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940 Tax Form 2012

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940 Tax Form 2012

940 tax form 2012 3. 940 tax form 2012   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). 940 tax form 2012 There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. 940 tax form 2012 There are also the limitations which may need to be applied if you have a net loss on Schedule E. 940 tax form 2012 There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. 940 tax form 2012 You may also have a gain or loss related to your rental property from a casualty or theft. 940 tax form 2012 This is considered separately from the income and expense information you report on Schedule E. 940 tax form 2012 Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). 940 tax form 2012 However, do not use that schedule to report a not-for-profit activity. 940 tax form 2012 See Not Rented for Profit , in chapter 4. 940 tax form 2012 There are also other rental situations in which forms other than Schedule E would be used. 940 tax form 2012 Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. 940 tax form 2012 , you normally report your rental income and expenses on Schedule E, Part I. 940 tax form 2012 List your total income, expenses, and depreciation for each rental property. 940 tax form 2012 Be sure to enter the number of fair rental and personal use days on line 2. 940 tax form 2012 If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. 940 tax form 2012 Complete lines 1 and 2 for each property. 940 tax form 2012 However, fill in lines 23a through 26 on only one Schedule E. 940 tax form 2012 On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. 940 tax form 2012 To find out if you need to attach Form 4562, see Form 4562 , later. 940 tax form 2012 If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. 940 tax form 2012 Form 6198, At-Risk Limitations. 940 tax form 2012 See At-Risk Rules , later. 940 tax form 2012 Also see Publication 925. 940 tax form 2012 Form 8582, Passive Activity Loss Limitations. 940 tax form 2012 See Passive Activity Limits , later. 940 tax form 2012 Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. 940 tax form 2012 If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. 940 tax form 2012 Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). 940 tax form 2012 Form 4562. 940 tax form 2012   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. 940 tax form 2012 Otherwise, figure your depreciation on your own worksheet. 940 tax form 2012 You do not have to attach these computations to your return, but you should keep them in your records for future reference. 940 tax form 2012   See Publication 946 for information on preparing Form 4562. 940 tax form 2012 Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. 940 tax form 2012 Providing substantial services. 940 tax form 2012   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 940 tax form 2012 Use Form 1065, U. 940 tax form 2012 S. 940 tax form 2012 Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). 940 tax form 2012 Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. 940 tax form 2012 For information, see Publication 334, Tax Guide for Small Business. 940 tax form 2012 Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. 940 tax form 2012 For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. 940 tax form 2012 Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 940 tax form 2012 This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. 940 tax form 2012 If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). 940 tax form 2012 You will not be required to file Form 1065 for any year the election is in effect. 940 tax form 2012 Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. 940 tax form 2012 If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. 940 tax form 2012 For more information on qualified joint ventures, go to IRS. 940 tax form 2012 gov and enter “qualified joint venture” in the search box. 940 tax form 2012 Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. 940 tax form 2012 You must consider these rules in the order shown below. 940 tax form 2012 Both are discussed in this section. 940 tax form 2012 At-risk rules. 940 tax form 2012 These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. 940 tax form 2012 This applies only if the real property was placed in service after 1986. 940 tax form 2012 Passive activity limits. 940 tax form 2012 Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. 940 tax form 2012 However, there are exceptions. 940 tax form 2012 At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. 940 tax form 2012 Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. 940 tax form 2012 In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. 940 tax form 2012 You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. 940 tax form 2012 Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. 940 tax form 2012 See Publication 925 for a discussion of the at-risk rules. 940 tax form 2012 Form 6198. 940 tax form 2012   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. 940 tax form 2012 Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. 940 tax form 2012 For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. 940 tax form 2012 For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. 940 tax form 2012 Deductions or losses from passive activities are limited. 940 tax form 2012 You generally cannot offset income, other than passive income, with losses from passive activities. 940 tax form 2012 Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. 940 tax form 2012 Any excess loss or credit is carried forward to the next tax year. 940 tax form 2012 Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. 940 tax form 2012 For a detailed discussion of these rules, see Publication 925. 940 tax form 2012 Real estate professionals. 940 tax form 2012   If you are a real estate professional, complete line 43 of Schedule E. 940 tax form 2012      You qualify as a real estate professional for the tax year if you meet both of the following requirements. 940 tax form 2012 More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. 940 tax form 2012 You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. 940 tax form 2012 If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. 940 tax form 2012 For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. 940 tax form 2012   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. 940 tax form 2012 You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. 940 tax form 2012   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. 940 tax form 2012 However, you can count your spouse's participation in an activity in determining if you materially participated. 940 tax form 2012 Real property trades or businesses. 940 tax form 2012   A real property trade or business is a trade or business that does any of the following with real property. 940 tax form 2012 Develops or redevelops it. 940 tax form 2012 Constructs or reconstructs it. 940 tax form 2012 Acquires it. 940 tax form 2012 Converts it. 940 tax form 2012 Rents or leases it. 940 tax form 2012 Operates or manages it. 940 tax form 2012 Brokers it. 940 tax form 2012 Choice to treat all interests as one activity. 940 tax form 2012   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. 940 tax form 2012 You can make this choice for any year that you qualify as a real estate professional. 940 tax form 2012 If you forgo making the choice for one year, you can still make it for a later year. 940 tax form 2012   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. 940 tax form 2012 This is true even if you are not a real estate professional in any intervening year. 940 tax form 2012 (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. 940 tax form 2012 )   See the Instructions for Schedule E for information about making this choice. 940 tax form 2012 Material participation. 940 tax form 2012   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. 940 tax form 2012 For details, see Publication 925 or the Instructions for Schedule C. 940 tax form 2012 Participating spouse. 940 tax form 2012   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. 940 tax form 2012 Do this even if your spouse owns no interest in the activity or files a separate return for the year. 940 tax form 2012 Form 8582. 940 tax form 2012    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. 940 tax form 2012 See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. 940 tax form 2012   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. 940 tax form 2012 Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. 940 tax form 2012 Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). 940 tax form 2012 Exception for Rental Real Estate With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. 940 tax form 2012 This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. 940 tax form 2012 Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. 940 tax form 2012 Example. 940 tax form 2012 Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. 940 tax form 2012 $2,000 of Jane's $3,500 loss offsets her passive income. 940 tax form 2012 The remaining $1,500 loss can be deducted from her $40,000 wages. 940 tax form 2012 The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. 940 tax form 2012 Active participation. 940 tax form 2012   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. 940 tax form 2012 Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. 940 tax form 2012 Example. 940 tax form 2012 Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. 940 tax form 2012 Mike had advertised and rented the house to the current tenant himself. 940 tax form 2012 He also collected the rents, which usually came by mail. 940 tax form 2012 All repairs were either made or contracted out by Mike. 940 tax form 2012 Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. 940 tax form 2012 Maximum special allowance. 940 tax form 2012   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. 940 tax form 2012   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. 940 tax form 2012 If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. 940 tax form 2012   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. 940 tax form 2012 Modified adjusted gross income (MAGI). 940 tax form 2012   This is your adjusted gross income from Form 1040, U. 940 tax form 2012 S. 940 tax form 2012 Individual Income Tax Return, line 38, or Form 1040NR, U. 940 tax form 2012 S. 940 tax form 2012 Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. 940 tax form 2012 S. 940 tax form 2012 savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). 940 tax form 2012 Form 8582 not required. 940 tax form 2012   Do not complete Form 8582 if you meet all of the following conditions. 940 tax form 2012 Your only passive activities were rental real estate activities in which you actively participated. 940 tax form 2012 Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). 940 tax form 2012 If married filing separately, you lived apart from your spouse all year. 940 tax form 2012 You have no prior year unallowed losses from these (or any other passive) activities. 940 tax form 2012 You have no current or prior year unallowed credits from passive activities. 940 tax form 2012 Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). 940 tax form 2012 You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. 940 tax form 2012   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. 940 tax form 2012 On lines 23a through 23e of your Schedule E, enter the applicable amounts. 940 tax form 2012 Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. 940 tax form 2012 You may be able to deduct the loss on your income tax return. 940 tax form 2012 Casualty. 940 tax form 2012   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. 940 tax form 2012 Such events include a storm, fire, or earthquake. 940 tax form 2012 Theft. 940 tax form 2012   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. 940 tax form 2012 Gain from casualty or theft. 940 tax form 2012   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. 940 tax form 2012 Generally, you must report this gain. 940 tax form 2012 However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. 940 tax form 2012 To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. 940 tax form 2012 In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. 940 tax form 2012 The cost of the replacement property must be equal to or more than the net insurance or other payment you received. 940 tax form 2012 More information. 940 tax form 2012   For information on business and nonbusiness casualty and theft losses, see Publication 547. 940 tax form 2012 How to report. 940 tax form 2012    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. 940 tax form 2012 Follow the Instructions for Form 4684 for where to carry your net gain or loss. 940 tax form 2012 Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. 940 tax form 2012 In 2013, she rented it all 12 months for a monthly rental fee of $1,125. 940 tax form 2012 In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. 940 tax form 2012 Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. 940 tax form 2012 This means using the straight line method over a recovery period of 27. 940 tax form 2012 5 years. 940 tax form 2012 She uses Table 2-2d to find her depreciation percentage. 940 tax form 2012 Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. 940 tax form 2012 For year 6, the rate is 3. 940 tax form 2012 636%. 940 tax form 2012 Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. 940 tax form 2012 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. 940 tax form 2012 Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. 940 tax form 2012 Marie also meets all of the requirements for not having to file Form 8582. 940 tax form 2012 She uses Schedule E, Part I, to report her rental income and expenses. 940 tax form 2012 She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. 940 tax form 2012 Form 4562 is not required. 940 tax form 2012 Prev  Up  Next   Home   More Online Publications
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The 940 Tax Form 2012

940 tax form 2012 7. 940 tax form 2012   Costs You Can Deduct or Capitalize Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Carrying Charges Research and Experimental CostsProduct. 940 tax form 2012 Costs not included. 940 tax form 2012 Intangible Drilling Costs Exploration CostsPartnerships and S corporations. 940 tax form 2012 Development Costs Circulation Costs Business Start-Up and Organizational Costs Reforestation Costs Retired Asset Removal Costs Barrier Removal CostsOther barrier removals. 940 tax form 2012 Film and Television Production Costs What's New Film and television productions costs. 940 tax form 2012  The election to expense film and television production costs does not apply to productions that begin after December 31, 2013. 940 tax form 2012 See Film and Television Production Costs , later. 940 tax form 2012 Introduction This chapter discusses costs you can elect to deduct or capitalize. 940 tax form 2012 You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it. 940 tax form 2012 If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. 940 tax form 2012 When you capitalize a cost, you add it to the basis of property to which it relates. 940 tax form 2012 A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. 940 tax form 2012 Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs. 940 tax form 2012 You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. 940 tax form 2012 For more information on the alternative minimum tax, see the instructions for the following forms. 940 tax form 2012 Form 6251, Alternative Minimum Tax—Individuals. 940 tax form 2012 Form 4626, Alternative Minimum Tax—Corporations. 940 tax form 2012 Topics - This chapter discusses: Carrying charges Research and experimental costs Intangible drilling costs Exploration costs Development costs Circulation costs Qualified disaster expenses Business start-up and organizational costs Reforestation costs Retired asset removal costs Barrier removal costs Film and television production costs Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 3468 Investment Credit 8826 Disabled Access Credit See chapter 12 for information about getting publications and forms. 940 tax form 2012 Carrying Charges Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. 940 tax form 2012 Certain carrying charges must be capitalized under the uniform capitalization rules. 940 tax form 2012 (For information on capitalization of interest, see chapter 4 . 940 tax form 2012 ) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible. 940 tax form 2012 You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. 940 tax form 2012 For unimproved and unproductive real property, your election is good for only 1 year. 940 tax form 2012 You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. 940 tax form 2012 For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. 940 tax form 2012 For personal property, your election is effective until the date you install or first use it, whichever is later. 940 tax form 2012 How to make the election. 940 tax form 2012   To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. 940 tax form 2012 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). 940 tax form 2012 Attach the statement to the amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2” on the statement. 940 tax form 2012 File the amended return at the same address you filed the original return. 940 tax form 2012 Research and Experimental Costs The costs of research and experimentation are generally capital expenses. 940 tax form 2012 However, you can elect to deduct these costs as a current business expense. 940 tax form 2012 Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change. 940 tax form 2012 If you meet certain requirements, you may elect to defer and amortize research and experimental costs. 940 tax form 2012 For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8. 940 tax form 2012 Research and experimental costs defined. 940 tax form 2012   Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. 940 tax form 2012 Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. 940 tax form 2012 Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement. 940 tax form 2012      The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. 940 tax form 2012 However, costs paid or incurred to obtain another's patent are not research and experimental costs. 940 tax form 2012 Product. 940 tax form 2012   The term “product” includes any of the following items. 940 tax form 2012 Formula. 940 tax form 2012 Invention. 940 tax form 2012 Patent. 940 tax form 2012 Pilot model. 940 tax form 2012 Process. 940 tax form 2012 Technique. 940 tax form 2012 Property similar to the items listed above. 940 tax form 2012 It also includes products used by you in your trade or business or held for sale, lease, or license. 940 tax form 2012 Costs not included. 940 tax form 2012   Research and experimental costs do not include expenses for any of the following activities. 940 tax form 2012 Advertising or promotions. 940 tax form 2012 Consumer surveys. 940 tax form 2012 Efficiency surveys. 940 tax form 2012 Management studies. 940 tax form 2012 Quality control testing. 940 tax form 2012 Research in connection with literary, historical, or similar projects. 940 tax form 2012 The acquisition of another's patent, model, production, or process. 940 tax form 2012 When and how to elect. 940 tax form 2012   You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. 940 tax form 2012 If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS. 940 tax form 2012 Deducting or Amortizing Research and Experimentation Costs IF you . 940 tax form 2012 . 940 tax form 2012 . 940 tax form 2012 THEN . 940 tax form 2012 . 940 tax form 2012 . 940 tax form 2012 Elect to deduct research and experimental costs as a current business expense Deduct all research and experimental costs in the first year you pay or incur the costs and all later years. 940 tax form 2012 Do not deduct research and experimental costs as a current business expense If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. 940 tax form 2012 See Research and Experimental Costs in chapter 8. 940 tax form 2012 Research credit. 940 tax form 2012   If you pay or incur qualified research expenses, you may be able to take the research credit. 940 tax form 2012 For more information see Form 6765, Credit for Increasing Research Activities and its instructions. 940 tax form 2012 Intangible Drilling Costs The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. 940 tax form 2012 You can usually recover them through depreciation or depletion. 940 tax form 2012 However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. 940 tax form 2012 These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. 940 tax form 2012 You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water. 940 tax form 2012 You can elect to deduct only the costs of items with no salvage value. 940 tax form 2012 These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. 940 tax form 2012 Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. 940 tax form 2012 However, see Amounts paid to contractor that must be capitalized , later. 940 tax form 2012 You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. 940 tax form 2012 It does not matter whether there is any intent to produce hydrocarbons. 940 tax form 2012 If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred. 940 tax form 2012 Amounts paid to contractor that must be capitalized. 940 tax form 2012   Amounts paid to a contractor must be capitalized if they are either: Amounts properly allocable to the cost of depreciable property, or Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient. 940 tax form 2012 How to make the election. 940 tax form 2012   You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. 940 tax form 2012 No formal statement is required. 940 tax form 2012 If you file Schedule C (Form 1040), enter these costs under “Other expenses. 940 tax form 2012 ”   For oil and gas wells, your election is binding for the year it is made and for all later years. 940 tax form 2012 For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. 940 tax form 2012 You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. 940 tax form 2012 Energy credit for costs of geothermal wells. 940 tax form 2012   If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. 940 tax form 2012 See the Instructions for Form 3468 for more information. 940 tax form 2012 Nonproductive well. 940 tax form 2012   If you capitalize your IDCs, you have another option if the well is nonproductive. 940 tax form 2012 You can deduct the IDCs of the nonproductive well as an ordinary loss. 940 tax form 2012 You must indicate and clearly state your election on your tax return for the year the well is completed. 940 tax form 2012 Once made, the election for oil and gas wells is binding for all later years. 940 tax form 2012 You can revoke your election for a geothermal well by filing an amended return that does not claim the loss. 940 tax form 2012 Costs incurred outside the United States. 940 tax form 2012   You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. 940 tax form 2012 However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. 940 tax form 2012 If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. 940 tax form 2012 These rules do not apply to a nonproductive well. 940 tax form 2012 Exploration Costs The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. 940 tax form 2012 You recover these costs through depletion as the mineral is removed from the ground. 940 tax form 2012 However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil and gas wells). 940 tax form 2012 How to make the election. 940 tax form 2012   You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. 940 tax form 2012 Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. 940 tax form 2012 The election applies to the tax year you make this election and all later tax years. 940 tax form 2012 Partnerships and S corporations. 940 tax form 2012   Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs. 940 tax form 2012 Each shareholder, not the S corporation, elects whether to capitalize or to deduct that shareholder's share of exploration costs. 940 tax form 2012 Reduced corporate deductions for exploration costs. 940 tax form 2012   A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. 940 tax form 2012 It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. 940 tax form 2012 A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. 940 tax form 2012 For more information on this method of amortization, see Internal Revenue Code section 59(e). 940 tax form 2012   The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. 940 tax form 2012 However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. 940 tax form 2012 See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. 940 tax form 2012   These rules also apply to the deduction of development costs by corporations. 940 tax form 2012 See Development Costs , later. 940 tax form 2012 Recapture of exploration expenses. 940 tax form 2012   When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. 940 tax form 2012 Use either of the following methods. 940 tax form 2012 Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. 940 tax form 2012 Your election must be clearly indicated on the return. 940 tax form 2012 Increase your adjusted basis in the mine by the amount included in income. 940 tax form 2012 Generally, you must elect this recapture method by the due date (including extensions) of your return. 940 tax form 2012 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). 940 tax form 2012 Make the election on your amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2” on the form where you are including the income. 940 tax form 2012 File the amended return at the same address you filed the original return. 940 tax form 2012 Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. 940 tax form 2012   You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. 940 tax form 2012 Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. 940 tax form 2012   Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. 940 tax form 2012 Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. 940 tax form 2012 If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs. 940 tax form 2012 Foreign exploration costs. 940 tax form 2012   If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. 940 tax form 2012 You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. 940 tax form 2012 (Cost depletion is discussed in chapter 9 . 940 tax form 2012 ) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. 940 tax form 2012 These rules also apply to foreign development costs. 940 tax form 2012 Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. 940 tax form 2012 These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. 940 tax form 2012 Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. 940 tax form 2012 Development costs do not include the costs for the acquisition or improvement of depreciable property. 940 tax form 2012 Instead of deducting development costs in the year paid or incurred, you can elect to treat the cost as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. 940 tax form 2012 This election applies each tax year to expenses paid or incurred in that year. 940 tax form 2012 Once made, the election is binding for the year and cannot be revoked for any reason. 940 tax form 2012 How to make the election. 940 tax form 2012   The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. 940 tax form 2012 Generally, you must make the election by the due date of the return (including extensions). 940 tax form 2012 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). 940 tax form 2012 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2. 940 tax form 2012 ” File the amended return at the same address you filed the original return. 940 tax form 2012 Foreign development costs. 940 tax form 2012   The rules discussed earlier for foreign exploration costs apply to foreign development costs. 940 tax form 2012 Reduced corporate deductions for development costs. 940 tax form 2012   The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs. 940 tax form 2012 Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. 940 tax form 2012 For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. 940 tax form 2012 Circulation costs are deductible even if they normally would be capitalized. 940 tax form 2012 This rule does not apply to the following costs that must be capitalized. 940 tax form 2012 The purchase of land or depreciable property. 940 tax form 2012 The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. 940 tax form 2012 Other treatment of circulation costs. 940 tax form 2012   If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs. 940 tax form 2012 Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1 ). 940 tax form 2012 Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. 940 tax form 2012 How to make the election. 940 tax form 2012   You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. 940 tax form 2012 Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. 940 tax form 2012 Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. 940 tax form 2012 However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. 940 tax form 2012 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 940 tax form 2012 Any remaining costs must be amortized. 940 tax form 2012 For information about amortizing start-up and organizational costs, see chapter 8 . 940 tax form 2012 Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. 940 tax form 2012 Organizational costs include the costs of creating a corporation. 940 tax form 2012 For more information on start-up and organizational costs, see chapter 8 . 940 tax form 2012 How to make the election. 940 tax form 2012   You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. 940 tax form 2012 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). 940 tax form 2012 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2. 940 tax form 2012 ” File the amended return at the same address you filed the original return. 940 tax form 2012 The election applies when computing taxable income for the current tax year and all subsequent years. 940 tax form 2012 Reforestation Costs Reforestation costs are generally capital expenditures. 940 tax form 2012 However, 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. 940 tax form 2012 The remaining costs can be amortized over an 84-month period. 940 tax form 2012 For information about amortizing reforestation costs, see chapter 8 . 940 tax form 2012 Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. 940 tax form 2012 Qualified timber property is property that contains trees in significant commercial quantities. 940 tax form 2012 See chapter 8 for more information on qualifying reforestation costs and qualified timber property. 940 tax form 2012 If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. 940 tax form 2012 Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed. 940 tax form 2012 How to make the election. 940 tax form 2012   You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. 940 tax form 2012 If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. 940 tax form 2012 If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made. 940 tax form 2012 The unique stand identification numbers. 940 tax form 2012 The total number of acres reforested during the tax year. 940 tax form 2012 The nature of the reforestation treatments. 940 tax form 2012 The total amounts of qualified reforestation expenditures eligible to be amortized or deducted. 940 tax form 2012   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). 940 tax form 2012 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2. 940 tax form 2012 ” File the amended return at the same address you filed the original return. 940 tax form 2012 The election applies when computing taxable income for the current tax year and all subsequent years. 940 tax form 2012   For additional information on reforestation costs, see chapter 8 . 940 tax form 2012 Recapture. 940 tax form 2012   This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. 940 tax form 2012 For more information on recapturing the deduction, see Depreciation Recapture in Publication 544. 940 tax form 2012 Retired Asset Removal Costs If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. 940 tax form 2012 However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair. 940 tax form 2012 Barrier Removal Costs The cost of an improvement to a business asset is normally a capital expense. 940 tax form 2012 However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. 940 tax form 2012 You must own or lease the facility or vehicle for use in connection with your trade or business. 940 tax form 2012 A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. 940 tax form 2012 A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services). 940 tax form 2012 You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business. 940 tax form 2012 Deduction limit. 940 tax form 2012   The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. 940 tax form 2012 However, you can add any costs over this limit to the basis of the property and depreciate these excess costs. 940 tax form 2012 Partners and partnerships. 940 tax form 2012   The $15,000 limit applies to a partnership and also to each partner in the partnership. 940 tax form 2012 A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. 940 tax form 2012 If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property. 940 tax form 2012   A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). 940 tax form 2012 If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full. 940 tax form 2012 Example. 940 tax form 2012 Emilio Azul's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. 940 tax form 2012 Emilio had $12,000 of similar expenses in his sole proprietorship. 940 tax form 2012 He elected to deduct $7,000 of them. 940 tax form 2012 Emilio allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. 940 tax form 2012 Emilio can add the excess $5,000 of his own expenses to the basis of the property used in his business. 940 tax form 2012 Also, if ABC can show that Emilio could not deduct $6,000 ($14,000 – $8,000) of his share of the partnership's expenses because of how Emilio applied the limit, ABC can add $6,000 to the basis of its property. 940 tax form 2012 Qualification standards. 940 tax form 2012   You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. 940 tax form 2012 You can view the Americans with Disabilities Act at www. 940 tax form 2012 ada. 940 tax form 2012 gov/pubs/ada. 940 tax form 2012 htm. 940 tax form 2012   The following is a list of some architectural barrier removal costs that can be deducted. 940 tax form 2012 Ground and floor surfaces. 940 tax form 2012 Walks. 940 tax form 2012 Parking lots. 940 tax form 2012 Ramps. 940 tax form 2012 Entrances. 940 tax form 2012 Doors and doorways. 940 tax form 2012 Stairs. 940 tax form 2012 Floors. 940 tax form 2012 Toilet rooms. 940 tax form 2012 Water fountains. 940 tax form 2012 Public telephones. 940 tax form 2012 Elevators. 940 tax form 2012 Controls. 940 tax form 2012 Signage. 940 tax form 2012 Alarms. 940 tax form 2012 Protruding objects. 940 tax form 2012 Symbols of accessibility. 940 tax form 2012 You can find the ADA guidelines and requirements for architectural barrier removal at www. 940 tax form 2012 usdoj. 940 tax form 2012 gov/crt/ada/reg3a. 940 tax form 2012 html. 940 tax form 2012   The costs for removal of transportation barriers from rail facilities, buses, and rapid and light rail vehicles are deductible. 940 tax form 2012 You can find the guidelines and requirements for transportation barrier removal at www. 940 tax form 2012 fta. 940 tax form 2012 dot. 940 tax form 2012 gov. 940 tax form 2012   Also, you can access the ADA website at www. 940 tax form 2012 ada. 940 tax form 2012 gov for additional information. 940 tax form 2012 Other barrier removals. 940 tax form 2012   To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests. 940 tax form 2012 The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly. 940 tax form 2012 The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users). 940 tax form 2012 The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly. 940 tax form 2012 How to make the election. 940 tax form 2012   If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. 940 tax form 2012 Identify the deduction as a separate item. 940 tax form 2012 The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. 940 tax form 2012 If you make this election, you must maintain adequate records to support your deduction. 940 tax form 2012   For your election to be valid, you generally must file your return by its due date, including extensions. 940 tax form 2012 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). 940 tax form 2012 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 940 tax form 2012 9100-2. 940 tax form 2012 ” File the amended return at the same address you filed the original return. 940 tax form 2012 Your election is irrevocable after the due date, including extensions, of your return. 940 tax form 2012 Disabled access credit. 940 tax form 2012   If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. 940 tax form 2012 If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit. 940 tax form 2012   For more information, see Form 8826, Disabled Access Credit. 940 tax form 2012 Film and Television Production Costs Film and television production costs are generally capital expenses. 940 tax form 2012 However, you can elect to deduct costs paid or incurred for certain productions commencing before January 1, 2014. 940 tax form 2012 For more information, see section 181 of the Internal Revenue Code and the related Treasury Regulations. 940 tax form 2012 Prev  Up  Next   Home   More Online Publications