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File state taxes online free Publication 523 - Introductory Material Table of Contents Future Developments Reminders IntroductionOrdering forms and publications. File state taxes online free Tax questions. File state taxes online free Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 523, such as legislation enacted after it was published, go to www. File state taxes online free irs. File state taxes online free gov/pub523. File state taxes online free Reminders Change of address. File state taxes online free  If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. File state taxes online free Mail it to the Internal Revenue Service Center for your old address. File state taxes online free (Addresses for the Service Centers are on the back of the form. File state taxes online free ) Home sold with undeducted points. File state taxes online free  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of sale. File state taxes online free See Points in Publication 936, Home Mortgage Interest Deduction. File state taxes online free Photographs of missing children. File state taxes online free  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. File state taxes online free Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. File state taxes online free You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. File state taxes online free Introduction This publication explains the tax rules that apply when you sell your main home. File state taxes online free In most cases, your main home is the one in which you live most of the time. File state taxes online free If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). File state taxes online free See Excluding the Gain , later. File state taxes online free Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. File state taxes online free If you have gain that cannot be excluded, you generally must report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses. File state taxes online free You may also have to complete Form 4797, Sales of Business Property. File state taxes online free See Reporting the Sale , later. File state taxes online free If you have a loss on the sale, you generally cannot deduct it on your return. File state taxes online free However, you may need to report it. File state taxes online free See Reporting the Sale , later. File state taxes online free The main topics in this publication are: Figuring gain or loss, Basis, Excluding the gain, Ownership and use tests, and Reporting the sale. File state taxes online free Other topics include: Business use or rental of home, Deducting taxes in the year of sale, and Recapturing a federal mortgage subsidy. File state taxes online free Net Investment Income Tax (NIIT). File state taxes online free   If any part of the gain on the sale of a home is not excluded under the rules discussed in this publication, it may be subject to the NIIT. File state taxes online free For more details, see Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions. File state taxes online free Worksheets. File state taxes online free   Near the end of this publication you will find worksheets you can use to figure your gain (or loss) and your exclusion. File state taxes online free Use Worksheet 1 to figure the adjusted basis of the home you sold. File state taxes online free Use Worksheet 2 to figure the gain (or loss), the exclusion, and the taxable gain (if any) on the sale. File state taxes online free If you do not qualify for the maximum exclusion, use Worksheet 3 to figure your reduced maximum exclusion. File state taxes online free Date of sale. File state taxes online free    If you received a Form 1099-S, Proceeds From Real Estate Transactions, the date of sale should be shown in box 1. File state taxes online free If you did not receive this form, the date of sale is the earlier of (a) the date title transferred or (b) the date the economic burdens and benefits of ownership shifted to the buyer. File state taxes online free In most cases, these dates are the same. File state taxes online free What is not covered in this publication. File state taxes online free   This publication does not cover the sale of rental property, second homes, or vacation homes. File state taxes online free For information on how to report any gain or loss from those sales, see Publication 544, Sales and Other Dispositions of Assets. File state taxes online free Comments and suggestions. File state taxes online free   We welcome your comments about this publication and your suggestions for future editions. File state taxes online free   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File state taxes online free NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File state taxes online free Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File state taxes online free   You can send your comments from www. File state taxes online free irs. File state taxes online free gov/formspubs/. File state taxes online free Click on “More Information” and then on “Comment on Tax Forms and Publications”. File state taxes online free   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. File state taxes online free Ordering forms and publications. File state taxes online free   Visit www. File state taxes online free irs. File state taxes online free gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. File state taxes online free Internal Revenue Service 1201 N. File state taxes online free Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. File state taxes online free   If you have a tax question, check the information available on IRS. File state taxes online free gov or call 1-800-829-1040. File state taxes online free We cannot answer tax questions sent to either of the above addresses. File state taxes online free Useful Items - You may want to see: Publication 527 Residential Rental Property 530 Tax Information for Homeowners 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 551 Basis of Assets 587 Business Use of Your Home 936 Home Mortgage Interest Deduction 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) Schedule A (Form 1040) Itemized Deductions Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 1040 U. File state taxes online free S. File state taxes online free Individual Income Tax Return 1040NR U. File state taxes online free S. File state taxes online free Nonresident Alien Income Tax Return 1040X Amended U. File state taxes online free S. File state taxes online free Individual Income Tax Return 1099-S Proceeds From Real Estate Transactions 4797 Sales of Business Property 5405 Repayment of the First-Time Homebuyer Credit 8822 Change of Address 8828 Recapture of Federal Mortgage Subsidy 8939 Allocation of Increase in Basis for Property Acquired From a Decedent 8949 Sales and Other Dispositions of Capital Assets W-2 Wage and Tax Statement See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. File state taxes online free Prev  Up  Next   Home   More Online Publications
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File state taxes online free 2. File state taxes online free   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. File state taxes online free You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. File state taxes online free This chapter discusses accounting methods. File state taxes online free For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. File state taxes online free Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. File state taxes online free Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. File state taxes online free Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. File state taxes online free A material item is one that affects the proper time for inclusion of income or allowance of a deduction. File state taxes online free An item considered material for financial statement purposes is generally also considered material for income tax purposes. File state taxes online free See Publication 538 for more information. File state taxes online free You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. File state taxes online free If you later want to change your accounting method, you generally must get IRS approval. File state taxes online free How to obtain IRS approval is discussed later under Changes in Methods of Accounting . File state taxes online free Types of accounting methods. File state taxes online free   Generally, you can use any of the following accounting methods. File state taxes online free Each method is discussed in detail below. File state taxes online free Cash method. File state taxes online free Accrual method. File state taxes online free Special methods of accounting for certain items of income and expenses. File state taxes online free Combination (hybrid) method using elements of two or more of the above. File state taxes online free Business and other items. File state taxes online free   You can account for business and personal items using different accounting methods. File state taxes online free For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. File state taxes online free Two or more businesses. File state taxes online free   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. File state taxes online free Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. File state taxes online free Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. File state taxes online free However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. File state taxes online free See Accrual Method Required , later. File state taxes online free Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. File state taxes online free Items of income include money received as well as property or services received. File state taxes online free If you receive property or services, you must include the fair market value (FMV) of the property or services in income. File state taxes online free See chapter 3 for information on how to report farm income on your income tax return. File state taxes online free Constructive receipt. File state taxes online free   Income is constructively received when an amount is credited to your account or made available to you without restriction. File state taxes online free You do not need to have possession of the income for it to be treated as income for the tax year. File state taxes online free If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. File state taxes online free Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. File state taxes online free Direct payments and counter-cyclical payments. File state taxes online free   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. File state taxes online free Delaying receipt of income. File state taxes online free   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. File state taxes online free You must report the income in the year the money or property is received or made available to you without restriction. File state taxes online free Example. File state taxes online free Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. File state taxes online free She was told in December that her payment was available. File state taxes online free She requested not to be paid until January 2014. File state taxes online free However, she must still include this payment in her 2013 income because it was made available to her in 2013. File state taxes online free Debts paid by another person or canceled. File state taxes online free   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. File state taxes online free If you receive income in this way, you constructively receive the income when the debt is canceled or paid. File state taxes online free See Cancellation of Debt in chapter 3. File state taxes online free Deferred payment contract. File state taxes online free   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. File state taxes online free However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. File state taxes online free Example. File state taxes online free You are a farmer who uses the cash method and a calendar tax year. File state taxes online free You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. File state taxes online free You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. File state taxes online free However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. File state taxes online free Repayment of income. File state taxes online free   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. File state taxes online free If the repayment is more than $3,000, a special rule applies. File state taxes online free For details, see Repayments in chapter 11 of Publication 535, Business Expenses. File state taxes online free Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. File state taxes online free This includes business expenses for which you contest liability. File state taxes online free However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. File state taxes online free See chapter 4 for information on how to deduct farm business expenses on your income tax return. File state taxes online free Prepayment. File state taxes online free   Generally, you cannot deduct expenses paid in advance. File state taxes online free This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. File state taxes online free Example. File state taxes online free On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. File state taxes online free In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. File state taxes online free In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. File state taxes online free An exception applies if the expense qualifies for the 12-month rule. File state taxes online free See Publication 538 for more information and examples. File state taxes online free See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. File state taxes online free Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. File state taxes online free The purpose of an accrual method of accounting is to correctly match income and expenses. File state taxes online free Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. File state taxes online free See Accrual Method Required and Farm Inventory , later. File state taxes online free Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. File state taxes online free Under this rule, include an amount in income on the earliest of the following dates. File state taxes online free When you receive payment. File state taxes online free When the income amount is due to you. File state taxes online free When you earn the income. File state taxes online free When title passes. File state taxes online free If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. File state taxes online free Inventory. File state taxes online free   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. File state taxes online free An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. File state taxes online free See Publication 538 for more information. File state taxes online free Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. File state taxes online free Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. File state taxes online free The all-events test has been met. File state taxes online free This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. File state taxes online free Economic performance has occurred. File state taxes online free Economic performance. File state taxes online free   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. File state taxes online free If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. File state taxes online free If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. File state taxes online free Example. File state taxes online free Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. File state taxes online free She entered into a contract with ABC Farm Consulting in 2012. File state taxes online free The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. File state taxes online free It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. File state taxes online free Jane paid ABC Farm Consulting $2,000 in December 2012. File state taxes online free Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. File state taxes online free Economic performance for Jane's liability in the contract occurs as the services are provided. File state taxes online free Jane incurs the $2,000 cost in 2013. File state taxes online free An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. File state taxes online free For more information, see Economic Performance in Publication 538. File state taxes online free Special rule for related persons. File state taxes online free   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. File state taxes online free Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. File state taxes online free For more information, see Internal Revenue Code section 267. File state taxes online free Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. File state taxes online free A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. File state taxes online free A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. File state taxes online free A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. File state taxes online free A tax shelter. File state taxes online free Note. File state taxes online free Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). File state taxes online free Family corporation. File state taxes online free   A family corporation is generally a corporation that meets one of the following ownership requirements. File state taxes online free Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. File state taxes online free Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. File state taxes online free Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. File state taxes online free For more information on family corporations, see Internal Revenue Code section 447. File state taxes online free Tax shelter. File state taxes online free   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. File state taxes online free Its principal purpose is the avoidance or evasion of federal income tax. File state taxes online free It is a farming syndicate. File state taxes online free A farming syndicate is an entity that meets either of the following tests. File state taxes online free Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. File state taxes online free More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. File state taxes online free   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. File state taxes online free   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. File state taxes online free Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. File state taxes online free This record should show the actual count or measurement of the inventory. File state taxes online free It should also show all factors that enter into its valuation, including quality and weight, if applicable. File state taxes online free Hatchery business. File state taxes online free   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. File state taxes online free Products held for sale. File state taxes online free   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. File state taxes online free , must be included in inventory. File state taxes online free Supplies. File state taxes online free   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. File state taxes online free Deduct the cost of supplies in the year used or consumed in operations. File state taxes online free Do not include incidental supplies in inventory as these are deductible in the year of purchase. File state taxes online free Livestock. File state taxes online free   Livestock held primarily for sale must be included in inventory. File state taxes online free Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. File state taxes online free See also Unit-livestock-price method , later. File state taxes online free If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. File state taxes online free Growing crops. File state taxes online free   Generally, growing crops are not required to be included in inventory. File state taxes online free However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. File state taxes online free See Uniform capitalization rules below. File state taxes online free Also see Uniform Capitalization Rules in  chapter 6. File state taxes online free Items to include in inventory. File state taxes online free   Your inventory should include all items held for sale, or for use as feed, seed, etc. File state taxes online free , whether raised or purchased, that are unsold at the end of the year. File state taxes online free Uniform capitalization rules. File state taxes online free   The following applies if you are required to use an accrual method of accounting. File state taxes online free The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. File state taxes online free The costs of animals are subject to the uniform capitalization rules. File state taxes online free Inventory valuation methods. File state taxes online free   The following methods, described below, are those generally available for valuing inventory. File state taxes online free The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. File state taxes online free Cost. File state taxes online free Lower of cost or market. File state taxes online free Farm-price method. File state taxes online free Unit-livestock-price method. File state taxes online free Cost and lower of cost or market methods. File state taxes online free   See Publication 538 for information on these valuation methods. File state taxes online free If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. File state taxes online free However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. File state taxes online free Farm-price method. File state taxes online free   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. File state taxes online free Market price is the current price at the nearest market in the quantities you usually sell. File state taxes online free Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. File state taxes online free If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. File state taxes online free Unit-livestock-price method. File state taxes online free   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. File state taxes online free You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. File state taxes online free The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. File state taxes online free Unit prices and classifications are subject to approval by the IRS on examination of your return. File state taxes online free You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. File state taxes online free IRS approval is not required for these adjustments. File state taxes online free Any other changes in unit prices or classifications do require IRS approval. File state taxes online free   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. File state taxes online free This method accounts only for the increase in cost of raising an animal to maturity. File state taxes online free It does not provide for any decrease in the animal's market value after it reaches maturity. File state taxes online free Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. File state taxes online free   Do not include sold or lost animals in the year-end inventory. File state taxes online free If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. File state taxes online free The animals on hand at the end of the year are considered those most recently acquired. File state taxes online free   You must include in inventory all livestock purchased primarily for sale. File state taxes online free You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. File state taxes online free However, you must be consistent from year to year, regardless of the method you have chosen. File state taxes online free You cannot change your method without obtaining approval from the IRS. File state taxes online free   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. File state taxes online free If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. File state taxes online free However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. File state taxes online free This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. File state taxes online free It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. File state taxes online free Uniform capitalization rules. File state taxes online free   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. File state taxes online free This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. File state taxes online free Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. File state taxes online free Example 1. File state taxes online free You are a farmer who uses an accrual method of accounting. File state taxes online free You keep your books on the calendar year basis. File state taxes online free You sell grain in December 2013 but you are not paid until January 2014. File state taxes online free Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. File state taxes online free Example 2. File state taxes online free Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. File state taxes online free Under this method, you include the sales proceeds in income for 2014, the year you receive payment. File state taxes online free Deduct the costs of producing the grain in the year you pay for them. File state taxes online free Special Methods of Accounting There are special methods of accounting for certain items of income and expense. File state taxes online free Crop method. File state taxes online free   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. File state taxes online free You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. File state taxes online free Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. File state taxes online free    See chapter 4 for details on deducting the costs of operating a farm. File state taxes online free Also see Regulations section 1. File state taxes online free 162-12. File state taxes online free Other special methods. File state taxes online free   Other special methods of accounting apply to the following items. File state taxes online free Amortization, see chapter 7. File state taxes online free Casualties, see chapter 11. File state taxes online free Condemnations, see chapter 11. File state taxes online free Depletion, see chapter 7. File state taxes online free Depreciation, see chapter 7. File state taxes online free Farm business expenses, see chapter 4. File state taxes online free Farm income, see chapter 3. File state taxes online free Installment sales, see chapter 10. File state taxes online free Soil and water conservation expenses, see chapter 5. File state taxes online free Thefts, see chapter 11. File state taxes online free Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. File state taxes online free However, the following restrictions apply. File state taxes online free If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. File state taxes online free If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. File state taxes online free Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). File state taxes online free Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. File state taxes online free You may also have to pay a fee. File state taxes online free To obtain approval, you must generally file Form 3115. File state taxes online free There are instances when you can obtain automatic consent to change certain methods of accounting. File state taxes online free See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. File state taxes online free For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. File state taxes online free Also see Publication 538. File state taxes online free Prev  Up  Next   Home   More Online Publications