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

Irs Gov Vita

How To File 2012 Taxes LateIrs 1040ez Form 20121040x Amended Tax Form1040 Ez Tax Form1040 Tax Forms For 20121040nr Ez 20111040ez1040nr CalculatorE File 2012 Tax ReturnHow To File Your Own TaxesFiling A Tax Ammendment1040ez 2011 Tax FormHow To File A 1040x Amendment1040 Ez Tax Return FormFiling My 2012 TaxesAmend Federal TaxesIrs Gov FormsIrs Form 1040 2011File 1040ez FreeFilling Out A 1040ezFile 2012 Taxes Online FreeIrs File 2012 Taxes2011 Tax BookletWhere To File 2009 Tax ReturnTaxact Amended ReturnIrs Amended Tax ReturnFederal Form 1040ez2012 1040ezHr Block 2011 Tax SoftwareCan Unemployed People File TaxesHow To File 2012 Tax Return In 2014Ez 1040 Form 2012Form 1040x For 2012Buy Turbotax 2011Tax Act OnlineIrs Form 1040x InstructionsFile 1040x TurbotaxHr Block Login1040ez Form InstructionsFree File 1040ez Form

Irs Gov Vita

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

Letter 2789C Frequently Asked Questions (FAQs)

What is the letter telling me?

The letter is a response to your oral or written request for information on the annual reminder notice, required by law, informing you that you still have a balance due with us that you received.  It also explains that penalty and interest continues to accrue until the balance is full paid.

What do I have to do?

Pay the balance due in the letter as soon as possible.

How much time do I have?

The letter provides you the full pay amount to a specified date.

Who should I contact?

If you have any questions about this letter, call us at the number printed in the letter. The person who answers the phone will assist you.

What if I don't agree or have already taken corrective action?

If you do not agree with this letter, call us immediately at the number included. We will do our best to help you.  If you have called us about this matter before, but we did not correct the problem, you may want to contact the Office of the Taxpayer Advocate.

Page Last Reviewed or Updated: 30-Jan-2014

The Irs Gov Vita

Irs gov vita Publication 504 - Additional Material Prev  Up  Next   Home   More Online Publications