Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Free Tax Efile

Federal Tax Forms 2011 EzHow Do I File My Taxes For 2011Free Military TaxesAddress For State Taxes1040 Ez Online FilingFile A Free Tax Extension OnlineWww 1040ez Com10w40ez1040 Es Form940 Ez Form1040ez Forms 2014Amended ReturnsIrs Form 1040nr2011 Income Tax Forms 1040ezFile 2011 Tax OnlineWww Freefilefillableforms ComFree File State Federal TaxesHelp Filling Out 1040xH&r Block Free State File CouponFree Tax Returns1040a 2012 Tax ReturnHow To File 1040ez Online For FreeEfile State Taxes For FreeCan I Efile 2012 TaxesWhere Can I Get 2012 Federal Tax FormsHow Do I Amend My Tax ReturnH And R Block Amended ReturnFiling State ReturnCan I Efile 1040nr1040x Irs FormIrs Tax1040ez Electronic Filing2011 1040 Ez Tax Forms2011 Tax TablesTurbotax For 2011 TaxesPrintable 1040ez Tax FormState Income Tax ReturnTaxact Online 2012Irs Ez Form Online1040ez Instructions 2012

Free Tax Efile

Free tax efile 2. Free tax efile   Roth IRAs Table of Contents What's New for 2013 What's New for 2014 Reminders Introduction What Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA?How Much Can Be Contributed? When Can You Make Contributions? What if You Contribute Too Much? Can You Move Amounts Into a Roth IRA?Conversions Rollover From Employer's Plan Into a Roth IRA Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments Rollover From a Roth IRA Rollover of Exxon Valdez Settlement Income Rollover of Airline Payments Are Distributions Taxable?What Are Qualified Distributions? Additional Tax on Early Distributions Ordering Rules for Distributions How Do You Figure the Taxable Part? Must You Withdraw or Use Assets?Minimum distributions. Free tax efile Recognizing Losses on Investments Distributions After Owner's Death What's New for 2013 Roth IRA contribution limit. Free tax efile  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Free tax efile If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Free tax efile However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Free tax efile For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter. Free tax efile Modified AGI limit for Roth IRA contributions increased. Free tax efile  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free tax efile Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Free tax efile Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Free tax efile Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free tax efile See Can You Contribute to a Roth IRA? in this chapter. Free tax efile Net Investment Income Tax. Free tax efile  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Free tax efile However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free tax efile Distributions from a nonqualified retirement plan are included in net investment income. Free tax efile See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Free tax efile What's New for 2014 Modified AGI limit for Roth IRA contributions increased. Free tax efile  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. Free tax efile Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. Free tax efile Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. Free tax efile Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Free tax efile You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Free tax efile Reminders Deemed IRAs. Free tax efile  For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. Free tax efile If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. Free tax efile An employee's account can be treated as a traditional IRA or a Roth IRA. Free tax efile For this purpose, a “qualified employer plan” includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), A tax-sheltered annuity plan (section 403(b) plan), and A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Free tax efile Designated Roth accounts. Free tax efile  Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. Free tax efile These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Free tax efile Designated Roth accounts are not IRAs and should not be confused with Roth IRAs. Free tax efile Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. Free tax efile A contribution to one does not impact your eligibility to contribute to the other. Free tax efile See Publication 575, for more information on designated Roth accounts. Free tax efile Introduction Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. Free tax efile Contributions not reported. Free tax efile   You do not report Roth IRA contributions on your return. Free tax efile What Is a Roth IRA? A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). Free tax efile It can be either an account or an annuity. Free tax efile Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. Free tax efile To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. Free tax efile A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. Free tax efile Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. Free tax efile But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Free tax efile Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live. Free tax efile Traditional IRA. Free tax efile   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Free tax efile Traditional IRAs are discussed in chapter 1. Free tax efile When Can a Roth IRA Be Opened? You can open a Roth IRA at any time. Free tax efile However, the time for making contributions for any year is limited. Free tax efile See When Can You Make Contributions , later under Can You Contribute to a Roth IRA. Free tax efile Can You Contribute to a Roth IRA? Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than: $188,000 for married filing jointly or qualifying widow(er), $127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and $10,000 for married filing separately and you lived with your spouse at any time during the year. Free tax efile You may be able to claim a credit for contributions to your Roth IRA. Free tax efile For more information, see chapter 4. Free tax efile Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age. Free tax efile Can you contribute to a Roth IRA for your spouse?   You can contribute to a Roth IRA for your spouse provided the contributions satisfy the Kay Bailey Hutchison Spousal IRA limit discussed in chapter 1 under How Much Can Be Contributed, you file jointly, and your modified AGI is less than $188,000. Free tax efile Compensation. Free tax efile   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. Free tax efile It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. Free tax efile For more information, see What Is Compensation? under Who Can Open a Traditional IRA? in chapter 1. Free tax efile Modified AGI. Free tax efile   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. Free tax efile Use Worksheet 2-1 , later, to determine your modified AGI. Free tax efile    Do not subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Free tax efile Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. Free tax efile How Much Can Be Contributed? The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. Free tax efile Worksheet 2-1. Free tax efile Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. Free tax efile 1. Free tax efile Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1. Free tax efile   2. Free tax efile Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b, Form 1040A, line 11b, or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b, Form 1040A, line 12b, or Form 1040NR, line 17b) 2. Free tax efile   3. Free tax efile Subtract line 2 from line 1 3. Free tax efile   4. Free tax efile Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4. Free tax efile   5. Free tax efile Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5. Free tax efile   6. Free tax efile Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 6. Free tax efile   7. Free tax efile Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 7. Free tax efile   8. Free tax efile Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8. Free tax efile   9. Free tax efile Enter any foreign housing deduction from Form 2555, line 50 9. Free tax efile   10. Free tax efile Enter any excludable qualified savings bond interest from Form 8815, line 14 10. Free tax efile   11. Free tax efile Enter any excluded employer-provided adoption benefits from Form 8839, line 28 11. Free tax efile   12. Free tax efile Add the amounts on lines 3 through 11 12. Free tax efile   13. Free tax efile Enter: $188,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $127,000 for all others 13. Free tax efile   Is the amount on line 12 more than the amount on line 13? If yes, see the note below. Free tax efile  If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes. Free tax efile       Note. Free tax efile If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. Free tax efile (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI. Free tax efile ) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. Free tax efile If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above. Free tax efile Roth IRAs only. Free tax efile   If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation. Free tax efile   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced . Free tax efile Roth IRAs and traditional IRAs. Free tax efile   If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Free tax efile Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. Free tax efile   This means that your contribution limit is the lesser of: $5,500 ($6,500 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs. Free tax efile   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained below under Contribution limit reduced . Free tax efile   Simplified employee pensions (SEPs) are discussed in Publication 560. Free tax efile Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3. Free tax efile Repayment of reservist distributions. Free tax efile   You can repay qualified reservist distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. Free tax efile However, the total repayments cannot be more than the amount of your distribution. Free tax efile Note. Free tax efile If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. Free tax efile For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. Free tax efile Contribution limit reduced. Free tax efile   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Free tax efile Use Table 2-1, later, to determine if this reduction applies to you. Free tax efile Table 2-1. Free tax efile Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI). Free tax efile IF you have taxable compensation and your filing status is . Free tax efile . Free tax efile . Free tax efile AND your modified AGI is . Free tax efile . Free tax efile . Free tax efile THEN . Free tax efile . Free tax efile . Free tax efile married filing jointly or  qualifying widow(er) less than $178,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free tax efile at least $178,000 but less than $188,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free tax efile $188,000 or more you cannot contribute to a Roth IRA. Free tax efile married filing separately and you lived with your spouse at any time during the year zero (-0-) you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free tax efile more than zero (-0-) but less than $10,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free tax efile $10,000 or more you cannot contribute to a Roth IRA. Free tax efile single, head of household,  or married filing separately and you did not live with your spouse at any time during the year less than $112,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . Free tax efile at least $112,000 but less than $127,000 the amount you can contribute is reduced as explained under Contribution limit reduced . Free tax efile $127,000 or more you cannot contribute to a Roth IRA. Free tax efile Figuring the reduction. Free tax efile   If the amount you can contribute must be reduced, use Worksheet 2-2, later, to figure your reduced contribution limit. Free tax efile Worksheet 2-2. Free tax efile Determining Your Reduced Roth IRA Contribution Limit Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Free tax efile If it is, use this worksheet to determine how much it is reduced. Free tax efile 1. Free tax efile Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Free tax efile   2. Free tax efile Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Free tax efile   3. Free tax efile Subtract line 2 from line 1 3. Free tax efile   4. Free tax efile Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Free tax efile   5. Free tax efile Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Free tax efile If the result is 1. Free tax efile 000 or more, enter 1. Free tax efile 000 5. Free tax efile   6. Free tax efile Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Free tax efile   7. Free tax efile Multiply line 5 by line 6 7. Free tax efile   8. Free tax efile Subtract line 7 from line 6. Free tax efile Round the result up to the nearest $10. Free tax efile If the result is less than $200, enter $200 8. Free tax efile   9. Free tax efile Enter contributions for the year to other IRAs 9. Free tax efile   10. Free tax efile Subtract line 9 from line 6 10. Free tax efile   11. Free tax efile Enter the lesser of line 8 or line 10. Free tax efile This is your reduced Roth IRA contribution limit 11. Free tax efile      Round your reduced contribution limit up to the nearest $10. Free tax efile If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. Free tax efile Example. Free tax efile You are a 45-year-old, single individual with taxable compensation of $113,000. Free tax efile You want to make the maximum allowable contribution to your Roth IRA for 2013. Free tax efile Your modified AGI for 2013 is $113,000. Free tax efile You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,500. Free tax efile You figure your reduced Roth IRA contribution of $5,140 as shown on Worksheet 2-2. Free tax efile Example—Illustrated, later. Free tax efile   Worksheet 2-2. Free tax efile Example—Illustrated Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. Free tax efile If it is, use this worksheet to determine how much it is reduced. Free tax efile 1. Free tax efile Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. Free tax efile 113,000 2. Free tax efile Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. Free tax efile 112,000 3. Free tax efile Subtract line 2 from line 1 3. Free tax efile 1,000 4. Free tax efile Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. Free tax efile 15,000 5. Free tax efile Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). Free tax efile If the result is 1. Free tax efile 000 or more, enter 1. Free tax efile 000 5. Free tax efile . Free tax efile 067 6. Free tax efile Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. Free tax efile 5,500 7. Free tax efile Multiply line 5 by line 6 7. Free tax efile 369 8. Free tax efile Subtract line 7 from line 6. Free tax efile Round the result up to the nearest $10. Free tax efile If the result is less than $200, enter $200 8. Free tax efile 5,140 9. Free tax efile Enter contributions for the year to other IRAs 9. Free tax efile 0 10. Free tax efile Subtract line 9 from line 6 10. Free tax efile 5,500 11. Free tax efile Enter the lesser of line 8 or line 10. Free tax efile This is your reduced Roth IRA contribution limit 11. Free tax efile 5,140 When Can You Make Contributions? You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). Free tax efile You can make contributions for 2013 by the due date (not including extensions) for filing your 2013 tax return. Free tax efile This means that most people can make contributions for 2013 by April 15, 2014. Free tax efile What if You Contribute Too Much? A 6% excise tax applies to any excess contribution to a Roth IRA. Free tax efile Excess contributions. Free tax efile   These are the contributions to your Roth IRAs for a year that equal the total of: Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed? ), plus Any excess contributions for the preceding year, reduced by the total of: Any distributions out of your Roth IRAs for the year, plus Your contribution limit for the year minus your contributions to all your IRAs for the year. Free tax efile Withdrawal of excess contributions. Free tax efile   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. Free tax efile This treatment only applies if any earnings on the contributions are also withdrawn. Free tax efile The earnings are considered earned and received in the year the excess contribution was made. Free tax efile   If you timely filed your 2013 tax return without withdrawing a contribution that you made in 2013, you can still have the contribution returned to you within 6 months of the due date of your 2013 tax return, excluding extensions. Free tax efile If you do, file an amended return with “Filed pursuant to section 301. Free tax efile 9100-2” written at the top. Free tax efile Report any related earnings on the amended return and include an explanation of the withdrawal. Free tax efile Make any other necessary changes on the amended return. Free tax efile Applying excess contributions. Free tax efile    If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Free tax efile Can You Move Amounts Into a Roth IRA? You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Free tax efile You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. Free tax efile You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. Free tax efile You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. Free tax efile Conversions You can convert a traditional IRA to a Roth IRA. Free tax efile The conversion is treated as a rollover, regardless of the conversion method used. Free tax efile Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Free tax efile However, the 1-year waiting period does not apply. Free tax efile Conversion methods. Free tax efile   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways. Free tax efile Rollover. Free tax efile You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution. Free tax efile Trustee-to-trustee transfer. Free tax efile You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA. Free tax efile Same trustee transfer. Free tax efile If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA. Free tax efile Same trustee. Free tax efile   Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract. Free tax efile Income. Free tax efile   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Free tax efile These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Free tax efile If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free tax efile See Publication 505, Tax Withholding and Estimated Tax. Free tax efile More information. Free tax efile   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Free tax efile Rollover From Employer's Plan Into a Roth IRA You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan); Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Free tax efile Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. Free tax efile See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Free tax efile Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. Free tax efile Rollover methods. Free tax efile   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways. Free tax efile Rollover. Free tax efile You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. Free tax efile Since the distribution is paid directly to you, the payer generally must withhold 20% of it. Free tax efile Direct rollover option. Free tax efile Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Free tax efile Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA. Free tax efile Rollover by nonspouse beneficiary. Free tax efile   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a Roth IRA. Free tax efile You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. Free tax efile   You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. Free tax efile For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Publication 575. Free tax efile Income. Free tax efile   You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. Free tax efile You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid. Free tax efile These amounts are normally included in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. Free tax efile If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Free tax efile See Publication 505, Tax Withholding and Estimated Tax. Free tax efile For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1. Free tax efile Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. Free tax efile The contribution is treated as a qualified rollover contribution. Free tax efile The amount you can roll over to your Roth IRA cannot exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Free tax efile Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. Free tax efile The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. Free tax efile The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Free tax efile Rollover From a Roth IRA You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Free tax efile Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. Free tax efile However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. Free tax efile A rollover from a Roth IRA to an employer retirement plan is not allowed. Free tax efile A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. Free tax efile If you roll over an amount from one Roth IRA to another Roth IRA, the 5-year period used to determine qualified distributions does not change. Free tax efile The 5-year period begins with the first taxable year for which the contribution was made to the initial Roth IRA. Free tax efile See What are Qualified Distributions , later. Free tax efile Rollover of Exxon Valdez Settlement Income If you are a qualified taxpayer (defined in chapter 1, earlier) and you received qualified settlement income (defined in chapter 1, earlier), you can contribute all or part of the amount received to an eligible retirement plan which includes a Roth IRA. Free tax efile The rules for contributing qualified settlement income to a Roth IRA are the same as the rules for contributing qualified settlement income to a traditional IRA with the following exception. Free tax efile Qualified settlement income that is contributed to a Roth IRA, or to a designated Roth account, will be: Included in your taxable income for the year the qualified settlement income was received, and Treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. Free tax efile For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1. Free tax efile Rollover of Airline Payments If you are a qualified airline employee (defined next), you may contribute any portion of an airline payment (defined below) you receive to a Roth IRA. Free tax efile The contribution must be made within 180 days from the date you received the payment. Free tax efile The contribution will be treated as a qualified rollover contribution. Free tax efile The rollover contribution is included in income to the extent it would be included in income if it were not part of the rollover contribution. Free tax efile Also, any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can contribute to your Roth IRA. Free tax efile Qualified airline employee. Free tax efile    A current or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier which was terminated or became subject to restrictions under Section 402(b) of the Pension Protection Act of 2006. Free tax efile These provisions also apply to surviving spouses of qualified airline employees. Free tax efile Airline payment. Free tax efile    An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. Free tax efile The payment also must be made both: Under the approval of an order of federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and In respect of the qualified airline employee’s interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount. Free tax efile Any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can roll over to your traditional IRA. Free tax efile Also, an airline payment shall not include any amount payable on the basis of the airline carrier’s future earnings or profits. Free tax efile Are Distributions Taxable? You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). Free tax efile You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. Free tax efile You may have to include part of other distributions in your income. Free tax efile See Ordering Rules for Distributions , later. Free tax efile Basis of distributed property. Free tax efile   The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution. Free tax efile Withdrawals of contributions by due date. Free tax efile   If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. Free tax efile If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. Free tax efile The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions. Free tax efile What Are Qualified Distributions? A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. Free tax efile It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and The payment or distribution is: Made on or after the date you reach age 59½, Made because you are disabled (defined earlier), Made to a beneficiary or to your estate after your death, or One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit). Free tax efile Additional Tax on Early Distributions If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs. Free tax efile Distributions of conversion and certain rollover contributions within 5-year period. Free tax efile   If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. Free tax efile You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). Free tax efile A separate 5-year period applies to each conversion and rollover. Free tax efile See Ordering Rules for Distributions , later, to determine the recapture amount, if any. Free tax efile   The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. Free tax efile See What Are Qualified Distributions , earlier. Free tax efile   For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2013, and makes a regular contribution for 2012 on the same date, the 5-year period for the conversion begins January 1, 2013, while the 5-year period for the regular contribution begins on January 1, 2012. Free tax efile   Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover. Free tax efile   You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. Free tax efile You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions. Free tax efile Other early distributions. Free tax efile   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. Free tax efile Exceptions. Free tax efile   You may not have to pay the 10% additional tax in the following situations. Free tax efile You have reached age 59½. Free tax efile You are totally and permanently disabled. Free tax efile You are the beneficiary of a deceased IRA owner. Free tax efile You use the distribution to buy, build, or rebuild a first home. Free tax efile The distributions are part of a series of substantially equal payments. Free tax efile You have unreimbursed medical expenses that are more than 10% (or 7. Free tax efile 5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year. Free tax efile You are paying medical insurance premiums during a period of unemployment. Free tax efile The distributions are not more than your qualified higher education expenses. Free tax efile The distribution is due to an IRS levy of the qualified plan. Free tax efile The distribution is a qualified reservist distribution. Free tax efile Most of these exceptions are discussed earlier in chapter 1 under Early Distributions . Free tax efile Please click here for the text description of the image. Free tax efile Is Roth Distributions a Qualified Distribution? Ordering Rules for Distributions If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. Free tax efile There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. Free tax efile For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much ). Free tax efile Order the distributions as follows. Free tax efile Regular contributions. Free tax efile Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). Free tax efile See Aggregation (grouping and adding) rules, later. Free tax efile Take these conversion and rollover contributions into account as follows: Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the Nontaxable portion. Free tax efile Earnings on contributions. Free tax efile Disregard rollover contributions from other Roth IRAs for this purpose. Free tax efile Aggregation (grouping and adding) rules. Free tax efile   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows. Free tax efile Add all distributions from all your Roth IRAs during the year together. Free tax efile Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Free tax efile Add this total to the total undistributed regular contributions made in prior years. Free tax efile Add all conversion and rollover contributions made during the year together. Free tax efile For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2013 and the conversion or rollover contribution is made in 2014, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2014. Free tax efile Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA. Free tax efile   Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Free tax efile Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose. Free tax efile Example. Free tax efile On October 15, 2009, Justin converted all $80,000 in his traditional IRA to his Roth IRA. Free tax efile His Forms 8606 from prior years show that $20,000 of the amount converted is his basis. Free tax efile Justin included $60,000 ($80,000 − $20,000) in his gross income. Free tax efile On February 23, 2013, Justin made a regular contribution of $5,000 to a Roth IRA. Free tax efile On November 8, 2013, at age 60, Justin took a $7,000 distribution from his Roth IRA. Free tax efile The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income. Free tax efile The next $2,000 of the distribution is not includible in income because it was included previously. Free tax efile Figuring your recapture amount. Free tax efile   If you had an early distribution from your Roth IRAs in 2013, you must allocate the early distribution by using the Recapture Amount—Allocation Chart, later. Free tax efile Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19   Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Free tax efile   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Free tax efile The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Free tax efile Note. Free tax efile Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Free tax efile See the Example , earlier. Free tax efile Tax Year Your Form 2013 Form 8606, line 20   Form 8606, line 22   1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18   Form 8606, line 17   2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Free tax efile  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Free tax efile Amount to include on Form 5329, line 1. Free tax efile   Include on line 1 of your 2013 Form 5329 the following four amounts from the Recapture Amount—Allocation Chart that you filled out. Free tax efile The amount you allocated to line 20 of your 2013 Form 8606. Free tax efile The amount(s) allocated to your 2009 through 2013 Forms 8606, line 18, and your 2010 Form 8606, line 23. Free tax efile The amount(s) allocated to your 2009, 2011, 2012, and 2013 Forms 1040, line 16b; Forms 1040A, line 12b; and Forms 1040NR, line 17b. Free tax efile The amount from your 2013 Form 8606, line 25. Free tax efile   Also, include any amount you allocated to line 20 of your 2013 Form 8606 on your 2013 Form 5329, line 2, and enter exception number 09. Free tax efile Example. Free tax efile Ishmael, age 32, opened a Roth IRA in 2000. Free tax efile He made the maximum contributions to it every year. Free tax efile In addition, he made the following transactions into his Roth IRA. Free tax efile In 2005, he converted $10,000 from his traditional IRA into his Roth IRA. Free tax efile He filled out a 2005 Form 8606 and attached it with his 2005 Form 1040. Free tax efile He entered $0 on line 17 of Form 8606 because he took a deduction for all the contributions to the traditional IRA, therefore he has no basis. Free tax efile He entered $10,000 on line 18 of Form 8606. Free tax efile In 2011, he rolled over the entire balance of his qualified retirement plan, $20,000, into a Roth IRA when he changed jobs. Free tax efile He used a 2011 Form 1040 to file his taxes. Free tax efile He entered $20,000 on line 16a of Form 1040 because that was the amount reported in box 1 of his 2011 Form 1099-R. Free tax efile Box 5 of his 2011 Form 1099-R reported $0 since he did not make any after-tax contributions to the qualified retirement plan. Free tax efile He entered $20,000 on line 16b of Form 1040 since that is the taxable amount that was rolled over in 2011. Free tax efile The total balance in his Roth IRA as of January 1, 2013 was $105,000 ($50,000 in contributions from 2000 through 2012 + $10,000 from the 2005 conversion + $20,000 from the 2011 rollover + $25,000 from earnings). Free tax efile He has not taken any early distribution from his Roth IRA before 2013. Free tax efile In 2013, he made the maximum contribution of $5,500 to his Roth IRA. Free tax efile In August of 2013, he took a $85,500 early distribution from his Roth IRA to use as a down payment on the purchase of his first home. Free tax efile See his filled out Illustrated Recapture Amount—Allocation Chart, later, to see how he allocated the amounts from the above transactions. Free tax efile Based on his allocation, he would enter $20,000 on his 2013 Form 5329, line 1 (see Amount to include on Form 5329, line 1 , above). Free tax efile He should also report $10,000 on his 2013 Form 5329, line 2, and enter exception 09 since that amount is not subject to the 10% additional tax on early distributions. Free tax efile Illustrated Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19 $85,500 Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. Free tax efile   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). Free tax efile The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. Free tax efile Note. Free tax efile Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. Free tax efile See the Example , earlier. Free tax efile Tax Year Your Form 2013 Form 8606, line 20 $10,000 Form 8606, line 22 $55,500 1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18 $10,000 Form 8606, line 17 $-0- 2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b* $10,000 Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. Free tax efile  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. Free tax efile How Do You Figure the Taxable Part? To figure the taxable part of a distribution that is not a qualified distribution, complete Form 8606, Part III. Free tax efile Must You Withdraw or Use Assets? You are not required to take distributions from your Roth IRA at any age. Free tax efile The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. Free tax efile However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death . Free tax efile Minimum distributions. Free tax efile   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Free tax efile Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. Free tax efile See Distributions to beneficiaries , later. Free tax efile Recognizing Losses on Investments If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. Free tax efile Your basis is the total amount of contributions in your Roth IRAs. Free tax efile You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Free tax efile Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax. Free tax efile Distributions After Owner's Death If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. Free tax efile See When Can You Withdraw or Use Assets? in chapter 1. Free tax efile Distributions to beneficiaries. Free tax efile   Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. Free tax efile (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. Free tax efile )   If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Free tax efile Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent. Free tax efile   If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½ or treat the Roth IRA as his or her own. Free tax efile Combining with other Roth IRAs. Free tax efile   A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either: Inherited the other Roth IRA from the same decedent, or Was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA. Free tax efile Distributions that are not qualified distributions. Free tax efile   If a distribution to a beneficiary is not a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive. Free tax efile   If the owner of a Roth IRA dies before the end of: The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA, each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. Free tax efile See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable. Free tax efile Example. Free tax efile When Ms. Free tax efile Hibbard died in 2013, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2009, and earnings of $2,000. Free tax efile No distributions had been made from her IRA. Free tax efile She had no basis in the conversion contribution in 2009. Free tax efile When she established this Roth IRA (her first) in 2009, she named each of her four children as equal beneficiaries. Free tax efile Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. Free tax efile An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings. Free tax efile In this case, because the distributions are made before the end of the applicable 5-year period for a qualified distribution, each beneficiary includes $500 in income for 2013. Free tax efile The 10% additional tax on early distributions does not apply because the distribution was made to the beneficiaries as a result of the death of the IRA owner. Free tax efile If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. Free tax efile For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. Free tax efile If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion. Free tax efile Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP297C Notice

We levied you for unpaid taxes. You have the right to a Collection Due
Process hearing.


What you need to do

  • Read your notice carefully — it explains our actions.
  • Pay what you owe.
  • Make a payment plan if you can’t pay the full amount you owe.

You may want to...


Answers to Common Questions

What should I do if I disagree with the notice?
Request a Collection Due Process hearing.

Why should I request a Collection Due Process hearing?
You can appeal the levy and other disagreements you have at a Collection Due Process hearing.

How can I request a Collection Due Process hearing?
Complete and send us a Form 12153, Request for a Collection Due Process or Equivalent Hearing.

Why didn't you tell me about my rights before you levied me?
Federal contractors do not have the right to a pre-levy hearing. We've already sent you several notices about the amount you owe.

What happens if I can't pay what I owe?
You can request a payment plan if you can't pay the full amount you owe.

How can I make a payment plan?
Call us at the toll free number on the top right corner of your notice to talk about payment plans or learn more about them here.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about how to file electronically.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP297C, Page 1

Notice CP297C, Page 2

Notice CP297C, Page 3

Notice CP297C, Page 4

Notice CP297C, Page 5

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 

Page Last Reviewed or Updated: 27-Jan-2014

The Free Tax Efile

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