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Amendment To Tax Return 2013

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Amendment To Tax Return 2013

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The Amendment To Tax Return 2013

Amendment to tax return 2013 4. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 Category 1. Amendment to tax return 2013 Category 2. Amendment to tax return 2013 Category 3. Amendment to tax return 2013 What's New for 2013 Standard mileage rate. Amendment to tax return 2013  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. Amendment to tax return 2013 5 cents. Amendment to tax return 2013 See Truck and Car Expenses , later. Amendment to tax return 2013 Simplified method for business use of home deduction. Amendment to tax return 2013  The IRS now provides a simplified method to determine your expenses for business use of your home. Amendment to tax return 2013 For more information, see Schedule C (Form 1040), Part II, and its instructions. Amendment to tax return 2013 Introduction You can generally deduct the current costs of operating your farm. Amendment to tax return 2013 Current costs are expenses you do not have to capitalize or include in inventory costs. Amendment to tax return 2013 However, your deduction for the cost of livestock feed and certain other supplies may be limited. Amendment to tax return 2013 If you have an operating loss, you may not be able to deduct all of it. Amendment to tax return 2013 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. Amendment to tax return 2013 Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Amendment to tax return 2013 “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Amendment to tax return 2013 Schedule F, Part II, lists some common farm expenses that are typically deductible. Amendment to tax return 2013 This chapter discusses many of these expenses, as well as others not listed on Schedule F. Amendment to tax return 2013 Reimbursed expenses. Amendment to tax return 2013   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Amendment to tax return 2013 If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Amendment to tax return 2013 See Refund or reimbursement under Income From Other Sources in chapter 3. Amendment to tax return 2013 Personal and business expenses. Amendment to tax return 2013   Some expenses you pay during the tax year may be part personal and part business. Amendment to tax return 2013 These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Amendment to tax return 2013   You must allocate these mixed expenses between their business and personal parts. Amendment to tax return 2013 Generally, the personal part of these expenses is not deductible. Amendment to tax return 2013 The business portion of the expenses is deductible on Schedule F. Amendment to tax return 2013 Example. Amendment to tax return 2013 You paid $1,500 for electricity during the tax year. Amendment to tax return 2013 You used 1/3 of the electricity for personal purposes and 2/3 for farming. Amendment to tax return 2013 Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Amendment to tax return 2013 Reasonable allocation. Amendment to tax return 2013   It is not always easy to determine the business and nonbusiness parts of an expense. Amendment to tax return 2013 There is no method of allocation that applies to all mixed expenses. Amendment to tax return 2013 Any reasonable allocation is acceptable. Amendment to tax return 2013 What is reasonable depends on the circumstances in each case. Amendment to tax return 2013 Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Amendment to tax return 2013 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. Amendment to tax return 2013 Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Amendment to tax return 2013 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. Amendment to tax return 2013 Poultry bought for resale and not resold during the year. Amendment to tax return 2013 Deduction limit. Amendment to tax return 2013   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). Amendment to tax return 2013 This limit does not apply if you meet one of the exceptions described later. Amendment to tax return 2013 See Chapter 2 for a discussion of the cash method of accounting. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Amendment to tax return 2013 Example. Amendment to tax return 2013 You may not qualify for the exception described next. Amendment to tax return 2013 During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Amendment to tax return 2013 Your total prepaid farm supplies expense for 2013 is $5,500. Amendment to tax return 2013 Your other deductible farm expenses totaled $10,000 for 2013. Amendment to tax return 2013 Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Amendment to tax return 2013 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. Amendment to tax return 2013 Exceptions. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013   You are a farm-related taxpayer if any of the following tests apply. Amendment to tax return 2013 Your main home is on a farm. Amendment to tax return 2013 Your principal business is farming. Amendment to tax return 2013 A member of your family meets (1) or (2). Amendment to tax return 2013 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. Amendment to tax return 2013    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. Amendment to tax return 2013 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. Amendment to tax return 2013 The payment is for the purchase of feed rather than a deposit. Amendment to tax return 2013 The prepayment has a business purpose and is not merely for tax avoidance. Amendment to tax return 2013 Deducting the prepayment does not result in a material distortion of your income. Amendment to tax return 2013 If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Amendment to tax return 2013 If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Amendment to tax return 2013 This rule does not apply to the purchase of commodity futures contracts. Amendment to tax return 2013 Payment for the purchase of feed. Amendment to tax return 2013   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Amendment to tax return 2013 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. Amendment to tax return 2013   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Amendment to tax return 2013 The absence of specific quantity terms. Amendment to tax return 2013 The right to a refund of any unapplied payment credit at the end of the contract. Amendment to tax return 2013 The seller's treatment of the payment as a deposit. Amendment to tax return 2013 The right to substitute other goods or products for those specified in the contract. Amendment to tax return 2013   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. Amendment to tax return 2013 Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Amendment to tax return 2013 Business purpose. Amendment to tax return 2013   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. Amendment to tax return 2013 The following are some examples of business benefits. Amendment to tax return 2013 Fixing maximum prices and securing an assured feed supply. Amendment to tax return 2013 Securing preferential treatment in anticipation of a feed shortage. Amendment to tax return 2013   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. Amendment to tax return 2013 No material distortion of income. Amendment to tax return 2013   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Amendment to tax return 2013 Your customary business practice in conducting your livestock operations. Amendment to tax return 2013 The expense in relation to past purchases. Amendment to tax return 2013 The time of year you made the purchase. Amendment to tax return 2013 The expense in relation to your income for the year. Amendment to tax return 2013 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. Amendment to tax return 2013 You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Amendment to tax return 2013 The cost of boarding farm labor is a deductible labor cost. Amendment to tax return 2013 Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Amendment to tax return 2013 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. Amendment to tax return 2013 See chapter 13 for more information on employment taxes. Amendment to tax return 2013 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. Amendment to tax return 2013 See Taxes , later. Amendment to tax return 2013 Property for services. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013   Treat the wages deducted as an amount received for the property. Amendment to tax return 2013 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. Amendment to tax return 2013 Any gain or loss has the same character the exchanged property had in your hands. Amendment to tax return 2013 For more information, see chapter 8. Amendment to tax return 2013 Child as an employee. Amendment to tax return 2013   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. Amendment to tax return 2013 Include these wages in the child's income. Amendment to tax return 2013 The child may have to file an income tax return. Amendment to tax return 2013 These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Amendment to tax return 2013 For more information, see Family Employees in chapter 13. Amendment to tax return 2013    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Amendment to tax return 2013   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. Amendment to tax return 2013 The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Amendment to tax return 2013 Spouse as an employee. Amendment to tax return 2013   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. Amendment to tax return 2013 Wages you pay to your spouse are subject to social security and Medicare taxes. Amendment to tax return 2013 For more information, see Family Employees in chapter 13. Amendment to tax return 2013 Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Amendment to tax return 2013 However, those wages may be subject to the employment taxes discussed in chapter 13. Amendment to tax return 2013 Household workers. Amendment to tax return 2013   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. Amendment to tax return 2013 Construction labor. Amendment to tax return 2013   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Amendment to tax return 2013 These wages are part of the cost of the building or other improvement. Amendment to tax return 2013 You must capitalize them. Amendment to tax return 2013 Maintaining your home. Amendment to tax return 2013   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. Amendment to tax return 2013 For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Amendment to tax return 2013 The employee devotes the remaining time to work on your farm. Amendment to tax return 2013 You cannot deduct 5% of the wages and employment taxes you pay for that employee. Amendment to tax return 2013 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). Amendment to tax return 2013 Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 For example, if you repair the barn roof, the cost is deductible. Amendment to tax return 2013 But if you replace the roof, it is a capital expense. Amendment to tax return 2013 For more information, see Capital Expenses , later. Amendment to tax return 2013 Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Amendment to tax return 2013 Cash method. Amendment to tax return 2013   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Amendment to tax return 2013 You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Amendment to tax return 2013 You can, however, deduct the interest when you start making payments on the new loan. Amendment to tax return 2013 For more information, see Cash Method in chapter 2. Amendment to tax return 2013 Prepaid interest. Amendment to tax return 2013   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Amendment to tax return 2013 Interest paid in advance may be deducted only in the tax year in which it is due. Amendment to tax return 2013 Accrual method. Amendment to tax return 2013   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Amendment to tax return 2013 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. Amendment to tax return 2013 For more information, see Accrual Method in chapter 2. Amendment to tax return 2013 Allocation of interest. Amendment to tax return 2013   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Amendment to tax return 2013 Allocate the interest to the following categories. Amendment to tax return 2013 Trade or business interest. Amendment to tax return 2013 Passive activity interest. Amendment to tax return 2013 Investment interest. Amendment to tax return 2013 Portfolio interest. Amendment to tax return 2013 Personal interest. Amendment to tax return 2013   You generally allocate interest on a loan the same way you allocate the loan proceeds. Amendment to tax return 2013 You allocate loan proceeds by tracing disbursements to specific uses. Amendment to tax return 2013 The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Amendment to tax return 2013 Secured loan. Amendment to tax return 2013   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Amendment to tax return 2013 Example. Amendment to tax return 2013 You secure a loan with property used in your farming business. Amendment to tax return 2013 You use the loan proceeds to buy a car for personal use. Amendment to tax return 2013 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. Amendment to tax return 2013 If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Amendment to tax return 2013 The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Amendment to tax return 2013 However, you can choose to treat the loan as not secured by your home. Amendment to tax return 2013 For more information, see Publication 936. Amendment to tax return 2013 Allocation period. Amendment to tax return 2013   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. Amendment to tax return 2013 The date the loan is repaid. Amendment to tax return 2013 The date the loan is reallocated to another use. Amendment to tax return 2013 More information. Amendment to tax return 2013   For more information on interest, see chapter 4 in Publication 535. Amendment to tax return 2013 Breeding Fees You can deduct breeding fees as a farm business expense. Amendment to tax return 2013 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. Amendment to tax return 2013 For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Amendment to tax return 2013 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. Amendment to tax return 2013 You can also deduct the cost of applying these materials in the year you pay or incur it. Amendment to tax return 2013 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Amendment to tax return 2013 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. Amendment to tax return 2013 However, you can choose to deduct these expenses in the year paid or incurred. Amendment to tax return 2013 If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Amendment to tax return 2013 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. Amendment to tax return 2013 Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Amendment to tax return 2013 It does not include land you have never used previously for producing crops or sustaining livestock. Amendment to tax return 2013 You cannot deduct initial land preparation costs. Amendment to tax return 2013 (See Capital Expenses , later. Amendment to tax return 2013 ) Include government payments you receive for lime or fertilizer in income. Amendment to tax return 2013 See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 For information on employment taxes, see chapter 13. Amendment to tax return 2013 Allocation of taxes. Amendment to tax return 2013   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. Amendment to tax return 2013 You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Amendment to tax return 2013 To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Amendment to tax return 2013 The allocation can be done from the assessed valuations. Amendment to tax return 2013 If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Amendment to tax return 2013 State and local general sales taxes. Amendment to tax return 2013   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Amendment to tax return 2013 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. Amendment to tax return 2013 Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Amendment to tax return 2013 State and federal income taxes. Amendment to tax return 2013   Individuals cannot deduct state and federal income taxes as farm business expenses. Amendment to tax return 2013 Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Amendment to tax return 2013 However, you cannot deduct federal income tax. Amendment to tax return 2013 Highway use tax. Amendment to tax return 2013   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Amendment to tax return 2013 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. Amendment to tax return 2013 Self-employment tax deduction. Amendment to tax return 2013   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Amendment to tax return 2013 For more information, see chapter 12. Amendment to tax return 2013 Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Amendment to tax return 2013 This includes premiums you pay for the following types of insurance. Amendment to tax return 2013 Fire, storm, crop, theft, liability, and other insurance on farm business assets. Amendment to tax return 2013 Health and accident insurance on your farm employees. Amendment to tax return 2013 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. Amendment to tax return 2013 Business interruption insurance. Amendment to tax return 2013 State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Amendment to tax return 2013 Insurance to secure a loan. Amendment to tax return 2013   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. Amendment to tax return 2013 In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amendment to tax return 2013 Advance premiums. Amendment to tax return 2013   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Amendment to tax return 2013 Example. Amendment to tax return 2013 On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Amendment to tax return 2013 The policy will cover a period of 3 years beginning on July 1, 2013. Amendment to tax return 2013 Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Amendment to tax return 2013 Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Amendment to tax return 2013 In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Amendment to tax return 2013 Deduct the remaining $500 in 2016. Amendment to tax return 2013 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. Amendment to tax return 2013 Business interruption insurance. Amendment to tax return 2013   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Amendment to tax return 2013 This insurance pays for lost profits if your business is shut down due to a fire or other cause. Amendment to tax return 2013 Report any proceeds in full on Schedule F, Part I. Amendment to tax return 2013 Self-employed health insurance deduction. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Amendment to tax return 2013   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. Amendment to tax return 2013   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Amendment to tax return 2013 Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Amendment to tax return 2013   For more information, see Deductible Premiums in Publication 535, chapter 6. Amendment to tax return 2013 Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Amendment to tax return 2013 However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Amendment to tax return 2013 Advance payments. Amendment to tax return 2013   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Amendment to tax return 2013 Farm home. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Amendment to tax return 2013 Conditional sales contract. Amendment to tax return 2013   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amendment to tax return 2013 Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amendment to tax return 2013 No single test, or special combination of tests, always applies. Amendment to tax return 2013 However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amendment to tax return 2013 The agreement applies part of each payment toward an equity interest you will receive. Amendment to tax return 2013 You get title to the property after you make a stated amount of required payments. Amendment to tax return 2013 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. Amendment to tax return 2013 You pay much more than the current fair rental value of the property. Amendment to tax return 2013 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. Amendment to tax return 2013 Determine this value when you make the agreement. Amendment to tax return 2013 You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amendment to tax return 2013 The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Amendment to tax return 2013 Example. Amendment to tax return 2013 You lease new farm equipment from a dealer who both sells and leases. Amendment to tax return 2013 The agreement includes an option to purchase the equipment for a specified price. Amendment to tax return 2013 The lease payments and the specified option price equal the sales price of the equipment plus interest. Amendment to tax return 2013 Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Amendment to tax return 2013 For federal income tax purposes, the agreement is a conditional sales contract. Amendment to tax return 2013 You cannot deduct any of the lease payments as rent. Amendment to tax return 2013 You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Amendment to tax return 2013 Motor vehicle leases. Amendment to tax return 2013   Special rules apply to lease agreements that have a terminal rental adjustment clause. Amendment to tax return 2013 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. Amendment to tax return 2013 If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Amendment to tax return 2013 For more information, see Internal Revenue Code (IRC) section 7701(h). Amendment to tax return 2013 Leveraged leases. Amendment to tax return 2013   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Amendment to tax return 2013 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. Amendment to tax return 2013 irs. Amendment to tax return 2013 gov/pub/irs-irbs/irb01-19. Amendment to tax return 2013 pdf. Amendment to tax return 2013 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. Amendment to tax return 2013 You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Amendment to tax return 2013 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. Amendment to tax return 2013 Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 You use it exclusively and regularly for the administrative or management activities of your trade or business. Amendment to tax return 2013 You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amendment to tax return 2013 If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Amendment to tax return 2013 The IRS now provides a simplified method to determine your expenses for business use of your home. Amendment to tax return 2013 For more information, see Schedule C (Form 1040), Part II, and its instructions. Amendment to tax return 2013 Deduction limit. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013   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. Amendment to tax return 2013 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). Amendment to tax return 2013 Farm expenses other than expenses that relate to the use of your home. Amendment to tax return 2013 If you are self-employed, do not include your deduction for half of your self-employment tax. Amendment to tax return 2013   Deductions over the current year's limit can be carried over to your next tax year. Amendment to tax return 2013 They are subject to the deduction limit for the next tax year. Amendment to tax return 2013 More information. Amendment to tax return 2013   See Publication 587 for more information on deducting expenses for the business use of your home. Amendment to tax return 2013 Telephone expense. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 Cell phone charges for calls relating to your farm business are deductible. Amendment to tax return 2013 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. Amendment to tax return 2013 Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Amendment to tax return 2013 Only expenses for business use are deductible. Amendment to tax return 2013 These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Amendment to tax return 2013 Standard mileage rate. Amendment to tax return 2013   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Amendment to tax return 2013 The standard mileage rate for each mile of business use is 56. Amendment to tax return 2013 5 cents in 2013. Amendment to tax return 2013 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. Amendment to tax return 2013   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Amendment to tax return 2013 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. Amendment to tax return 2013 Example. Amendment to tax return 2013 Maureen owns a car and four pickup trucks that are used in her farm business. Amendment to tax return 2013 Her farm employees use the trucks and she uses the car for business. Amendment to tax return 2013 Maureen cannot use the standard mileage rate for the car or the trucks. Amendment to tax return 2013 This is because all five vehicles are used in Maureen's farm business at the same time. Amendment to tax return 2013 She must use actual expenses for all vehicles. Amendment to tax return 2013 Business use percentage. Amendment to tax return 2013   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. Amendment to tax return 2013 You choose this method of substantiating business use the first year the vehicle is placed in service. Amendment to tax return 2013 Once you make this choice, you may not change to another method later. Amendment to tax return 2013 The following are uses directly connected with the business of farming. Amendment to tax return 2013 Cultivating land. Amendment to tax return 2013 Raising or harvesting any agricultural or horticultural commodity. Amendment to tax return 2013 Raising, shearing, feeding, caring for, training, and managing animals. Amendment to tax return 2013 Driving to the feed or supply store. Amendment to tax return 2013   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Amendment to tax return 2013 See Recordkeeping requirements under Travel Expenses , below. Amendment to tax return 2013 More information. Amendment to tax return 2013   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Amendment to tax return 2013 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. Amendment to tax return 2013 Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Amendment to tax return 2013 You cannot deduct lavish or extravagant expenses. Amendment to tax return 2013 Usually, the location of your farm business is considered your home for tax purposes. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 The following are some types of deductible travel expenses. Amendment to tax return 2013 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. Amendment to tax return 2013 Meals. Amendment to tax return 2013   You ordinarily can deduct only 50% of your business-related meals expenses. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 For information on entertainment expenses, see Publication 463, chapter 2. Amendment to tax return 2013   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Amendment to tax return 2013 You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Amendment to tax return 2013    Recordkeeping requirements. Amendment to tax return 2013 You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Amendment to tax return 2013 Estimates or approximations do not qualify as proof of an expense. Amendment to tax return 2013   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. Amendment to tax return 2013 Generally, it is best to record the expense and get documentation of it at the time you pay it. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 More information. Amendment to tax return 2013   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Amendment to tax return 2013 Reimbursements to employees. Amendment to tax return 2013   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Amendment to tax return 2013 Employees may be reimbursed under an accountable or nonaccountable plan. Amendment to tax return 2013 Under an accountable plan, the employee must provide evidence of expenses. Amendment to tax return 2013 Under a nonaccountable plan, no evidence of expenses is required. Amendment to tax return 2013 If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Amendment to tax return 2013 If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Amendment to tax return 2013 For more information, see Publication 535, chapter 11. Amendment to tax return 2013 Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Amendment to tax return 2013 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. Amendment to tax return 2013 Do not take a separate deduction for the penalty. Amendment to tax return 2013 Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Amendment to tax return 2013 These costs include repairs, utilities, insurance, and depreciation. Amendment to tax return 2013 The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Amendment to tax return 2013 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. Amendment to tax return 2013 You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Amendment to tax return 2013 However, see Chickens, seeds, and young plants , below. Amendment to tax return 2013 Example. Amendment to tax return 2013 You use the cash method of accounting. Amendment to tax return 2013 In 2013, you buy 50 steers you will sell in 2014. Amendment to tax return 2013 You cannot deduct the cost of the steers on your 2013 tax return. Amendment to tax return 2013 You deduct their cost on your 2014 Schedule F, Part I. Amendment to tax return 2013 Chickens, seeds, and young plants. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Amendment to tax return 2013   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Amendment to tax return 2013 You cannot also deduct the cost from the selling price. Amendment to tax return 2013   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Amendment to tax return 2013 Deduct the cost of these seeds and plants through depletion allowances. Amendment to tax return 2013 For more information, see Depletion in chapter 7. Amendment to tax return 2013   The cost of chickens and plants used as food for your family is never deductible. Amendment to tax return 2013   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Amendment to tax return 2013 These rules are discussed in chapter 6. Amendment to tax return 2013 Example. Amendment to tax return 2013 You use the cash method of accounting. Amendment to tax return 2013 In 2013, you buy 500 baby chicks to raise for resale in 2014. Amendment to tax return 2013 You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Amendment to tax return 2013 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. Amendment to tax return 2013 Election to use crop method. Amendment to tax return 2013   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Amendment to tax return 2013 You must get IRS approval to use the crop method. Amendment to tax return 2013 If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Amendment to tax return 2013 For more information, see Crop method under Special Methods of Accounting in chapter 2. Amendment to tax return 2013 Choosing a method. Amendment to tax return 2013   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. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 For more information, see Change in Accounting Method in chapter 2. Amendment to tax return 2013 Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Amendment to tax return 2013 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. Amendment to tax return 2013 Accounting fees. Amendment to tax return 2013 Advertising. Amendment to tax return 2013 Business travel and meals. Amendment to tax return 2013 Commissions. Amendment to tax return 2013 Consultant fees. Amendment to tax return 2013 Crop scouting expenses. Amendment to tax return 2013 Dues to cooperatives. Amendment to tax return 2013 Educational expenses (to maintain and improve farming skills). Amendment to tax return 2013 Farm-related attorney fees. Amendment to tax return 2013 Farm magazines. Amendment to tax return 2013 Ginning. Amendment to tax return 2013 Insect sprays and dusts. Amendment to tax return 2013 Litter and bedding. Amendment to tax return 2013 Livestock fees. Amendment to tax return 2013 Marketing fees. Amendment to tax return 2013 Milk assessment. Amendment to tax return 2013 Recordkeeping expenses. Amendment to tax return 2013 Service charges. Amendment to tax return 2013 Small tools expected to last one year or less. Amendment to tax return 2013 Stamps and stationery. Amendment to tax return 2013 Subscriptions to professional, technical, and trade journals that deal with farming. Amendment to tax return 2013 Tying material and containers. Amendment to tax return 2013 Loan expenses. Amendment to tax return 2013   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. Amendment to tax return 2013 Tax preparation fees. Amendment to tax return 2013   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. Amendment to tax return 2013 You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amendment to tax return 2013   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Amendment to tax return 2013 Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Amendment to tax return 2013 Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Amendment to tax return 2013 Income from cooperatives. Amendment to tax return 2013   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. Amendment to tax return 2013 This deduction amount is reported on Form 1099-PATR, box 6. Amendment to tax return 2013 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. Amendment to tax return 2013 More information. Amendment to tax return 2013   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Amendment to tax return 2013 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. Amendment to tax return 2013 You include the expense in the basis of the asset. Amendment to tax return 2013 Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Amendment to tax return 2013 See chapters 2  and 6. Amendment to tax return 2013 Capital expenses are generally not deductible, but they may be depreciable. Amendment to tax return 2013 However, you can elect to deduct certain capital expenses, such as the following. Amendment to tax return 2013 The cost of fertilizer, lime, etc. Amendment to tax return 2013 (See Fertilizer and Lime under Deductible Expenses , earlier. Amendment to tax return 2013 ) Soil and water conservation expenses. Amendment to tax return 2013 (See chapter 5. Amendment to tax return 2013 ) The cost of property that qualifies for a deduction under section 179. Amendment to tax return 2013 (See chapter 7. Amendment to tax return 2013 ) Business start-up costs. Amendment to tax return 2013 (See Business start-up and organizational costs , later. Amendment to tax return 2013 ) Forestation and reforestation costs. Amendment to tax return 2013 (See Forestation and reforestation costs , later. Amendment to tax return 2013 ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Amendment to tax return 2013 Land and buildings. Amendment to tax return 2013 Additions, alterations, and improvements to buildings, etc. Amendment to tax return 2013 Cars and trucks. Amendment to tax return 2013 Equipment and machinery. Amendment to tax return 2013 Fences. Amendment to tax return 2013 Draft, breeding, sport, and dairy livestock. Amendment to tax return 2013 Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Amendment to tax return 2013 Water wells, including drilling and equipping costs. Amendment to tax return 2013 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. Amendment to tax return 2013 Business start-up and organizational costs. Amendment to tax return 2013   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. Amendment to tax return 2013 The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amendment to tax return 2013 Any remaining costs must be amortized. Amendment to tax return 2013 See chapter 7. Amendment to tax return 2013   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. Amendment to tax return 2013 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). Amendment to tax return 2013 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amendment to tax return 2013 9100-2” at the top of the amended return. Amendment to tax return 2013 File the amended return at the same address you filed the original return. Amendment to tax return 2013 The election applies when figuring taxable income for the current tax year and all subsequent years. Amendment to tax return 2013   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. Amendment to tax return 2013 For more information about start-up and organizational costs, see chapter 7. Amendment to tax return 2013 Crop production expenses. Amendment to tax return 2013   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Amendment to tax return 2013 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. Amendment to tax return 2013 For more information, see Uniform Capitalization Rules in chapter 6. Amendment to tax return 2013 Timber. Amendment to tax return 2013   Capitalize the cost of acquiring timber. Amendment to tax return 2013 Do not include the cost of land in the cost of the timber. Amendment to tax return 2013 You must generally capitalize direct costs incurred in reforestation. Amendment to tax return 2013 However, you can elect to deduct some forestation and reforestation costs. Amendment to tax return 2013 See Forestation and reforestation costs next. Amendment to tax return 2013 Reforestation costs include the following. Amendment to tax return 2013 Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Amendment to tax return 2013 The cost of seed or seedlings. Amendment to tax return 2013 Labor and tool expenses. Amendment to tax return 2013 Depreciation on equipment used in planting or seeding. Amendment to tax return 2013 Costs incurred in replanting to replace lost seedlings. Amendment to tax return 2013 You can choose to capitalize certain indirect reforestation costs. Amendment to tax return 2013   These capitalized amounts are your basis for the timber. Amendment to tax return 2013 Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Amendment to tax return 2013 See Depletion in chapter 7. Amendment to tax return 2013 Forestation and reforestation costs. Amendment to tax return 2013   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. Amendment to tax return 2013 Any remaining costs can be amortized over an 84-month period. Amendment to tax return 2013 See chapter 7. Amendment to tax return 2013 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. Amendment to tax return 2013 The accounts should include all reforestation treatments and the dates they were applied. Amendment to tax return 2013 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. Amendment to tax return 2013 The timber account should be maintained until the timber is disposed of. Amendment to tax return 2013 For more information, see Notice 2006-47, 2006-20 I. Amendment to tax return 2013 R. Amendment to tax return 2013 B. Amendment to tax return 2013 892, available at  www. Amendment to tax return 2013 irs. Amendment to tax return 2013 gov/irb/2006-20_IRB/ar11. Amendment to tax return 2013 html. Amendment to tax return 2013   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. Amendment to tax return 2013 If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Amendment to tax return 2013 If you are not filing Form T (Timber), attach a statement to your return with the following information. Amendment to tax return 2013 The unique stand identification numbers. Amendment to tax return 2013 The total number of acres reforested during the tax year. Amendment to tax return 2013 The nature of the reforestation treatments. Amendment to tax return 2013 The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Amendment to tax return 2013   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). Amendment to tax return 2013 Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amendment to tax return 2013 9100-2” at the top of the amended return. Amendment to tax return 2013 File the amended return at the same address you filed the original return. Amendment to tax return 2013    For more information about forestation and reforestation costs, see chapter 7. Amendment to tax return 2013    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Amendment to tax return 2013 You can view this publication on the Internet at  www. Amendment to tax return 2013 fs. Amendment to tax return 2013 fed. Amendment to tax return 2013 us/publications. Amendment to tax return 2013 Christmas tree cultivation. Amendment to tax return 2013   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. Amendment to tax return 2013 Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Amendment to tax return 2013 For more information, see Timber Depletion under Depletion in chapter 7. Amendment to tax return 2013   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Amendment to tax return 2013 Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Amendment to tax return 2013   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Amendment to tax return 2013 If the improvements do not have a determinable useful life, add their cost to the basis of the land. Amendment to tax return 2013 The cost is recovered when you sell or otherwise dispose of it. Amendment to tax return 2013 If the improvements have a determinable useful life, recover their cost through depreciation. Amendment to tax return 2013 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. Amendment to tax return 2013 Recover these costs through depreciation. Amendment to tax return 2013 Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Amendment to tax return 2013 Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Amendment to tax return 2013 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. Amendment to tax return 2013 Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Amendment to tax return 2013 Other Nondeductible Items You cannot deduct the following items on your tax return. Amendment to tax return 2013 Loss of growing plants, produce, and crops. Amendment to tax return 2013   Losses of plants, produce, and crops raised for sale are generally not deductible. Amendment to tax return 2013 However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Amendment to tax return 2013 See chapter 11 for more information. Amendment to tax return 2013 Repayment of loans. Amendment to tax return 2013   You cannot deduct the repayment of a loan. Amendment to tax return 2013 However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Amendment to tax return 2013 See Interest , earlier. Amendment to tax return 2013 Estate, inheritance, legacy, succession, and gift taxes. Amendment to tax return 2013   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Amendment to tax return 2013 Loss of livestock. Amendment to tax return 2013   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Amendment to tax return 2013 Losses from sales or exchanges between related persons. Amendment to tax return 2013   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. Amendment to tax return 2013 For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amendment to tax return 2013 Cost of raising unharvested crops. Amendment to tax return 2013   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. Amendment to tax return 2013 Add these costs to the basis of the land to determine the gain or loss on the sale. Amendment to tax return 2013 For more information, see Section 1231 Gains and Losses in chapter 9. Amendment to tax return 2013 Cost of unharvested crops bought with land. Amendment to tax return 2013   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Amendment to tax return 2013 You cannot deduct the cost of the crops at the time of purchase. Amendment to tax return 2013 However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Amendment to tax return 2013 Cost related to gifts. Amendment to tax return 2013   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Amendment to tax return 2013 The costs are not deductible in the year of the gift or any later year. Amendment to tax return 2013 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. Amendment to tax return 2013 Club dues and membership fees. Amendment to tax return 2013   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Amendment to tax return 2013 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. Amendment to tax return 2013 Exception. Amendment to tax return 2013   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. Amendment to tax return 2013 Boards of trade. Amendment to tax return 2013 Business leagues. Amendment to tax return 2013 Chambers of commerce. Amendment to tax return 2013 Civic or public service organizations. Amendment to tax return 2013 Professional associations. Amendment to tax return 2013 Trade associations. Amendment to tax return 2013 Real estate boards. Amendment to tax return 2013 Fines and penalties. Amendment to tax return 2013   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Amendment to tax return 2013 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. Amendment to tax return 2013 The amount of the loss you can deduct when figuring your taxable income may be limited. Amendment to tax return 2013 To figure your deductible loss, you must apply the following limits. Amendment to tax return 2013 The at-risk limits. Amendment to tax return 2013 The passive activity limits. Amendment to tax return 2013 The following discussions explain these limits. Amendment to tax return 2013 If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Amendment to tax return 2013 See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amendment to tax return 2013 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. Amendment to tax return 2013 See Not-for-Profit Farming, later. Amendment to tax return 2013 At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Amendment to tax return 2013 These rules limit the losses you can deduct when figuring your taxable income. Amendment to tax return 2013 The deductible loss from an activity is limited to the amount you have at risk in the activity. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 For more information, see Publication 925. Amendment to tax return 2013 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. Amendment to tax return 2013 Generally, a rental activity is a passive activity. Amendment to tax return 2013 If you have a passive activity, special rules limit the loss you can deduct in the tax year. Amendment to tax return 2013 You generally can deduct losses from passive activities only up to income from passive activities. Amendment to tax return 2013 Credits are similarly limited. Amendment to tax return 2013 For more information, see Publication 925. Amendment to tax return 2013 Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013 Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Amendment to tax return 2013 Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Amendment to tax return 2013 For more details, see IRC section 461(j). Amendment to tax return 2013 Excess farm loss. Amendment to tax return 2013   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Amendment to tax return 2013 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. Amendment to tax return 2013   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Amendment to tax return 2013 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. Amendment to tax return 2013 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). Amendment to tax return 2013 Also, there is a limit on the deductions you can take. Amendment to tax return 2013 You cannot use a loss from that activity to offset income from other activities. Amendment to tax return 2013 Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Amendment to tax return 2013 An investment activity intended only to produce tax losses for the investors also comes under this limit. Amendment to tax return 2013 The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amendment to tax return 2013 It does not apply to corporations other than S corporations. Amendment to tax return 2013 In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Amendment to tax return 2013 No one factor alone is decisive. Amendment to tax return 2013 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. Amendment to tax return 2013 Presumption of profit. Amendment to tax return 2013   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. Amendment to tax return 2013 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. Amendment to tax return 2013 The activity must be substantially the same for each year within this period. Amendment to tax return 2013 You have a profit when the gross income from an activity is more than the deductions for it. Amendment to tax return 2013   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. Amendment to tax return 2013   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Amendment to tax return 2013 This means the limits discussed here do not apply. Amendment to tax return 2013 You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Amendment to tax return 2013 You can rely on this presumption in every case, unless the IRS shows it is not valid. Amendment to tax return 2013   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. Amendment to tax return 2013 Using the presumption later. Amendment to tax return 2013   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. Amendment to tax return 2013   You can choose to do this by filing Form 5213. Amendment to tax return 2013 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. Amendment to tax return 2013 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. Amendment to tax return 2013   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Amendment to tax return 2013 Accordingly, it will not limit your deductions. Amendment to tax return 2013 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. Amendment to tax return 2013 If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amendment to tax return 2013 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. Amendment to tax return 2013   Filing Form 5213 automatically extends the period of limitations on any year