax forms See Taxes , later. 2009 tax forms Property for services. 2009 tax forms   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. 2009 tax forms If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. 2009 tax forms   Treat the wages deducted as an amount received for the property. 2009 tax forms You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. 2009 tax forms Any gain or loss has the same character the exchanged property had in your hands. 2009 tax forms For more information, see chapter 8. 2009 tax forms Child as an employee. 2009 tax forms   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. 2009 tax forms Include these wages in the child's income. 2009 tax forms The child may have to file an income tax return. 2009 tax forms These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. 2009 tax forms For more information, see Family Employees in chapter 13. 2009 tax forms    A Form W-2, Wage and Tax Statement, should be issued to the child employee. 2009 tax forms   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. 2009 tax forms The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. 2009 tax forms Spouse as an employee. 2009 tax forms   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. 2009 tax forms Wages you pay to your spouse are subject to social security and Medicare taxes. 2009 tax forms For more information, see Family Employees in chapter 13. 2009 tax forms Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. 2009 tax forms However, those wages may be subject to the employment taxes discussed in chapter 13. 2009 tax forms Household workers. 2009 tax forms   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. 2009 tax forms Construction labor. 2009 tax forms   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. 2009 tax forms These wages are part of the cost of the building or other improvement. 2009 tax forms You must capitalize them. 2009 tax forms Maintaining your home. 2009 tax forms   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. 2009 tax forms For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. 2009 tax forms The employee devotes the remaining time to work on your farm. 2009 tax forms You cannot deduct 5% of the wages and employment taxes you pay for that employee. 2009 tax forms Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). 2009 tax forms Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. 2009 tax forms Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. 2009 tax forms However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. 2009 tax forms For example, if you repair the barn roof, the cost is deductible. 2009 tax forms But if you replace the roof, it is a capital expense. 2009 tax forms For more information, see Capital Expenses , later. 2009 tax forms Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. 2009 tax forms Cash method. 2009 tax forms   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. 2009 tax forms You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. 2009 tax forms You can, however, deduct the interest when you start making payments on the new loan. 2009 tax forms For more information, see Cash Method in chapter 2. 2009 tax forms Prepaid interest. 2009 tax forms   Under the cash method, you generally cannot deduct any interest paid before the year it is due. 2009 tax forms Interest paid in advance may be deducted only in the tax year in which it is due. 2009 tax forms Accrual method. 2009 tax forms   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. 2009 tax forms However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. 2009 tax forms For more information, see Accrual Method in chapter 2. 2009 tax forms Allocation of interest. 2009 tax forms   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. 2009 tax forms Allocate the interest to the following categories. 2009 tax forms Trade or business interest. 2009 tax forms Passive activity interest. 2009 tax forms Investment interest. 2009 tax forms Portfolio interest. 2009 tax forms Personal interest. 2009 tax forms   You generally allocate interest on a loan the same way you allocate the loan proceeds. 2009 tax forms You allocate loan proceeds by tracing disbursements to specific uses. 2009 tax forms The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 2009 tax forms Secured loan. 2009 tax forms   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. 2009 tax forms Example. 2009 tax forms You secure a loan with property used in your farming business. 2009 tax forms You use the loan proceeds to buy a car for personal use. 2009 tax forms You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. 2009 tax forms If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 2009 tax forms The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 2009 tax forms However, you can choose to treat the loan as not secured by your home. 2009 tax forms For more information, see Publication 936. 2009 tax forms Allocation period. 2009 tax forms   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. 2009 tax forms The date the loan is repaid. 2009 tax forms The date the loan is reallocated to another use. 2009 tax forms More information. 2009 tax forms   For more information on interest, see chapter 4 in Publication 535. 2009 tax forms Breeding Fees You can deduct breeding fees as a farm business expense. 2009 tax forms However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. 2009 tax forms For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. 2009 tax forms Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. 2009 tax forms You can also deduct the cost of applying these materials in the year you pay or incur it. 2009 tax forms However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. 2009 tax forms If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. 2009 tax forms However, you can choose to deduct these expenses in the year paid or incurred. 2009 tax forms If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. 2009 tax forms If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. 2009 tax forms Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. 2009 tax forms It does not include land you have never used previously for producing crops or sustaining livestock. 2009 tax forms You cannot deduct initial land preparation costs. 2009 tax forms (See Capital Expenses , later. 2009 tax forms ) Include government payments you receive for lime or fertilizer in income. 2009 tax forms See Fertilizer and Lime under Agricultural Program Payments in chapter 3. 2009 tax forms Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. 2009 tax forms You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. 2009 tax forms For information on employment taxes, see chapter 13. 2009 tax forms Allocation of taxes. 2009 tax forms   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. 2009 tax forms You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). 2009 tax forms To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. 2009 tax forms The allocation can be done from the assessed valuations. 2009 tax forms If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. 2009 tax forms State and local general sales taxes. 2009 tax forms   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. 2009 tax forms Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. 2009 tax forms Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. 2009 tax forms State and federal income taxes. 2009 tax forms   Individuals cannot deduct state and federal income taxes as farm business expenses. 2009 tax forms Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). 2009 tax forms However, you cannot deduct federal income tax. 2009 tax forms Highway use tax. 2009 tax forms   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. 2009 tax forms For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. 2009 tax forms Self-employment tax deduction. 2009 tax forms   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. 2009 tax forms For more information, see chapter 12. 2009 tax forms Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. 2009 tax forms This includes premiums you pay for the following types of insurance. 2009 tax forms Fire, storm, crop, theft, liability, and other insurance on farm business assets. 2009 tax forms Health and accident insurance on your farm employees. 2009 tax forms Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. 2009 tax forms Business interruption insurance. 2009 tax forms State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). 2009 tax forms Insurance to secure a loan. 2009 tax forms   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. 2009 tax forms In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 2009 tax forms Advance premiums. 2009 tax forms   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. 2009 tax forms Example. 2009 tax forms On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. 2009 tax forms The policy will cover a period of 3 years beginning on July 1, 2013. 2009 tax forms Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. 2009 tax forms Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. 2009 tax forms In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). 2009 tax forms Deduct the remaining $500 in 2016. 2009 tax forms Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. 2009 tax forms Business interruption insurance. 2009 tax forms   Use and occupancy and business interruption insurance premiums are deductible as a business expense. 2009 tax forms This insurance pays for lost profits if your business is shut down due to a fire or other cause. 2009 tax forms Report any proceeds in full on Schedule F, Part I. 2009 tax forms Self-employed health insurance deduction. 2009 tax forms   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. 2009 tax forms Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. 2009 tax forms Generally, this deduction cannot be more than the net profit from the business under which the plan was established. 2009 tax forms   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. 2009 tax forms   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. 2009 tax forms Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. 2009 tax forms   For more information, see Deductible Premiums in Publication 535, chapter 6. 2009 tax forms Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. 2009 tax forms However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. 2009 tax forms Advance payments. 2009 tax forms   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. 2009 tax forms Farm home. 2009 tax forms   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. 2009 tax forms Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. 2009 tax forms If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. 2009 tax forms Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. 2009 tax forms Conditional sales contract. 2009 tax forms   Whether an agreement is a conditional sales contract depends on the intent of the parties. 2009 tax forms Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 2009 tax forms No single test, or special combination of tests, always applies. 2009 tax forms However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 2009 tax forms The agreement applies part of each payment toward an equity interest you will receive. 2009 tax forms You get title to the property after you make a stated amount of required payments. 2009 tax forms The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. 2009 tax forms You pay much more than the current fair rental value of the property. 2009 tax forms You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. 2009 tax forms Determine this value when you make the agreement. 2009 tax forms You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 2009 tax forms The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. 2009 tax forms Example. 2009 tax forms You lease new farm equipment from a dealer who both sells and leases. 2009 tax forms The agreement includes an option to purchase the equipment for a specified price. 2009 tax forms The lease payments and the specified option price equal the sales price of the equipment plus interest. 2009 tax forms Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. 2009 tax forms For federal income tax purposes, the agreement is a conditional sales contract. 2009 tax forms You cannot deduct any of the lease payments as rent. 2009 tax forms You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. 2009 tax forms Motor vehicle leases. 2009 tax forms   Special rules apply to lease agreements that have a terminal rental adjustment clause. 2009 tax forms In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. 2009 tax forms If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. 2009 tax forms For more information, see Internal Revenue Code (IRC) section 7701(h). 2009 tax forms Leveraged leases. 2009 tax forms   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). 2009 tax forms For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. 2009 tax forms irs. 2009 tax forms gov/pub/irs-irbs/irb01-19. 2009 tax forms pdf. 2009 tax forms Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. 2009 tax forms You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. 2009 tax forms However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. 2009 tax forms Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. 2009 tax forms Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. 2009 tax forms Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. 2009 tax forms You use it exclusively and regularly for the administrative or management activities of your trade or business. 2009 tax forms You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 2009 tax forms If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. 2009 tax forms The IRS now provides a simplified method to determine your expenses for business use of your home. 2009 tax forms For more information, see Schedule C (Form 1040), Part II, and its instructions. 2009 tax forms Deduction limit. 2009 tax forms   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. 2009 tax forms But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. 2009 tax forms   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. 2009 tax forms The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). 2009 tax forms Farm expenses other than expenses that relate to the use of your home. 2009 tax forms If you are self-employed, do not include your deduction for half of your self-employment tax. 2009 tax forms   Deductions over the current year's limit can be carried over to your next tax year. 2009 tax forms They are subject to the deduction limit for the next tax year. 2009 tax forms More information. 2009 tax forms   See Publication 587 for more information on deducting expenses for the business use of your home. 2009 tax forms Telephone expense. 2009 tax forms   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. 2009 tax forms However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. 2009 tax forms Cell phone charges for calls relating to your farm business are deductible. 2009 tax forms If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. 2009 tax forms Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. 2009 tax forms Only expenses for business use are deductible. 2009 tax forms These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). 2009 tax forms Standard mileage rate. 2009 tax forms   Instead of using actual costs, under certain conditions you can use the standard mileage rate. 2009 tax forms The standard mileage rate for each mile of business use is 56. 2009 tax forms 5 cents in 2013. 2009 tax forms You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. 2009 tax forms   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. 2009 tax forms You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. 2009 tax forms Example. 2009 tax forms Maureen owns a car and four pickup trucks that are used in her farm business. 2009 tax forms Her farm employees use the trucks and she uses the car for business. 2009 tax forms Maureen cannot use the standard mileage rate for the car or the trucks. 2009 tax forms This is because all five vehicles are used in Maureen's farm business at the same time. 2009 tax forms She must use actual expenses for all vehicles. 2009 tax forms Business use percentage. 2009 tax forms   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. 2009 tax forms You choose this method of substantiating business use the first year the vehicle is placed in service. 2009 tax forms Once you make this choice, you may not change to another method later. 2009 tax forms The following are uses directly connected with the business of farming. 2009 tax forms Cultivating land. 2009 tax forms Raising or harvesting any agricultural or horticultural commodity. 2009 tax forms Raising, shearing, feeding, caring for, training, and managing animals. 2009 tax forms Driving to the feed or supply store. 2009 tax forms   If you keep records and they show that your business use was more than 75%, you may be able to claim more. 2009 tax forms See Recordkeeping requirements under Travel Expenses , below. 2009 tax forms More information. 2009 tax forms   For more information on deductible truck and car expenses, see Publication 463, chapter 4. 2009 tax forms If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. 2009 tax forms Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. 2009 tax forms You cannot deduct lavish or extravagant expenses. 2009 tax forms Usually, the location of your farm business is considered your home for tax purposes. 2009 tax forms You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. 2009 tax forms If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. 2009 tax forms The following are some types of deductible travel expenses. 2009 tax forms Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. 2009 tax forms Meals. 2009 tax forms   You ordinarily can deduct only 50% of your business-related meals expenses. 2009 tax forms You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. 2009 tax forms You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. 2009 tax forms For information on entertainment expenses, see Publication 463, chapter 2. 2009 tax forms   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. 2009 tax forms You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. 2009 tax forms    Recordkeeping requirements. 2009 tax forms You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. 2009 tax forms Estimates or approximations do not qualify as proof of an expense. 2009 tax forms   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. 2009 tax forms Generally, it is best to record the expense and get documentation of it at the time you pay it. 2009 tax forms   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. 2009 tax forms However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. 2009 tax forms More information. 2009 tax forms   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. 2009 tax forms Reimbursements to employees. 2009 tax forms   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. 2009 tax forms Employees may be reimbursed under an accountable or nonaccountable plan. 2009 tax forms Under an accountable plan, the employee must provide evidence of expenses. 2009 tax forms Under a nonaccountable plan, no evidence of expenses is required. 2009 tax forms If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. 2009 tax forms If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. 2009 tax forms For more information, see Publication 535, chapter 11. 2009 tax forms Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. 2009 tax forms However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. 2009 tax forms Do not take a separate deduction for the penalty. 2009 tax forms Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. 2009 tax forms These costs include repairs, utilities, insurance, and depreciation. 2009 tax forms The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. 2009 tax forms Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. 2009 tax forms You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. 2009 tax forms However, see Chickens, seeds, and young plants , below. 2009 tax forms Example. 2009 tax forms You use the cash method of accounting. 2009 tax forms In 2013, you buy 50 steers you will sell in 2014. 2009 tax forms You cannot deduct the cost of the steers on your 2013 tax return. 2009 tax forms You deduct their cost on your 2014 Schedule F, Part I. 2009 tax forms Chickens, seeds, and young plants. 2009 tax forms   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. 2009 tax forms You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. 2009 tax forms However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. 2009 tax forms   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. 2009 tax forms You cannot also deduct the cost from the selling price. 2009 tax forms   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. 2009 tax forms Deduct the cost of these seeds and plants through depletion allowances. 2009 tax forms For more information, see Depletion in chapter 7. 2009 tax forms   The cost of chickens and plants used as food for your family is never deductible. 2009 tax forms   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. 2009 tax forms These rules are discussed in chapter 6. 2009 tax forms Example. 2009 tax forms You use the cash method of accounting. 2009 tax forms In 2013, you buy 500 baby chicks to raise for resale in 2014. 2009 tax forms You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. 2009 tax forms Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. 2009 tax forms Election to use crop method. 2009 tax forms   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. 2009 tax forms You must get IRS approval to use the crop method. 2009 tax forms If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. 2009 tax forms For more information, see Crop method under Special Methods of Accounting in chapter 2. 2009 tax forms Choosing a method. 2009 tax forms   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. 2009 tax forms   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. 2009 tax forms Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. 2009 tax forms For more information, see Change in Accounting Method in chapter 2. 2009 tax forms Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. 2009 tax forms These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. 2009 tax forms Accounting fees. 2009 tax forms Advertising. 2009 tax forms Business travel and meals. 2009 tax forms Commissions. 2009 tax forms Consultant fees. 2009 tax forms Crop scouting expenses. 2009 tax forms Dues to cooperatives. 2009 tax forms Educational expenses (to maintain and improve farming skills). 2009 tax forms Farm-related attorney fees. 2009 tax forms Farm magazines. 2009 tax forms Ginning. 2009 tax forms Insect sprays and dusts. 2009 tax forms Litter and bedding. 2009 tax forms Livestock fees. 2009 tax forms Marketing fees. 2009 tax forms Milk assessment. 2009 tax forms Recordkeeping expenses. 2009 tax forms Service charges. 2009 tax forms Small tools expected to last one year or less. 2009 tax forms Stamps and stationery. 2009 tax forms Subscriptions to professional, technical, and trade journals that deal with farming. 2009 tax forms Tying material and containers. 2009 tax forms Loan expenses. 2009 tax forms   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. 2009 tax forms Tax preparation fees. 2009 tax forms   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. 2009 tax forms You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 2009 tax forms   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. 2009 tax forms Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. 2009 tax forms You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. 2009 tax forms Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. 2009 tax forms For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. 2009 tax forms Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. 2009 tax forms Income from cooperatives. 2009 tax forms   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. 2009 tax forms This deduction amount is reported on Form 1099-PATR, box 6. 2009 tax forms In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. 2009 tax forms More information. 2009 tax forms   For more information on the domestic production activities deduction, see the Instructions for Form 8903. 2009 tax forms Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. 2009 tax forms You include the expense in the basis of the asset. 2009 tax forms Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. 2009 tax forms See chapters 2  and 6. 2009 tax forms Capital expenses are generally not deductible, but they may be depreciable. 2009 tax forms However, you can elect to deduct certain capital expenses, such as the following. 2009 tax forms The cost of fertilizer, lime, etc. 2009 tax forms (See Fertilizer and Lime under Deductible Expenses , earlier. 2009 tax forms ) Soil and water conservation expenses. 2009 tax forms (See chapter 5. 2009 tax forms ) The cost of property that qualifies for a deduction under section 179. 2009 tax forms (See chapter 7. 2009 tax forms ) Business start-up costs. 2009 tax forms (See Business start-up and organizational costs , later. 2009 tax forms ) Forestation and reforestation costs. 2009 tax forms (See Forestation and reforestation costs , later. 2009 tax forms ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. 2009 tax forms Land and buildings. 2009 tax forms Additions, alterations, and improvements to buildings, etc. 2009 tax forms Cars and trucks. 2009 tax forms Equipment and machinery. 2009 tax forms Fences. 2009 tax forms Draft, breeding, sport, and dairy livestock. 2009 tax forms Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. 2009 tax forms Water wells, including drilling and equipping costs. 2009 tax forms Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. 2009 tax forms Business start-up and organizational costs. 2009 tax forms   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. 2009 tax forms The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 2009 tax forms Any remaining costs must be amortized. 2009 tax forms See chapter 7. 2009 tax forms   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. 2009 tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2009 tax forms Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2009 tax forms 9100-2” at the top of the amended return. 2009 tax forms File the amended return at the same address you filed the original return. 2009 tax forms The election applies when figuring taxable income for the current tax year and all subsequent years. 2009 tax forms   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. 2009 tax forms For more information about start-up and organizational costs, see chapter 7. 2009 tax forms Crop production expenses. 2009 tax forms   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. 2009 tax forms However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. 2009 tax forms For more information, see Uniform Capitalization Rules in chapter 6. 2009 tax forms Timber. 2009 tax forms   Capitalize the cost of acquiring timber. 2009 tax forms Do not include the cost of land in the cost of the timber. 2009 tax forms You must generally capitalize direct costs incurred in reforestation. 2009 tax forms However, you can elect to deduct some forestation and reforestation costs. 2009 tax forms See Forestation and reforestation costs next. 2009 tax forms Reforestation costs include the following. 2009 tax forms Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. 2009 tax forms The cost of seed or seedlings. 2009 tax forms Labor and tool expenses. 2009 tax forms Depreciation on equipment used in planting or seeding. 2009 tax forms Costs incurred in replanting to replace lost seedlings. 2009 tax forms You can choose to capitalize certain indirect reforestation costs. 2009 tax forms   These capitalized amounts are your basis for the timber. 2009 tax forms Recover your basis when you sell the timber or take depletion allowances when you cut the timber. 2009 tax forms See Depletion in chapter 7. 2009 tax forms Forestation and reforestation costs. 2009 tax forms   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. 2009 tax forms Any remaining costs can be amortized over an 84-month period. 2009 tax forms See chapter 7. 2009 tax forms If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. 2009 tax forms The accounts should include all reforestation treatments and the dates they were applied. 2009 tax forms Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. 2009 tax forms The timber account should be maintained until the timber is disposed of. 2009 tax forms For more information, see Notice 2006-47, 2006-20 I. 2009 tax forms R. 2009 tax forms B. 2009 tax forms 892, available at  www. 2009 tax forms irs. 2009 tax forms gov/irb/2006-20_IRB/ar11. 2009 tax forms html. 2009 tax forms   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. 2009 tax forms If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. 2009 tax forms If you are not filing Form T (Timber), attach a statement to your return with the following information. 2009 tax forms The unique stand identification numbers. 2009 tax forms The total number of acres reforested during the tax year. 2009 tax forms The nature of the reforestation treatments. 2009 tax forms The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. 2009 tax forms   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2009 tax forms Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 2009 tax forms 9100-2” at the top of the amended return. 2009 tax forms File the amended return at the same address you filed the original return. 2009 tax forms    For more information about forestation and reforestation costs, see chapter 7. 2009 tax forms    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. 2009 tax forms You can view this publication on the Internet at  www. 2009 tax forms fs. 2009 tax forms fed. 2009 tax forms us/publications. 2009 tax forms Christmas tree cultivation. 2009 tax forms   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. 2009 tax forms Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. 2009 tax forms For more information, see Timber Depletion under Depletion in chapter 7. 2009 tax forms   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. 2009 tax forms Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. 2009 tax forms   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. 2009 tax forms If the improvements do not have a determinable useful life, add their cost to the basis of the land. 2009 tax forms The cost is recovered when you sell or otherwise dispose of it. 2009 tax forms If the improvements have a determinable useful life, recover their cost through depreciation. 2009 tax forms Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. 2009 tax forms Recover these costs through depreciation. 2009 tax forms Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. 2009 tax forms Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. 2009 tax forms These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. 2009 tax forms Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. 2009 tax forms Other Nondeductible Items You cannot deduct the following items on your tax return. 2009 tax forms Loss of growing plants, produce, and crops. 2009 tax forms   Losses of plants, produce, and crops raised for sale are generally not deductible. 2009 tax forms However, you may have a deductible loss on plants with a preproductive period of more than 2 years. 2009 tax forms See chapter 11 for more information. 2009 tax forms Repayment of loans. 2009 tax forms   You cannot deduct the repayment of a loan. 2009 tax forms However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. 2009 tax forms See Interest , earlier. 2009 tax forms Estate, inheritance, legacy, succession, and gift taxes. 2009 tax forms   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. 2009 tax forms Loss of livestock. 2009 tax forms   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. 2009 tax forms Losses from sales or exchanges between related persons. 2009 tax forms   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. 2009 tax forms For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 2009 tax forms Cost of raising unharvested crops. 2009 tax forms   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. 2009 tax forms Add these costs to the basis of the land to determine the gain or loss on the sale. 2009 tax forms For more information, see Section 1231 Gains and Losses in chapter 9. 2009 tax forms Cost of unharvested crops bought with land. 2009 tax forms   Capitalize the purchase price of land, including the cost allocable to unharvested crops. 2009 tax forms You cannot deduct the cost of the crops at the time of purchase. 2009 tax forms However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. 2009 tax forms Cost related to gifts. 2009 tax forms   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. 2009 tax forms The costs are not deductible in the year of the gift or any later year. 2009 tax forms For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. 2009 tax forms Club dues and membership fees. 2009 tax forms   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. 2009 tax forms This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 2009 tax forms Exception. 2009 tax forms   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. 2009 tax forms Boards of trade. 2009 tax forms Business leagues. 2009 tax forms Chambers of commerce. 2009 tax forms Civic or public service organizations. 2009 tax forms Professional associations. 2009 tax forms Trade associations. 2009 tax forms Real estate boards. 2009 tax forms Fines and penalties. 2009 tax forms   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. 2009 tax forms Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. 2009 tax forms The amount of the loss you can deduct when figuring your taxable income may be limited. 2009 tax forms To figure your deductible loss, you must apply the following limits. 2009 tax forms The at-risk limits. 2009 tax forms The passive activity limits. 2009 tax forms The following discussions explain these limits. 2009 tax forms If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. 2009 tax forms See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 2009 tax forms If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. 2009 tax forms See Not-for-Profit Farming, later. 2009 tax forms At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. 2009 tax forms These rules limit the losses you can deduct when figuring your taxable income. 2009 tax forms The deductible loss from an activity is limited to the amount you have at risk in the activity. 2009 tax forms You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. 2009 tax forms You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. 2009 tax forms For more information, see Publication 925. 2009 tax forms Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. 2009 tax forms Generally, a rental activity is a passive activity. 2009 tax forms If you have a passive activity, special rules limit the loss you can deduct in the tax year. 2009 tax forms You generally can deduct losses from passive activities only up to income from passive activities. 2009 tax forms Credits are similarly limited. 2009 tax forms For more information, see Publication 925. 2009 tax forms Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. 2009 tax forms This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. 2009 tax forms Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. 2009 tax forms Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. 2009 tax forms Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. 2009 tax forms For more details, see IRC section 461(j). 2009 tax forms Excess farm loss. 2009 tax forms   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). 2009 tax forms This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. 2009 tax forms   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. 2009 tax forms Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. 2009 tax forms However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). 2009 tax forms Also, there is a limit on the deductions you can take. 2009 tax forms You cannot use a loss from that activity to offset income from other activities. 2009 tax forms Activities you do as a hobby, or mainly for sport or recreation, come under this limit. 2009 tax forms An investment activity intended only to produce tax losses for the investors also comes under this limit. 2009 tax forms The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. 2009 tax forms It does not apply to corporations other than S corporations. 2009 tax forms In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. 2009 tax forms No one factor alone is decisive. 2009 tax forms Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. 2009 tax forms Presumption of profit. 2009 tax forms   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. 2009 tax forms Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. 2009 tax forms The activity must be substantially the same for each year within this period. 2009 tax forms You have a profit when the gross income from an activity is more than the deductions for it. 2009 tax forms   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. 2009 tax forms   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. 2009 tax forms This means the limits discussed here do not apply. 2009 tax forms You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. 2009 tax forms You can rely on this presumption in every case, unless the IRS shows it is not valid. 2009 tax forms   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. 2009 tax forms Using the presumption later. 2009 tax forms   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. 2009 tax forms   You can choose to do this by filing Form 5213. 2009 tax forms Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. 2009 tax forms You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. 2009 tax forms   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. 2009 tax forms Accordingly, it will not limit your deductions. 2009 tax forms Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. 2009 tax forms If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. 2009 tax forms If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. 2009 tax forms   Filing Form 5213 automatically extends the period of limitations on any year