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Instructions On How To Fill Out 1040ez

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Instructions On How To Fill Out 1040ez

Instructions on how to fill out 1040ez Publication 556 - Introductory Material Table of Contents The IRS Mission Reminders IntroductionOrdering forms and publications. Instructions on how to fill out 1040ez Tax questions. Instructions on how to fill out 1040ez Useful Items - You may want to see: The IRS Mission Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Instructions on how to fill out 1040ez Reminders Penalty for filing erroneous claim for refund or credit. Instructions on how to fill out 1040ez  You may have to pay a penalty if you file an erroneous claim for refund or credit. Instructions on how to fill out 1040ez See Penalty for erroneous claim for refund, later under Claims for Refund. Instructions on how to fill out 1040ez Interest and penalties suspended if notice not mailed within 36 months. Instructions on how to fill out 1040ez  If you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you within 36 months. Instructions on how to fill out 1040ez See Suspension of interest and penalties, later under Examination of Returns. Instructions on how to fill out 1040ez Fast track mediation. Instructions on how to fill out 1040ez  The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. Instructions on how to fill out 1040ez See Fast track mediation under If You Do Not Agree. Instructions on how to fill out 1040ez Introduction The Internal Revenue Service (IRS) accepts most federal tax returns as filed. Instructions on how to fill out 1040ez However, the IRS examines (or audits) some returns to determine if income, expenses, and credits are being reported accurately. Instructions on how to fill out 1040ez If your return is selected for examination, it does not suggest that you made an error or are dishonest. Instructions on how to fill out 1040ez Returns are chosen by computerized screening, by random sample, or by an income document matching program. Instructions on how to fill out 1040ez See Examination selection criteria, later. Instructions on how to fill out 1040ez You should also know that many examinations result in a refund or acceptance of the tax return without change. Instructions on how to fill out 1040ez This publication discusses general rules and procedures that the IRS follows in examinations. Instructions on how to fill out 1040ez It explains what happens during an examination and your appeal rights, both within the IRS and in the federal court system. Instructions on how to fill out 1040ez It also explains how to file a claim for refund of tax you already paid. Instructions on how to fill out 1040ez As a taxpayer, you have the right to be treated fairly, professionally, promptly, and courteously by IRS employees. Instructions on how to fill out 1040ez Publication 1, Your Rights as a Taxpayer, explains your rights when dealing with the IRS. Instructions on how to fill out 1040ez Comments and suggestions. Instructions on how to fill out 1040ez   We welcome your comments about this publication and your suggestions for future editions. Instructions on how to fill out 1040ez   You can write to us at the following address:  Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Instructions on how to fill out 1040ez NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Instructions on how to fill out 1040ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Instructions on how to fill out 1040ez   You can send your comments from www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov/formspubs/. Instructions on how to fill out 1040ez Click on “More Information” and then on “Comment on Tax Forms and Publications. Instructions on how to fill out 1040ez ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Instructions on how to fill out 1040ez Ordering forms and publications. Instructions on how to fill out 1040ez   Visit www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Instructions on how to fill out 1040ez  Internal Revenue Service  1201 N. Instructions on how to fill out 1040ez Mitsubishi Motorway Bloomington, IL 61704-6613 Tax questions. Instructions on how to fill out 1040ez   If you have a tax question, check the information available on www. Instructions on how to fill out 1040ez irs. Instructions on how to fill out 1040ez gov or call 1-800-829-1040. Instructions on how to fill out 1040ez We cannot answer tax questions sent to either of the above addresses. Instructions on how to fill out 1040ez Useful Items - You may want to see: Publication 1 Your Rights as a Taxpayer 5 Your Appeal Rights and How To Prepare a Protest If You Don't Agree 547 Casualties, Disasters, and Thefts 594 The IRS Collection Process 910 Guide to Free Tax Services 971 Innocent Spouse Relief 1546 Taxpayer Advocate Service–Your Voice at the IRS 1660 Collection Appeal Rights 3605 Fast Track Mediation 3920 Tax Relief for Victims of Terrorist Attacks 4134 Low Income Taxpayer Clinic List Form (and Instructions) 843 Claim for Refund and Request for Abatement 911 Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order) 1040X Amended U. Instructions on how to fill out 1040ez S. Instructions on how to fill out 1040ez Individual Income Tax Return 2848 Power of Attorney and Declaration of Representative 4506 Request for Copy of Tax Return 4506-T Request for Transcript of Tax Return 8379 Injured Spouse Allocation 8857 Request for Innocent Spouse Relief See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Instructions on how to fill out 1040ez Prev  Up  Next   Home   More Online Publications
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The Instructions On How To Fill Out 1040ez

Instructions on how to fill out 1040ez 2. Instructions on how to fill out 1040ez   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Instructions on how to fill out 1040ez You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Instructions on how to fill out 1040ez This chapter discusses accounting methods. Instructions on how to fill out 1040ez For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Instructions on how to fill out 1040ez Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Instructions on how to fill out 1040ez Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Instructions on how to fill out 1040ez Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Instructions on how to fill out 1040ez A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Instructions on how to fill out 1040ez An item considered material for financial statement purposes is generally also considered material for income tax purposes. Instructions on how to fill out 1040ez See Publication 538 for more information. Instructions on how to fill out 1040ez You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Instructions on how to fill out 1040ez If you later want to change your accounting method, you generally must get IRS approval. Instructions on how to fill out 1040ez How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Instructions on how to fill out 1040ez Types of accounting methods. Instructions on how to fill out 1040ez   Generally, you can use any of the following accounting methods. Instructions on how to fill out 1040ez Each method is discussed in detail below. Instructions on how to fill out 1040ez Cash method. Instructions on how to fill out 1040ez Accrual method. Instructions on how to fill out 1040ez Special methods of accounting for certain items of income and expenses. Instructions on how to fill out 1040ez Combination (hybrid) method using elements of two or more of the above. Instructions on how to fill out 1040ez Business and other items. Instructions on how to fill out 1040ez   You can account for business and personal items using different accounting methods. Instructions on how to fill out 1040ez For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Instructions on how to fill out 1040ez Two or more businesses. Instructions on how to fill out 1040ez   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Instructions on how to fill out 1040ez Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Instructions on how to fill out 1040ez Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Instructions on how to fill out 1040ez However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Instructions on how to fill out 1040ez See Accrual Method Required , later. Instructions on how to fill out 1040ez Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Instructions on how to fill out 1040ez Items of income include money received as well as property or services received. Instructions on how to fill out 1040ez If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Instructions on how to fill out 1040ez See chapter 3 for information on how to report farm income on your income tax return. Instructions on how to fill out 1040ez Constructive receipt. Instructions on how to fill out 1040ez   Income is constructively received when an amount is credited to your account or made available to you without restriction. Instructions on how to fill out 1040ez You do not need to have possession of the income for it to be treated as income for the tax year. Instructions on how to fill out 1040ez If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Instructions on how to fill out 1040ez Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Instructions on how to fill out 1040ez Direct payments and counter-cyclical payments. Instructions on how to fill out 1040ez   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Instructions on how to fill out 1040ez Delaying receipt of income. Instructions on how to fill out 1040ez   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Instructions on how to fill out 1040ez You must report the income in the year the money or property is received or made available to you without restriction. Instructions on how to fill out 1040ez Example. Instructions on how to fill out 1040ez Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Instructions on how to fill out 1040ez She was told in December that her payment was available. Instructions on how to fill out 1040ez She requested not to be paid until January 2014. Instructions on how to fill out 1040ez However, she must still include this payment in her 2013 income because it was made available to her in 2013. Instructions on how to fill out 1040ez Debts paid by another person or canceled. Instructions on how to fill out 1040ez   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Instructions on how to fill out 1040ez If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Instructions on how to fill out 1040ez See Cancellation of Debt in chapter 3. Instructions on how to fill out 1040ez Deferred payment contract. Instructions on how to fill out 1040ez   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Instructions on how to fill out 1040ez However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Instructions on how to fill out 1040ez Example. Instructions on how to fill out 1040ez You are a farmer who uses the cash method and a calendar tax year. Instructions on how to fill out 1040ez You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Instructions on how to fill out 1040ez You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Instructions on how to fill out 1040ez However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Instructions on how to fill out 1040ez Repayment of income. Instructions on how to fill out 1040ez   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Instructions on how to fill out 1040ez If the repayment is more than $3,000, a special rule applies. Instructions on how to fill out 1040ez For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Instructions on how to fill out 1040ez Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Instructions on how to fill out 1040ez This includes business expenses for which you contest liability. Instructions on how to fill out 1040ez However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Instructions on how to fill out 1040ez See chapter 4 for information on how to deduct farm business expenses on your income tax return. Instructions on how to fill out 1040ez Prepayment. Instructions on how to fill out 1040ez   Generally, you cannot deduct expenses paid in advance. Instructions on how to fill out 1040ez This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Instructions on how to fill out 1040ez Example. Instructions on how to fill out 1040ez On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Instructions on how to fill out 1040ez In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Instructions on how to fill out 1040ez In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Instructions on how to fill out 1040ez An exception applies if the expense qualifies for the 12-month rule. Instructions on how to fill out 1040ez See Publication 538 for more information and examples. Instructions on how to fill out 1040ez See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Instructions on how to fill out 1040ez Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Instructions on how to fill out 1040ez The purpose of an accrual method of accounting is to correctly match income and expenses. Instructions on how to fill out 1040ez Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Instructions on how to fill out 1040ez See Accrual Method Required and Farm Inventory , later. Instructions on how to fill out 1040ez Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Instructions on how to fill out 1040ez Under this rule, include an amount in income on the earliest of the following dates. Instructions on how to fill out 1040ez When you receive payment. Instructions on how to fill out 1040ez When the income amount is due to you. Instructions on how to fill out 1040ez When you earn the income. Instructions on how to fill out 1040ez When title passes. Instructions on how to fill out 1040ez If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Instructions on how to fill out 1040ez Inventory. Instructions on how to fill out 1040ez   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Instructions on how to fill out 1040ez An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Instructions on how to fill out 1040ez See Publication 538 for more information. Instructions on how to fill out 1040ez Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Instructions on how to fill out 1040ez Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Instructions on how to fill out 1040ez The all-events test has been met. Instructions on how to fill out 1040ez This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Instructions on how to fill out 1040ez Economic performance has occurred. Instructions on how to fill out 1040ez Economic performance. Instructions on how to fill out 1040ez   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Instructions on how to fill out 1040ez If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Instructions on how to fill out 1040ez If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Instructions on how to fill out 1040ez Example. Instructions on how to fill out 1040ez Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Instructions on how to fill out 1040ez She entered into a contract with ABC Farm Consulting in 2012. Instructions on how to fill out 1040ez The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Instructions on how to fill out 1040ez It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Instructions on how to fill out 1040ez Jane paid ABC Farm Consulting $2,000 in December 2012. Instructions on how to fill out 1040ez Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Instructions on how to fill out 1040ez Economic performance for Jane's liability in the contract occurs as the services are provided. Instructions on how to fill out 1040ez Jane incurs the $2,000 cost in 2013. Instructions on how to fill out 1040ez An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Instructions on how to fill out 1040ez For more information, see Economic Performance in Publication 538. Instructions on how to fill out 1040ez Special rule for related persons. Instructions on how to fill out 1040ez   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Instructions on how to fill out 1040ez Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Instructions on how to fill out 1040ez For more information, see Internal Revenue Code section 267. Instructions on how to fill out 1040ez Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Instructions on how to fill out 1040ez A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Instructions on how to fill out 1040ez A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Instructions on how to fill out 1040ez A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Instructions on how to fill out 1040ez A tax shelter. Instructions on how to fill out 1040ez Note. Instructions on how to fill out 1040ez Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Instructions on how to fill out 1040ez Family corporation. Instructions on how to fill out 1040ez   A family corporation is generally a corporation that meets one of the following ownership requirements. Instructions on how to fill out 1040ez Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Instructions on how to fill out 1040ez Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Instructions on how to fill out 1040ez Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Instructions on how to fill out 1040ez For more information on family corporations, see Internal Revenue Code section 447. Instructions on how to fill out 1040ez Tax shelter. Instructions on how to fill out 1040ez   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Instructions on how to fill out 1040ez Its principal purpose is the avoidance or evasion of federal income tax. Instructions on how to fill out 1040ez It is a farming syndicate. Instructions on how to fill out 1040ez A farming syndicate is an entity that meets either of the following tests. Instructions on how to fill out 1040ez Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Instructions on how to fill out 1040ez More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Instructions on how to fill out 1040ez   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Instructions on how to fill out 1040ez   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Instructions on how to fill out 1040ez Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Instructions on how to fill out 1040ez This record should show the actual count or measurement of the inventory. Instructions on how to fill out 1040ez It should also show all factors that enter into its valuation, including quality and weight, if applicable. Instructions on how to fill out 1040ez Hatchery business. Instructions on how to fill out 1040ez   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Instructions on how to fill out 1040ez Products held for sale. Instructions on how to fill out 1040ez   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Instructions on how to fill out 1040ez , must be included in inventory. Instructions on how to fill out 1040ez Supplies. Instructions on how to fill out 1040ez   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Instructions on how to fill out 1040ez Deduct the cost of supplies in the year used or consumed in operations. Instructions on how to fill out 1040ez Do not include incidental supplies in inventory as these are deductible in the year of purchase. Instructions on how to fill out 1040ez Livestock. Instructions on how to fill out 1040ez   Livestock held primarily for sale must be included in inventory. Instructions on how to fill out 1040ez Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Instructions on how to fill out 1040ez See also Unit-livestock-price method , later. Instructions on how to fill out 1040ez If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Instructions on how to fill out 1040ez Growing crops. Instructions on how to fill out 1040ez   Generally, growing crops are not required to be included in inventory. Instructions on how to fill out 1040ez However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Instructions on how to fill out 1040ez See Uniform capitalization rules below. Instructions on how to fill out 1040ez Also see Uniform Capitalization Rules in  chapter 6. Instructions on how to fill out 1040ez Items to include in inventory. Instructions on how to fill out 1040ez   Your inventory should include all items held for sale, or for use as feed, seed, etc. Instructions on how to fill out 1040ez , whether raised or purchased, that are unsold at the end of the year. Instructions on how to fill out 1040ez Uniform capitalization rules. Instructions on how to fill out 1040ez   The following applies if you are required to use an accrual method of accounting. Instructions on how to fill out 1040ez The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Instructions on how to fill out 1040ez The costs of animals are subject to the uniform capitalization rules. Instructions on how to fill out 1040ez Inventory valuation methods. Instructions on how to fill out 1040ez   The following methods, described below, are those generally available for valuing inventory. Instructions on how to fill out 1040ez The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Instructions on how to fill out 1040ez Cost. Instructions on how to fill out 1040ez Lower of cost or market. Instructions on how to fill out 1040ez Farm-price method. Instructions on how to fill out 1040ez Unit-livestock-price method. Instructions on how to fill out 1040ez Cost and lower of cost or market methods. Instructions on how to fill out 1040ez   See Publication 538 for information on these valuation methods. Instructions on how to fill out 1040ez If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Instructions on how to fill out 1040ez However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Instructions on how to fill out 1040ez Farm-price method. Instructions on how to fill out 1040ez   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Instructions on how to fill out 1040ez Market price is the current price at the nearest market in the quantities you usually sell. Instructions on how to fill out 1040ez Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Instructions on how to fill out 1040ez If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Instructions on how to fill out 1040ez Unit-livestock-price method. Instructions on how to fill out 1040ez   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Instructions on how to fill out 1040ez You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Instructions on how to fill out 1040ez The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Instructions on how to fill out 1040ez Unit prices and classifications are subject to approval by the IRS on examination of your return. Instructions on how to fill out 1040ez You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Instructions on how to fill out 1040ez IRS approval is not required for these adjustments. Instructions on how to fill out 1040ez Any other changes in unit prices or classifications do require IRS approval. Instructions on how to fill out 1040ez   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Instructions on how to fill out 1040ez This method accounts only for the increase in cost of raising an animal to maturity. Instructions on how to fill out 1040ez It does not provide for any decrease in the animal's market value after it reaches maturity. Instructions on how to fill out 1040ez Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Instructions on how to fill out 1040ez   Do not include sold or lost animals in the year-end inventory. Instructions on how to fill out 1040ez If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Instructions on how to fill out 1040ez The animals on hand at the end of the year are considered those most recently acquired. Instructions on how to fill out 1040ez   You must include in inventory all livestock purchased primarily for sale. Instructions on how to fill out 1040ez You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Instructions on how to fill out 1040ez However, you must be consistent from year to year, regardless of the method you have chosen. Instructions on how to fill out 1040ez You cannot change your method without obtaining approval from the IRS. Instructions on how to fill out 1040ez   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Instructions on how to fill out 1040ez If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Instructions on how to fill out 1040ez However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Instructions on how to fill out 1040ez This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Instructions on how to fill out 1040ez It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Instructions on how to fill out 1040ez Uniform capitalization rules. Instructions on how to fill out 1040ez   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Instructions on how to fill out 1040ez This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Instructions on how to fill out 1040ez Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Instructions on how to fill out 1040ez Example 1. Instructions on how to fill out 1040ez You are a farmer who uses an accrual method of accounting. Instructions on how to fill out 1040ez You keep your books on the calendar year basis. Instructions on how to fill out 1040ez You sell grain in December 2013 but you are not paid until January 2014. Instructions on how to fill out 1040ez Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Instructions on how to fill out 1040ez Example 2. Instructions on how to fill out 1040ez Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Instructions on how to fill out 1040ez Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Instructions on how to fill out 1040ez Deduct the costs of producing the grain in the year you pay for them. Instructions on how to fill out 1040ez Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Instructions on how to fill out 1040ez Crop method. Instructions on how to fill out 1040ez   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Instructions on how to fill out 1040ez You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Instructions on how to fill out 1040ez Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Instructions on how to fill out 1040ez    See chapter 4 for details on deducting the costs of operating a farm. Instructions on how to fill out 1040ez Also see Regulations section 1. Instructions on how to fill out 1040ez 162-12. Instructions on how to fill out 1040ez Other special methods. Instructions on how to fill out 1040ez   Other special methods of accounting apply to the following items. Instructions on how to fill out 1040ez Amortization, see chapter 7. Instructions on how to fill out 1040ez Casualties, see chapter 11. Instructions on how to fill out 1040ez Condemnations, see chapter 11. Instructions on how to fill out 1040ez Depletion, see chapter 7. Instructions on how to fill out 1040ez Depreciation, see chapter 7. Instructions on how to fill out 1040ez Farm business expenses, see chapter 4. Instructions on how to fill out 1040ez Farm income, see chapter 3. Instructions on how to fill out 1040ez Installment sales, see chapter 10. Instructions on how to fill out 1040ez Soil and water conservation expenses, see chapter 5. Instructions on how to fill out 1040ez Thefts, see chapter 11. Instructions on how to fill out 1040ez Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Instructions on how to fill out 1040ez However, the following restrictions apply. Instructions on how to fill out 1040ez If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Instructions on how to fill out 1040ez If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Instructions on how to fill out 1040ez Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Instructions on how to fill out 1040ez Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Instructions on how to fill out 1040ez You may also have to pay a fee. Instructions on how to fill out 1040ez To obtain approval, you must generally file Form 3115. Instructions on how to fill out 1040ez There are instances when you can obtain automatic consent to change certain methods of accounting. Instructions on how to fill out 1040ez See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Instructions on how to fill out 1040ez For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Instructions on how to fill out 1040ez Also see Publication 538. Instructions on how to fill out 1040ez Prev  Up  Next   Home   More Online Publications