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File 2011 State Taxes Free

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File 2011 State Taxes Free

File 2011 state taxes free Publication 557 - Introductory Material Table of Contents What's New Reminders Introduction What's New Proposed regulations on “good faith determinations”. File 2011 state taxes free  Proposed regulations modify standards for making a good faith determination that a foreign organization is a charitable organization, grants to which may be qualifying distributions and not taxable expenditures. File 2011 state taxes free The proposed regulations identify a broader class of tax practitioners upon whose written advice a private foundation may base a “good faith determination. File 2011 state taxes free ” See, Proposed Regulations: Reliance Standards for Making Good Faith Determinations, REG-134974-12, 2012-47 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 553. File 2011 state taxes free Prop. File 2011 state taxes free Regs. File 2011 state taxes free on Good Faith Determinations. File 2011 state taxes free New Requirements for section 501(c)(3) Hospitals Under the Affordable Care Act. File 2011 state taxes free  The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting requirements and excise taxes. File 2011 state taxes free On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to section 501(c)(3) hospital organizations. File 2011 state taxes free See, Proposed Regulations: Additional Requirements for Charitable Hospitals, REG-13026-11, 77 Fed. File 2011 state taxes free Reg. File 2011 state taxes free 38148. File 2011 state taxes free On April 3, 2013, the Service issued proposed regulations on the ACA's community health needs assessment (CHNA) requirements. File 2011 state taxes free The proposed regulations also discuss the related reporting and excise tax requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. File 2011 state taxes free See, Proposed Regulations: Community Health Needs Assessments for Charitable Hospitals, REG-106499-12, 78 Fed. File 2011 state taxes free Reg. File 2011 state taxes free 20,523. File 2011 state taxes free Timing of when an Organization is exempt for Federal Tax Purposes. File 2011 state taxes free  As noted in section 2. File 2011 state taxes free 03(4) of Revenue Procedure 2013-9, 2013-2 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 267, the provisions in section 11. File 2011 state taxes free 01 regarding the effect of determination letters or rulings recognizing exempt status of organizations described in section 501(c), other than sections 501(c)(3), (9), (17), and (29), have been revised. File 2011 state taxes free Prior to this year, and back to 1962, when such organizations applied for recognition, the IRS would usually recognize the organizations as tax exempt from the date of formation, no matter how long the interval between the date of formation and the date of application. File 2011 state taxes free In addition to the practical difficulties of ascertaining an organization's purposes and activities for this period, such recognition is now potentially inconsistent with the provisions of section 6033(j), which automatically revokes the exempt status of an organization that fails to file required Form 990 series returns or notices for three consecutive years. File 2011 state taxes free The new procedure adopts a practice similar to the rule for section 501(c)(3) organizations for these organizations, generally permitting recognition from the date of formation if the organization has: always met the requirements for exemption, has applied within 27 months from the end of the month in which it was organized, and has not failed to file required Form 990 series returns or notices for three consecutive years. File 2011 state taxes free Section 11. File 2011 state taxes free 01(3) notes: an organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter or ruling that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application. File 2011 state taxes free Exempt Organizations Select Check. File 2011 state taxes free  The IRS has developed an on-line search tool, Exempt Organizations Select Check, that allows users to select an exempt organization and check certain information about its federal tax status and filings. File 2011 state taxes free It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data). File 2011 state taxes free Users may rely on this list in determining deductibility of contributions, just as they did when Publication 78 was a separate electronic publication rather than part of Select Check. File 2011 state taxes free Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List). File 2011 state taxes free Have filed a Form 990-N (e-Postcard) annual electronic notice. File 2011 state taxes free  In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check. File 2011 state taxes free See also Revenue Procedure 2011-33, 2011-25 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 887. File 2011 state taxes free Future developments. File 2011 state taxes free . File 2011 state taxes free  The IRS has created a page on IRS. File 2011 state taxes free gov for information about Publication 557, at www. File 2011 state taxes free irs. File 2011 state taxes free gov/pub557. File 2011 state taxes free Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page. File 2011 state taxes free Reminders The Patient Protection and Affordable Care Act (ACA). File 2011 state taxes free   The ACA added several new laws. File 2011 state taxes free This includes a new excise tax on indoor tanning services, a small business health care tax credit, additional requirements for tax-exempt hospitals, and the section 501(c)(29) CO-OP program. File 2011 state taxes free For more information, go to IRS. File 2011 state taxes free gov and select Affordable Care Act Tax Provisions. File 2011 state taxes free Electronic filing requirement for large organizations. File 2011 state taxes free  For tax years ending on or after December 31, 2006, only organizations that file 250 returns during the calendar year and that have total assets of $10 million or more are required to file Form 990 electronically. File 2011 state taxes free For more information, go to e-file for Charities and Non-Profits. File 2011 state taxes free Section 501(c)(15) gross receipts. File 2011 state taxes free   The definition of gross receipts for purposes of determining whether small insurance companies qualify as tax-exempt under section 501(c)(15) has changed. File 2011 state taxes free See Notice 2006-42, 2006-19 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 878, Notice 2006-42. File 2011 state taxes free Prohibited tax shelter transactions. File 2011 state taxes free  New excise taxes are imposed under section 4965 on certain tax-exempt organizations entering into prohibited tax shelter transactions. File 2011 state taxes free See T. File 2011 state taxes free D. File 2011 state taxes free 9492, Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirements, 2010-33 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 242. File 2011 state taxes free See IRS Issues Final Regulations Regarding Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirement. File 2011 state taxes free Pension Protection Act of 2006 tax changes. File 2011 state taxes free  The Pension Protection Act of 2006 made numerous changes to the tax law provisions affecting tax-exempt organizations. File 2011 state taxes free Unless otherwise noted, most of the changes became effective on August 17, 2006. File 2011 state taxes free For key provisions, go to The Pension Protection Act of 2006. File 2011 state taxes free Section 501(c)(3) organizations must make their Form 990-T, Exempt Organization Business Tax Return (and proxy tax under section 6033(e)), open for public inspection for a period of 3 years from the date the Form 990-T is required to be filed (determined with regard to any extension of time for filing) or is actually filed, whichever is later. File 2011 state taxes free There is an increase in excise taxes relating to public charities, social welfare organizations, and private foundations. File 2011 state taxes free There are additional standards for credit counseling organizations. File 2011 state taxes free The definition of convention or association of churches has been modified. File 2011 state taxes free Entities that are not required to file Form 990 or 990-EZ must file new Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. File 2011 state taxes free The requirements of disclosure to state officials relating to exempt organizations has been modified. File 2011 state taxes free There are excise taxes imposed on excess benefit transactions involving donor advised funds and sponsoring organizations. File 2011 state taxes free There are new excise taxes on prohibited tax shelter transactions. File 2011 state taxes free There is a modification of recordkeeping requirements for certain charitable contributions. File 2011 state taxes free Introduction This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). File 2011 state taxes free It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. File 2011 state taxes free To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. File 2011 state taxes free Organizations that are exempt under section 501(a) include those organizations described in section 501(c). File 2011 state taxes free Section 501(c) organizations are covered in this publication. File 2011 state taxes free Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status. File 2011 state taxes free Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status. File 2011 state taxes free Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status. File 2011 state taxes free Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c). File 2011 state taxes free Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed. File 2011 state taxes free Organizations not discussed in this publication. File 2011 state taxes free   Certain organizations that may qualify for exemption are not discussed in this publication, although they are included in the Organization Reference Chart. File 2011 state taxes free These organizations (and the Code sections that apply to them) are as follows. File 2011 state taxes free Corporations organized under Acts of Congress 501(c)(1) Teachers' retirement fund associations 501(c)(11) Mutual insurance companies 501(c)(15) Corporations organized to finance crop operations 501(c)(16) Employee funded pension trusts (created before June 25, 1959) 501(c)(18) Withdrawal liability payment fund 501(c)(22) Veterans' organizations (created before 1880) 501(c)(23) National Railroad Retirement Investment Trust 501(c)(28) Religious and apostolic associations 501(d) Cooperative hospital service organizations 501(e) Cooperative service organizations of operating educational organizations 501(f)   Section 501(c)(24) organizations (section 4049 ERISA trusts) are neither discussed in the text nor listed in the Organization Reference Chart. File 2011 state taxes free   Similarly, farmers' cooperative associations that qualify for exemption under section 521, qualified state tuition programs described in section 529, and pension, profit-sharing, and stock bonus plans described in section 401(a) are not discussed in this publication. File 2011 state taxes free If you think your organization falls within one of these categories, contact the IRS for any additional information you need. File 2011 state taxes free For telephone assistance, call 1-877-829-5500. File 2011 state taxes free   Check the Table of Contents at the beginning of this publication to determine whether your organization is described in this publication. File 2011 state taxes free If it is, read the chapter (or section) that applies to your type of organization for the specific information you must give when applying for recognition of exemption. File 2011 state taxes free Organization Reference Chart. File 2011 state taxes free   The Organization Reference Chart enables you to locate at a glance the section of the Code under which your organization might qualify for exemption. File 2011 state taxes free It also shows the required application form and, if your organization meets the exemption requirements, the annual return to be filed (if any), and whether or not a contribution to your organization will be deductible by a donor. File 2011 state taxes free It also describes each type of qualifying organization and the general nature of its activities. File 2011 state taxes free   You may use the Organization Reference Chart to determine the Code section that you think applies to your organization. File 2011 state taxes free Any correspondence with the IRS (in requesting forms or otherwise) will be expedited if you indicate in your correspondence the appropriate Code section. File 2011 state taxes free Check the IRS website, IRS. File 2011 state taxes free gov, for the latest updates, Tax Information for Charities & Other Non-Profits, www. File 2011 state taxes free irs. File 2011 state taxes free gov/charities/index. File 2011 state taxes free html. File 2011 state taxes free Comments and suggestions. File 2011 state taxes free   We welcome your comments about this publication and your suggestions for future editions. File 2011 state taxes free   You can e-mail us while visiting our website at IRS. File 2011 state taxes free gov. File 2011 state taxes free   You can send your comments to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File 2011 state taxes free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File 2011 state taxes free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File 2011 state taxes free   If you wish telephone assistance, please call 1-877-829-5500. File 2011 state taxes free This toll-free telephone service is available Monday through Friday. File 2011 state taxes free Prev  Up  Next   Home   More Online Publications
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The File 2011 State Taxes Free

File 2011 state taxes free 4. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free Category 1. File 2011 state taxes free Category 2. File 2011 state taxes free Category 3. File 2011 state taxes free What's New for 2013 Standard mileage rate. File 2011 state taxes free  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. File 2011 state taxes free 5 cents. File 2011 state taxes free See Truck and Car Expenses , later. File 2011 state taxes free Simplified method for business use of home deduction. File 2011 state taxes free  The IRS now provides a simplified method to determine your expenses for business use of your home. File 2011 state taxes free For more information, see Schedule C (Form 1040), Part II, and its instructions. File 2011 state taxes free Introduction You can generally deduct the current costs of operating your farm. File 2011 state taxes free Current costs are expenses you do not have to capitalize or include in inventory costs. File 2011 state taxes free However, your deduction for the cost of livestock feed and certain other supplies may be limited. File 2011 state taxes free If you have an operating loss, you may not be able to deduct all of it. File 2011 state taxes free 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. File 2011 state taxes free Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. File 2011 state taxes free “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. File 2011 state taxes free Schedule F, Part II, lists some common farm expenses that are typically deductible. File 2011 state taxes free This chapter discusses many of these expenses, as well as others not listed on Schedule F. File 2011 state taxes free Reimbursed expenses. File 2011 state taxes free   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. File 2011 state taxes free If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. File 2011 state taxes free See Refund or reimbursement under Income From Other Sources in chapter 3. File 2011 state taxes free Personal and business expenses. File 2011 state taxes free   Some expenses you pay during the tax year may be part personal and part business. File 2011 state taxes free These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. File 2011 state taxes free   You must allocate these mixed expenses between their business and personal parts. File 2011 state taxes free Generally, the personal part of these expenses is not deductible. File 2011 state taxes free The business portion of the expenses is deductible on Schedule F. File 2011 state taxes free Example. File 2011 state taxes free You paid $1,500 for electricity during the tax year. File 2011 state taxes free You used 1/3 of the electricity for personal purposes and 2/3 for farming. File 2011 state taxes free Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. File 2011 state taxes free Reasonable allocation. File 2011 state taxes free   It is not always easy to determine the business and nonbusiness parts of an expense. File 2011 state taxes free There is no method of allocation that applies to all mixed expenses. File 2011 state taxes free Any reasonable allocation is acceptable. File 2011 state taxes free What is reasonable depends on the circumstances in each case. File 2011 state taxes free Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. File 2011 state taxes free 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. File 2011 state taxes free Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. File 2011 state taxes free 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. File 2011 state taxes free Poultry bought for resale and not resold during the year. File 2011 state taxes free Deduction limit. File 2011 state taxes free   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). File 2011 state taxes free This limit does not apply if you meet one of the exceptions described later. File 2011 state taxes free See Chapter 2 for a discussion of the cash method of accounting. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. File 2011 state taxes free Example. File 2011 state taxes free You may not qualify for the exception described next. File 2011 state taxes free During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. File 2011 state taxes free Your total prepaid farm supplies expense for 2013 is $5,500. File 2011 state taxes free Your other deductible farm expenses totaled $10,000 for 2013. File 2011 state taxes free Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. File 2011 state taxes free 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. File 2011 state taxes free Exceptions. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free   You are a farm-related taxpayer if any of the following tests apply. File 2011 state taxes free Your main home is on a farm. File 2011 state taxes free Your principal business is farming. File 2011 state taxes free A member of your family meets (1) or (2). File 2011 state taxes free 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. File 2011 state taxes free    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. File 2011 state taxes free 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. File 2011 state taxes free The payment is for the purchase of feed rather than a deposit. File 2011 state taxes free The prepayment has a business purpose and is not merely for tax avoidance. File 2011 state taxes free Deducting the prepayment does not result in a material distortion of your income. File 2011 state taxes free If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. File 2011 state taxes free If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. File 2011 state taxes free This rule does not apply to the purchase of commodity futures contracts. File 2011 state taxes free Payment for the purchase of feed. File 2011 state taxes free   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. File 2011 state taxes free 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. File 2011 state taxes free   The following are some factors that show a payment is a deposit rather than for the purchase of feed. File 2011 state taxes free The absence of specific quantity terms. File 2011 state taxes free The right to a refund of any unapplied payment credit at the end of the contract. File 2011 state taxes free The seller's treatment of the payment as a deposit. File 2011 state taxes free The right to substitute other goods or products for those specified in the contract. File 2011 state taxes free   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. File 2011 state taxes free Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. File 2011 state taxes free Business purpose. File 2011 state taxes free   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. File 2011 state taxes free The following are some examples of business benefits. File 2011 state taxes free Fixing maximum prices and securing an assured feed supply. File 2011 state taxes free Securing preferential treatment in anticipation of a feed shortage. File 2011 state taxes free   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. File 2011 state taxes free No material distortion of income. File 2011 state taxes free   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. File 2011 state taxes free Your customary business practice in conducting your livestock operations. File 2011 state taxes free The expense in relation to past purchases. File 2011 state taxes free The time of year you made the purchase. File 2011 state taxes free The expense in relation to your income for the year. File 2011 state taxes free 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. File 2011 state taxes free You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. File 2011 state taxes free The cost of boarding farm labor is a deductible labor cost. File 2011 state taxes free Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. File 2011 state taxes free 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. File 2011 state taxes free See chapter 13 for more information on employment taxes. File 2011 state taxes free 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. File 2011 state taxes free See Taxes , later. File 2011 state taxes free Property for services. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free   Treat the wages deducted as an amount received for the property. File 2011 state taxes free 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. File 2011 state taxes free Any gain or loss has the same character the exchanged property had in your hands. File 2011 state taxes free For more information, see chapter 8. File 2011 state taxes free Child as an employee. File 2011 state taxes free   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. File 2011 state taxes free Include these wages in the child's income. File 2011 state taxes free The child may have to file an income tax return. File 2011 state taxes free These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. File 2011 state taxes free For more information, see Family Employees in chapter 13. File 2011 state taxes free    A Form W-2, Wage and Tax Statement, should be issued to the child employee. File 2011 state taxes free   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. File 2011 state taxes free The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. File 2011 state taxes free Spouse as an employee. File 2011 state taxes free   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. File 2011 state taxes free Wages you pay to your spouse are subject to social security and Medicare taxes. File 2011 state taxes free For more information, see Family Employees in chapter 13. File 2011 state taxes free Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. File 2011 state taxes free However, those wages may be subject to the employment taxes discussed in chapter 13. File 2011 state taxes free Household workers. File 2011 state taxes free   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. File 2011 state taxes free Construction labor. File 2011 state taxes free   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. File 2011 state taxes free These wages are part of the cost of the building or other improvement. File 2011 state taxes free You must capitalize them. File 2011 state taxes free Maintaining your home. File 2011 state taxes free   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. File 2011 state taxes free For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. File 2011 state taxes free The employee devotes the remaining time to work on your farm. File 2011 state taxes free You cannot deduct 5% of the wages and employment taxes you pay for that employee. File 2011 state taxes free 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). File 2011 state taxes free Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free For example, if you repair the barn roof, the cost is deductible. File 2011 state taxes free But if you replace the roof, it is a capital expense. File 2011 state taxes free For more information, see Capital Expenses , later. File 2011 state taxes free Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. File 2011 state taxes free Cash method. File 2011 state taxes free   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. File 2011 state taxes free You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. File 2011 state taxes free You can, however, deduct the interest when you start making payments on the new loan. File 2011 state taxes free For more information, see Cash Method in chapter 2. File 2011 state taxes free Prepaid interest. File 2011 state taxes free   Under the cash method, you generally cannot deduct any interest paid before the year it is due. File 2011 state taxes free Interest paid in advance may be deducted only in the tax year in which it is due. File 2011 state taxes free Accrual method. File 2011 state taxes free   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. File 2011 state taxes free 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. File 2011 state taxes free For more information, see Accrual Method in chapter 2. File 2011 state taxes free Allocation of interest. File 2011 state taxes free   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. File 2011 state taxes free Allocate the interest to the following categories. File 2011 state taxes free Trade or business interest. File 2011 state taxes free Passive activity interest. File 2011 state taxes free Investment interest. File 2011 state taxes free Portfolio interest. File 2011 state taxes free Personal interest. File 2011 state taxes free   You generally allocate interest on a loan the same way you allocate the loan proceeds. File 2011 state taxes free You allocate loan proceeds by tracing disbursements to specific uses. File 2011 state taxes free The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. File 2011 state taxes free Secured loan. File 2011 state taxes free   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. File 2011 state taxes free Example. File 2011 state taxes free You secure a loan with property used in your farming business. File 2011 state taxes free You use the loan proceeds to buy a car for personal use. File 2011 state taxes free 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. File 2011 state taxes free If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. File 2011 state taxes free The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. File 2011 state taxes free However, you can choose to treat the loan as not secured by your home. File 2011 state taxes free For more information, see Publication 936. File 2011 state taxes free Allocation period. File 2011 state taxes free   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. File 2011 state taxes free The date the loan is repaid. File 2011 state taxes free The date the loan is reallocated to another use. File 2011 state taxes free More information. File 2011 state taxes free   For more information on interest, see chapter 4 in Publication 535. File 2011 state taxes free Breeding Fees You can deduct breeding fees as a farm business expense. File 2011 state taxes free 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. File 2011 state taxes free For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. File 2011 state taxes free 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. File 2011 state taxes free You can also deduct the cost of applying these materials in the year you pay or incur it. File 2011 state taxes free However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. File 2011 state taxes free 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. File 2011 state taxes free However, you can choose to deduct these expenses in the year paid or incurred. File 2011 state taxes free If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. File 2011 state taxes free 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. File 2011 state taxes free Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. File 2011 state taxes free It does not include land you have never used previously for producing crops or sustaining livestock. File 2011 state taxes free You cannot deduct initial land preparation costs. File 2011 state taxes free (See Capital Expenses , later. File 2011 state taxes free ) Include government payments you receive for lime or fertilizer in income. File 2011 state taxes free See Fertilizer and Lime under Agricultural Program Payments in chapter 3. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free For information on employment taxes, see chapter 13. File 2011 state taxes free Allocation of taxes. File 2011 state taxes free   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. File 2011 state taxes free You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). File 2011 state taxes free To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. File 2011 state taxes free The allocation can be done from the assessed valuations. File 2011 state taxes free If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. File 2011 state taxes free State and local general sales taxes. File 2011 state taxes free   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. File 2011 state taxes free 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. File 2011 state taxes free Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. File 2011 state taxes free State and federal income taxes. File 2011 state taxes free   Individuals cannot deduct state and federal income taxes as farm business expenses. File 2011 state taxes free Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). File 2011 state taxes free However, you cannot deduct federal income tax. File 2011 state taxes free Highway use tax. File 2011 state taxes free   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. File 2011 state taxes free 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. File 2011 state taxes free Self-employment tax deduction. File 2011 state taxes free   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. File 2011 state taxes free For more information, see chapter 12. File 2011 state taxes free Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. File 2011 state taxes free This includes premiums you pay for the following types of insurance. File 2011 state taxes free Fire, storm, crop, theft, liability, and other insurance on farm business assets. File 2011 state taxes free Health and accident insurance on your farm employees. File 2011 state taxes free 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. File 2011 state taxes free Business interruption insurance. File 2011 state taxes free State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). File 2011 state taxes free Insurance to secure a loan. File 2011 state taxes free   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. File 2011 state taxes free In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. File 2011 state taxes free Advance premiums. File 2011 state taxes free   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. File 2011 state taxes free Example. File 2011 state taxes free On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. File 2011 state taxes free The policy will cover a period of 3 years beginning on July 1, 2013. File 2011 state taxes free Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. File 2011 state taxes free Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. File 2011 state taxes free In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). File 2011 state taxes free Deduct the remaining $500 in 2016. File 2011 state taxes free 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. File 2011 state taxes free Business interruption insurance. File 2011 state taxes free   Use and occupancy and business interruption insurance premiums are deductible as a business expense. File 2011 state taxes free This insurance pays for lost profits if your business is shut down due to a fire or other cause. File 2011 state taxes free Report any proceeds in full on Schedule F, Part I. File 2011 state taxes free Self-employed health insurance deduction. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free Generally, this deduction cannot be more than the net profit from the business under which the plan was established. File 2011 state taxes free   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. File 2011 state taxes free   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. File 2011 state taxes free Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. File 2011 state taxes free   For more information, see Deductible Premiums in Publication 535, chapter 6. File 2011 state taxes free Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. File 2011 state taxes free However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. File 2011 state taxes free Advance payments. File 2011 state taxes free   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. File 2011 state taxes free Farm home. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. File 2011 state taxes free Conditional sales contract. File 2011 state taxes free   Whether an agreement is a conditional sales contract depends on the intent of the parties. File 2011 state taxes free Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. File 2011 state taxes free No single test, or special combination of tests, always applies. File 2011 state taxes free However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. File 2011 state taxes free The agreement applies part of each payment toward an equity interest you will receive. File 2011 state taxes free You get title to the property after you make a stated amount of required payments. File 2011 state taxes free 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. File 2011 state taxes free You pay much more than the current fair rental value of the property. File 2011 state taxes free 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. File 2011 state taxes free Determine this value when you make the agreement. File 2011 state taxes free You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. File 2011 state taxes free The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. File 2011 state taxes free Example. File 2011 state taxes free You lease new farm equipment from a dealer who both sells and leases. File 2011 state taxes free The agreement includes an option to purchase the equipment for a specified price. File 2011 state taxes free The lease payments and the specified option price equal the sales price of the equipment plus interest. File 2011 state taxes free Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. File 2011 state taxes free For federal income tax purposes, the agreement is a conditional sales contract. File 2011 state taxes free You cannot deduct any of the lease payments as rent. File 2011 state taxes free You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. File 2011 state taxes free Motor vehicle leases. File 2011 state taxes free   Special rules apply to lease agreements that have a terminal rental adjustment clause. File 2011 state taxes free 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. File 2011 state taxes free If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. File 2011 state taxes free For more information, see Internal Revenue Code (IRC) section 7701(h). File 2011 state taxes free Leveraged leases. File 2011 state taxes free   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). File 2011 state taxes free 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. File 2011 state taxes free irs. File 2011 state taxes free gov/pub/irs-irbs/irb01-19. File 2011 state taxes free pdf. File 2011 state taxes free 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. File 2011 state taxes free You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. File 2011 state taxes free 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. File 2011 state taxes free Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free You use it exclusively and regularly for the administrative or management activities of your trade or business. File 2011 state taxes free You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. File 2011 state taxes free If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. File 2011 state taxes free The IRS now provides a simplified method to determine your expenses for business use of your home. File 2011 state taxes free For more information, see Schedule C (Form 1040), Part II, and its instructions. File 2011 state taxes free Deduction limit. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free   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. File 2011 state taxes free 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). File 2011 state taxes free Farm expenses other than expenses that relate to the use of your home. File 2011 state taxes free If you are self-employed, do not include your deduction for half of your self-employment tax. File 2011 state taxes free   Deductions over the current year's limit can be carried over to your next tax year. File 2011 state taxes free They are subject to the deduction limit for the next tax year. File 2011 state taxes free More information. File 2011 state taxes free   See Publication 587 for more information on deducting expenses for the business use of your home. File 2011 state taxes free Telephone expense. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free Cell phone charges for calls relating to your farm business are deductible. File 2011 state taxes free 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. File 2011 state taxes free Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. File 2011 state taxes free Only expenses for business use are deductible. File 2011 state taxes free These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). File 2011 state taxes free Standard mileage rate. File 2011 state taxes free   Instead of using actual costs, under certain conditions you can use the standard mileage rate. File 2011 state taxes free The standard mileage rate for each mile of business use is 56. File 2011 state taxes free 5 cents in 2013. File 2011 state taxes free 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. File 2011 state taxes free   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. File 2011 state taxes free 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. File 2011 state taxes free Example. File 2011 state taxes free Maureen owns a car and four pickup trucks that are used in her farm business. File 2011 state taxes free Her farm employees use the trucks and she uses the car for business. File 2011 state taxes free Maureen cannot use the standard mileage rate for the car or the trucks. File 2011 state taxes free This is because all five vehicles are used in Maureen's farm business at the same time. File 2011 state taxes free She must use actual expenses for all vehicles. File 2011 state taxes free Business use percentage. File 2011 state taxes free   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. File 2011 state taxes free You choose this method of substantiating business use the first year the vehicle is placed in service. File 2011 state taxes free Once you make this choice, you may not change to another method later. File 2011 state taxes free The following are uses directly connected with the business of farming. File 2011 state taxes free Cultivating land. File 2011 state taxes free Raising or harvesting any agricultural or horticultural commodity. File 2011 state taxes free Raising, shearing, feeding, caring for, training, and managing animals. File 2011 state taxes free Driving to the feed or supply store. File 2011 state taxes free   If you keep records and they show that your business use was more than 75%, you may be able to claim more. File 2011 state taxes free See Recordkeeping requirements under Travel Expenses , below. File 2011 state taxes free More information. File 2011 state taxes free   For more information on deductible truck and car expenses, see Publication 463, chapter 4. File 2011 state taxes free 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. File 2011 state taxes free Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. File 2011 state taxes free You cannot deduct lavish or extravagant expenses. File 2011 state taxes free Usually, the location of your farm business is considered your home for tax purposes. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free The following are some types of deductible travel expenses. File 2011 state taxes free 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. File 2011 state taxes free Meals. File 2011 state taxes free   You ordinarily can deduct only 50% of your business-related meals expenses. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free For information on entertainment expenses, see Publication 463, chapter 2. File 2011 state taxes free   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. File 2011 state taxes free You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. File 2011 state taxes free    Recordkeeping requirements. File 2011 state taxes free You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. File 2011 state taxes free Estimates or approximations do not qualify as proof of an expense. File 2011 state taxes free   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. File 2011 state taxes free Generally, it is best to record the expense and get documentation of it at the time you pay it. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free More information. File 2011 state taxes free   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. File 2011 state taxes free Reimbursements to employees. File 2011 state taxes free   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. File 2011 state taxes free Employees may be reimbursed under an accountable or nonaccountable plan. File 2011 state taxes free Under an accountable plan, the employee must provide evidence of expenses. File 2011 state taxes free Under a nonaccountable plan, no evidence of expenses is required. File 2011 state taxes free If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. File 2011 state taxes free If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. File 2011 state taxes free For more information, see Publication 535, chapter 11. File 2011 state taxes free Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. File 2011 state taxes free 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. File 2011 state taxes free Do not take a separate deduction for the penalty. File 2011 state taxes free Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. File 2011 state taxes free These costs include repairs, utilities, insurance, and depreciation. File 2011 state taxes free The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. File 2011 state taxes free 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. File 2011 state taxes free You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. File 2011 state taxes free However, see Chickens, seeds, and young plants , below. File 2011 state taxes free Example. File 2011 state taxes free You use the cash method of accounting. File 2011 state taxes free In 2013, you buy 50 steers you will sell in 2014. File 2011 state taxes free You cannot deduct the cost of the steers on your 2013 tax return. File 2011 state taxes free You deduct their cost on your 2014 Schedule F, Part I. File 2011 state taxes free Chickens, seeds, and young plants. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. File 2011 state taxes free   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. File 2011 state taxes free You cannot also deduct the cost from the selling price. File 2011 state taxes free   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. File 2011 state taxes free Deduct the cost of these seeds and plants through depletion allowances. File 2011 state taxes free For more information, see Depletion in chapter 7. File 2011 state taxes free   The cost of chickens and plants used as food for your family is never deductible. File 2011 state taxes free   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. File 2011 state taxes free These rules are discussed in chapter 6. File 2011 state taxes free Example. File 2011 state taxes free You use the cash method of accounting. File 2011 state taxes free In 2013, you buy 500 baby chicks to raise for resale in 2014. File 2011 state taxes free You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. File 2011 state taxes free 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. File 2011 state taxes free Election to use crop method. File 2011 state taxes free   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. File 2011 state taxes free You must get IRS approval to use the crop method. File 2011 state taxes free If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. File 2011 state taxes free For more information, see Crop method under Special Methods of Accounting in chapter 2. File 2011 state taxes free Choosing a method. File 2011 state taxes free   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. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free For more information, see Change in Accounting Method in chapter 2. File 2011 state taxes free Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. File 2011 state taxes free 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. File 2011 state taxes free Accounting fees. File 2011 state taxes free Advertising. File 2011 state taxes free Business travel and meals. File 2011 state taxes free Commissions. File 2011 state taxes free Consultant fees. File 2011 state taxes free Crop scouting expenses. File 2011 state taxes free Dues to cooperatives. File 2011 state taxes free Educational expenses (to maintain and improve farming skills). File 2011 state taxes free Farm-related attorney fees. File 2011 state taxes free Farm magazines. File 2011 state taxes free Ginning. File 2011 state taxes free Insect sprays and dusts. File 2011 state taxes free Litter and bedding. File 2011 state taxes free Livestock fees. File 2011 state taxes free Marketing fees. File 2011 state taxes free Milk assessment. File 2011 state taxes free Recordkeeping expenses. File 2011 state taxes free Service charges. File 2011 state taxes free Small tools expected to last one year or less. File 2011 state taxes free Stamps and stationery. File 2011 state taxes free Subscriptions to professional, technical, and trade journals that deal with farming. File 2011 state taxes free Tying material and containers. File 2011 state taxes free Loan expenses. File 2011 state taxes free   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. File 2011 state taxes free Tax preparation fees. File 2011 state taxes free   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. File 2011 state taxes free You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. File 2011 state taxes free   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. File 2011 state taxes free Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. File 2011 state taxes free Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. File 2011 state taxes free Income from cooperatives. File 2011 state taxes free   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. File 2011 state taxes free This deduction amount is reported on Form 1099-PATR, box 6. File 2011 state taxes free 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. File 2011 state taxes free More information. File 2011 state taxes free   For more information on the domestic production activities deduction, see the Instructions for Form 8903. File 2011 state taxes free 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. File 2011 state taxes free You include the expense in the basis of the asset. File 2011 state taxes free Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. File 2011 state taxes free See chapters 2  and 6. File 2011 state taxes free Capital expenses are generally not deductible, but they may be depreciable. File 2011 state taxes free However, you can elect to deduct certain capital expenses, such as the following. File 2011 state taxes free The cost of fertilizer, lime, etc. File 2011 state taxes free (See Fertilizer and Lime under Deductible Expenses , earlier. File 2011 state taxes free ) Soil and water conservation expenses. File 2011 state taxes free (See chapter 5. File 2011 state taxes free ) The cost of property that qualifies for a deduction under section 179. File 2011 state taxes free (See chapter 7. File 2011 state taxes free ) Business start-up costs. File 2011 state taxes free (See Business start-up and organizational costs , later. File 2011 state taxes free ) Forestation and reforestation costs. File 2011 state taxes free (See Forestation and reforestation costs , later. File 2011 state taxes free ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. File 2011 state taxes free Land and buildings. File 2011 state taxes free Additions, alterations, and improvements to buildings, etc. File 2011 state taxes free Cars and trucks. File 2011 state taxes free Equipment and machinery. File 2011 state taxes free Fences. File 2011 state taxes free Draft, breeding, sport, and dairy livestock. File 2011 state taxes free Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. File 2011 state taxes free Water wells, including drilling and equipping costs. File 2011 state taxes free 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. File 2011 state taxes free Business start-up and organizational costs. File 2011 state taxes free   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. File 2011 state taxes free The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. File 2011 state taxes free Any remaining costs must be amortized. File 2011 state taxes free See chapter 7. File 2011 state taxes free   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. File 2011 state taxes free 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). File 2011 state taxes free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. File 2011 state taxes free 9100-2” at the top of the amended return. File 2011 state taxes free File the amended return at the same address you filed the original return. File 2011 state taxes free The election applies when figuring taxable income for the current tax year and all subsequent years. File 2011 state taxes free   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. File 2011 state taxes free For more information about start-up and organizational costs, see chapter 7. File 2011 state taxes free Crop production expenses. File 2011 state taxes free   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. File 2011 state taxes free 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. File 2011 state taxes free For more information, see Uniform Capitalization Rules in chapter 6. File 2011 state taxes free Timber. File 2011 state taxes free   Capitalize the cost of acquiring timber. File 2011 state taxes free Do not include the cost of land in the cost of the timber. File 2011 state taxes free You must generally capitalize direct costs incurred in reforestation. File 2011 state taxes free However, you can elect to deduct some forestation and reforestation costs. File 2011 state taxes free See Forestation and reforestation costs next. File 2011 state taxes free Reforestation costs include the following. File 2011 state taxes free Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. File 2011 state taxes free The cost of seed or seedlings. File 2011 state taxes free Labor and tool expenses. File 2011 state taxes free Depreciation on equipment used in planting or seeding. File 2011 state taxes free Costs incurred in replanting to replace lost seedlings. File 2011 state taxes free You can choose to capitalize certain indirect reforestation costs. File 2011 state taxes free   These capitalized amounts are your basis for the timber. File 2011 state taxes free Recover your basis when you sell the timber or take depletion allowances when you cut the timber. File 2011 state taxes free See Depletion in chapter 7. File 2011 state taxes free Forestation and reforestation costs. File 2011 state taxes free   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. File 2011 state taxes free Any remaining costs can be amortized over an 84-month period. File 2011 state taxes free See chapter 7. File 2011 state taxes free 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. File 2011 state taxes free The accounts should include all reforestation treatments and the dates they were applied. File 2011 state taxes free 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. File 2011 state taxes free The timber account should be maintained until the timber is disposed of. File 2011 state taxes free For more information, see Notice 2006-47, 2006-20 I. File 2011 state taxes free R. File 2011 state taxes free B. File 2011 state taxes free 892, available at  www. File 2011 state taxes free irs. File 2011 state taxes free gov/irb/2006-20_IRB/ar11. File 2011 state taxes free html. File 2011 state taxes free   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. File 2011 state taxes free If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. File 2011 state taxes free If you are not filing Form T (Timber), attach a statement to your return with the following information. File 2011 state taxes free The unique stand identification numbers. File 2011 state taxes free The total number of acres reforested during the tax year. File 2011 state taxes free The nature of the reforestation treatments. File 2011 state taxes free The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. File 2011 state taxes free   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). File 2011 state taxes free Clearly indicate the election on your amended return and write “Filed pursuant to section 301. File 2011 state taxes free 9100-2” at the top of the amended return. File 2011 state taxes free File the amended return at the same address you filed the original return. File 2011 state taxes free    For more information about forestation and reforestation costs, see chapter 7. File 2011 state taxes free    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. File 2011 state taxes free You can view this publication on the Internet at  www. File 2011 state taxes free fs. File 2011 state taxes free fed. File 2011 state taxes free us/publications. File 2011 state taxes free Christmas tree cultivation. File 2011 state taxes free   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. File 2011 state taxes free Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. File 2011 state taxes free For more information, see Timber Depletion under Depletion in chapter 7. File 2011 state taxes free   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. File 2011 state taxes free Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. File 2011 state taxes free   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. File 2011 state taxes free If the improvements do not have a determinable useful life, add their cost to the basis of the land. File 2011 state taxes free The cost is recovered when you sell or otherwise dispose of it. File 2011 state taxes free If the improvements have a determinable useful life, recover their cost through depreciation. File 2011 state taxes free 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. File 2011 state taxes free Recover these costs through depreciation. File 2011 state taxes free Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. File 2011 state taxes free Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. File 2011 state taxes free 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. File 2011 state taxes free Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. File 2011 state taxes free Other Nondeductible Items You cannot deduct the following items on your tax return. File 2011 state taxes free Loss of growing plants, produce, and crops. File 2011 state taxes free   Losses of plants, produce, and crops raised for sale are generally not deductible. File 2011 state taxes free However, you may have a deductible loss on plants with a preproductive period of more than 2 years. File 2011 state taxes free See chapter 11 for more information. File 2011 state taxes free Repayment of loans. File 2011 state taxes free   You cannot deduct the repayment of a loan. File 2011 state taxes free However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. File 2011 state taxes free See Interest , earlier. File 2011 state taxes free Estate, inheritance, legacy, succession, and gift taxes. File 2011 state taxes free   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. File 2011 state taxes free Loss of livestock. File 2011 state taxes free   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. File 2011 state taxes free Losses from sales or exchanges between related persons. File 2011 state taxes free   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. File 2011 state taxes free For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. File 2011 state taxes free Cost of raising unharvested crops. File 2011 state taxes free   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. File 2011 state taxes free Add these costs to the basis of the land to determine the gain or loss on the sale. File 2011 state taxes free For more information, see Section 1231 Gains and Losses in chapter 9. File 2011 state taxes free Cost of unharvested crops bought with land. File 2011 state taxes free   Capitalize the purchase price of land, including the cost allocable to unharvested crops. File 2011 state taxes free You cannot deduct the cost of the crops at the time of purchase. File 2011 state taxes free However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. File 2011 state taxes free Cost related to gifts. File 2011 state taxes free   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. File 2011 state taxes free The costs are not deductible in the year of the gift or any later year. File 2011 state taxes free 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. File 2011 state taxes free Club dues and membership fees. File 2011 state taxes free   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. File 2011 state taxes free 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. File 2011 state taxes free Exception. File 2011 state taxes free   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. File 2011 state taxes free Boards of trade. File 2011 state taxes free Business leagues. File 2011 state taxes free Chambers of commerce. File 2011 state taxes free Civic or public service organizations. File 2011 state taxes free Professional associations. File 2011 state taxes free Trade associations. File 2011 state taxes free Real estate boards. File 2011 state taxes free Fines and penalties. File 2011 state taxes free   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. File 2011 state taxes free 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. File 2011 state taxes free The amount of the loss you can deduct when figuring your taxable income may be limited. File 2011 state taxes free To figure your deductible loss, you must apply the following limits. File 2011 state taxes free The at-risk limits. File 2011 state taxes free The passive activity limits. File 2011 state taxes free The following discussions explain these limits. File 2011 state taxes free If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. File 2011 state taxes free See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. File 2011 state taxes free 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. File 2011 state taxes free See Not-for-Profit Farming, later. File 2011 state taxes free At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. File 2011 state taxes free These rules limit the losses you can deduct when figuring your taxable income. File 2011 state taxes free The deductible loss from an activity is limited to the amount you have at risk in the activity. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free For more information, see Publication 925. File 2011 state taxes free 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. File 2011 state taxes free Generally, a rental activity is a passive activity. File 2011 state taxes free If you have a passive activity, special rules limit the loss you can deduct in the tax year. File 2011 state taxes free You generally can deduct losses from passive activities only up to income from passive activities. File 2011 state taxes free Credits are similarly limited. File 2011 state taxes free For more information, see Publication 925. File 2011 state taxes free Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. File 2011 state taxes free Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. File 2011 state taxes free For more details, see IRC section 461(j). File 2011 state taxes free Excess farm loss. File 2011 state taxes free   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). File 2011 state taxes free 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. File 2011 state taxes free   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. File 2011 state taxes free 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. File 2011 state taxes free 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). File 2011 state taxes free Also, there is a limit on the deductions you can take. File 2011 state taxes free You cannot use a loss from that activity to offset income from other activities. File 2011 state taxes free Activities you do as a hobby, or mainly for sport or recreation, come under this limit. File 2011 state taxes free An investment activity intended only to produce tax losses for the investors also comes under this limit. File 2011 state taxes free The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. File 2011 state taxes free It does not apply to corporations other than S corporations. File 2011 state taxes free In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. File 2011 state taxes free No one factor alone is decisive. File 2011 state taxes free 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. File 2011 state taxes free Presumption of profit. File 2011 state taxes free   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. File 2011 state taxes free 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. File 2011 state taxes free The activity must be substantially the same for each year within this period. File 2011 state taxes free You have a profit when the gross income from an activity is more than the deductions for it. File 2011 state taxes free   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. File 2011 state taxes free   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. File 2011 state taxes free This means the limits discussed here do not apply. File 2011 state taxes free You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. File 2011 state taxes free You can rely on this presumption in every case, unless the IRS shows it is not valid. File 2011 state taxes free   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. File 2011 state taxes free Using the presumption later. File 2011 state taxes free   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. File 2011 state taxes free   You can choose to do this by filing Form 5213. File 2011 state taxes free 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. File 2011 state taxes free 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. File 2011 state taxes free   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. File 2011 state taxes free Accordingly, it will not limit your deductions. File 2011 state taxes free 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. File 2011 state taxes free If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. File 2011 state taxes free 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. File 2011 state taxes free   Filing Form 5213 automatically extends the period of limitations on any year