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Www Irs Gov Form1040a

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Www Irs Gov Form1040a

Www irs gov form1040a 4. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a Category 1. Www irs gov form1040a Category 2. Www irs gov form1040a Category 3. Www irs gov form1040a What's New for 2013 Standard mileage rate. Www irs gov form1040a  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. Www irs gov form1040a 5 cents. Www irs gov form1040a See Truck and Car Expenses , later. Www irs gov form1040a Simplified method for business use of home deduction. Www irs gov form1040a  The IRS now provides a simplified method to determine your expenses for business use of your home. Www irs gov form1040a For more information, see Schedule C (Form 1040), Part II, and its instructions. Www irs gov form1040a Introduction You can generally deduct the current costs of operating your farm. Www irs gov form1040a Current costs are expenses you do not have to capitalize or include in inventory costs. Www irs gov form1040a However, your deduction for the cost of livestock feed and certain other supplies may be limited. Www irs gov form1040a If you have an operating loss, you may not be able to deduct all of it. Www irs gov form1040a 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. Www irs gov form1040a Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Www irs gov form1040a “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Www irs gov form1040a Schedule F, Part II, lists some common farm expenses that are typically deductible. Www irs gov form1040a This chapter discusses many of these expenses, as well as others not listed on Schedule F. Www irs gov form1040a Reimbursed expenses. Www irs gov form1040a   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Www irs gov form1040a If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Www irs gov form1040a See Refund or reimbursement under Income From Other Sources in chapter 3. Www irs gov form1040a Personal and business expenses. Www irs gov form1040a   Some expenses you pay during the tax year may be part personal and part business. Www irs gov form1040a These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Www irs gov form1040a   You must allocate these mixed expenses between their business and personal parts. Www irs gov form1040a Generally, the personal part of these expenses is not deductible. Www irs gov form1040a The business portion of the expenses is deductible on Schedule F. Www irs gov form1040a Example. Www irs gov form1040a You paid $1,500 for electricity during the tax year. Www irs gov form1040a You used 1/3 of the electricity for personal purposes and 2/3 for farming. Www irs gov form1040a Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Www irs gov form1040a Reasonable allocation. Www irs gov form1040a   It is not always easy to determine the business and nonbusiness parts of an expense. Www irs gov form1040a There is no method of allocation that applies to all mixed expenses. Www irs gov form1040a Any reasonable allocation is acceptable. Www irs gov form1040a What is reasonable depends on the circumstances in each case. Www irs gov form1040a Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Www irs gov form1040a 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. Www irs gov form1040a Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Www irs gov form1040a 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. Www irs gov form1040a Poultry bought for resale and not resold during the year. Www irs gov form1040a Deduction limit. Www irs gov form1040a   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). Www irs gov form1040a This limit does not apply if you meet one of the exceptions described later. Www irs gov form1040a See Chapter 2 for a discussion of the cash method of accounting. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Www irs gov form1040a Example. Www irs gov form1040a You may not qualify for the exception described next. Www irs gov form1040a During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Www irs gov form1040a Your total prepaid farm supplies expense for 2013 is $5,500. Www irs gov form1040a Your other deductible farm expenses totaled $10,000 for 2013. Www irs gov form1040a Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Www irs gov form1040a 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. Www irs gov form1040a Exceptions. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a   You are a farm-related taxpayer if any of the following tests apply. Www irs gov form1040a Your main home is on a farm. Www irs gov form1040a Your principal business is farming. Www irs gov form1040a A member of your family meets (1) or (2). Www irs gov form1040a 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. Www irs gov form1040a    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. Www irs gov form1040a 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. Www irs gov form1040a The payment is for the purchase of feed rather than a deposit. Www irs gov form1040a The prepayment has a business purpose and is not merely for tax avoidance. Www irs gov form1040a Deducting the prepayment does not result in a material distortion of your income. Www irs gov form1040a If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Www irs gov form1040a If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Www irs gov form1040a This rule does not apply to the purchase of commodity futures contracts. Www irs gov form1040a Payment for the purchase of feed. Www irs gov form1040a   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Www irs gov form1040a 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. Www irs gov form1040a   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Www irs gov form1040a The absence of specific quantity terms. Www irs gov form1040a The right to a refund of any unapplied payment credit at the end of the contract. Www irs gov form1040a The seller's treatment of the payment as a deposit. Www irs gov form1040a The right to substitute other goods or products for those specified in the contract. Www irs gov form1040a   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. Www irs gov form1040a Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Www irs gov form1040a Business purpose. Www irs gov form1040a   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. Www irs gov form1040a The following are some examples of business benefits. Www irs gov form1040a Fixing maximum prices and securing an assured feed supply. Www irs gov form1040a Securing preferential treatment in anticipation of a feed shortage. Www irs gov form1040a   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. Www irs gov form1040a No material distortion of income. Www irs gov form1040a   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Www irs gov form1040a Your customary business practice in conducting your livestock operations. Www irs gov form1040a The expense in relation to past purchases. Www irs gov form1040a The time of year you made the purchase. Www irs gov form1040a The expense in relation to your income for the year. Www irs gov form1040a 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. Www irs gov form1040a You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Www irs gov form1040a The cost of boarding farm labor is a deductible labor cost. Www irs gov form1040a Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Www irs gov form1040a 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. Www irs gov form1040a See chapter 13 for more information on employment taxes. Www irs gov form1040a 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. Www irs gov form1040a See Taxes , later. Www irs gov form1040a Property for services. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a   Treat the wages deducted as an amount received for the property. Www irs gov form1040a 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. Www irs gov form1040a Any gain or loss has the same character the exchanged property had in your hands. Www irs gov form1040a For more information, see chapter 8. Www irs gov form1040a Child as an employee. Www irs gov form1040a   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. Www irs gov form1040a Include these wages in the child's income. Www irs gov form1040a The child may have to file an income tax return. Www irs gov form1040a These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Www irs gov form1040a For more information, see Family Employees in chapter 13. Www irs gov form1040a    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Www irs gov form1040a   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. Www irs gov form1040a The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Www irs gov form1040a Spouse as an employee. Www irs gov form1040a   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. Www irs gov form1040a Wages you pay to your spouse are subject to social security and Medicare taxes. Www irs gov form1040a For more information, see Family Employees in chapter 13. Www irs gov form1040a Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Www irs gov form1040a However, those wages may be subject to the employment taxes discussed in chapter 13. Www irs gov form1040a Household workers. Www irs gov form1040a   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. Www irs gov form1040a Construction labor. Www irs gov form1040a   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Www irs gov form1040a These wages are part of the cost of the building or other improvement. Www irs gov form1040a You must capitalize them. Www irs gov form1040a Maintaining your home. Www irs gov form1040a   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. Www irs gov form1040a For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Www irs gov form1040a The employee devotes the remaining time to work on your farm. Www irs gov form1040a You cannot deduct 5% of the wages and employment taxes you pay for that employee. Www irs gov form1040a 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). Www irs gov form1040a Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a For example, if you repair the barn roof, the cost is deductible. Www irs gov form1040a But if you replace the roof, it is a capital expense. Www irs gov form1040a For more information, see Capital Expenses , later. Www irs gov form1040a Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Www irs gov form1040a Cash method. Www irs gov form1040a   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Www irs gov form1040a You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Www irs gov form1040a You can, however, deduct the interest when you start making payments on the new loan. Www irs gov form1040a For more information, see Cash Method in chapter 2. Www irs gov form1040a Prepaid interest. Www irs gov form1040a   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Www irs gov form1040a Interest paid in advance may be deducted only in the tax year in which it is due. Www irs gov form1040a Accrual method. Www irs gov form1040a   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Www irs gov form1040a 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. Www irs gov form1040a For more information, see Accrual Method in chapter 2. Www irs gov form1040a Allocation of interest. Www irs gov form1040a   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Www irs gov form1040a Allocate the interest to the following categories. Www irs gov form1040a Trade or business interest. Www irs gov form1040a Passive activity interest. Www irs gov form1040a Investment interest. Www irs gov form1040a Portfolio interest. Www irs gov form1040a Personal interest. Www irs gov form1040a   You generally allocate interest on a loan the same way you allocate the loan proceeds. Www irs gov form1040a You allocate loan proceeds by tracing disbursements to specific uses. Www irs gov form1040a The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Www irs gov form1040a Secured loan. Www irs gov form1040a   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Www irs gov form1040a Example. Www irs gov form1040a You secure a loan with property used in your farming business. Www irs gov form1040a You use the loan proceeds to buy a car for personal use. Www irs gov form1040a 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. Www irs gov form1040a If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Www irs gov form1040a The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Www irs gov form1040a However, you can choose to treat the loan as not secured by your home. Www irs gov form1040a For more information, see Publication 936. Www irs gov form1040a Allocation period. Www irs gov form1040a   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. Www irs gov form1040a The date the loan is repaid. Www irs gov form1040a The date the loan is reallocated to another use. Www irs gov form1040a More information. Www irs gov form1040a   For more information on interest, see chapter 4 in Publication 535. Www irs gov form1040a Breeding Fees You can deduct breeding fees as a farm business expense. Www irs gov form1040a 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. Www irs gov form1040a For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Www irs gov form1040a 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. Www irs gov form1040a You can also deduct the cost of applying these materials in the year you pay or incur it. Www irs gov form1040a However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Www irs gov form1040a 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. Www irs gov form1040a However, you can choose to deduct these expenses in the year paid or incurred. Www irs gov form1040a If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Www irs gov form1040a 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. Www irs gov form1040a Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Www irs gov form1040a It does not include land you have never used previously for producing crops or sustaining livestock. Www irs gov form1040a You cannot deduct initial land preparation costs. Www irs gov form1040a (See Capital Expenses , later. Www irs gov form1040a ) Include government payments you receive for lime or fertilizer in income. Www irs gov form1040a See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a For information on employment taxes, see chapter 13. Www irs gov form1040a Allocation of taxes. Www irs gov form1040a   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. Www irs gov form1040a You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Www irs gov form1040a To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Www irs gov form1040a The allocation can be done from the assessed valuations. Www irs gov form1040a If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Www irs gov form1040a State and local general sales taxes. Www irs gov form1040a   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Www irs gov form1040a 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. Www irs gov form1040a Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Www irs gov form1040a State and federal income taxes. Www irs gov form1040a   Individuals cannot deduct state and federal income taxes as farm business expenses. Www irs gov form1040a Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Www irs gov form1040a However, you cannot deduct federal income tax. Www irs gov form1040a Highway use tax. Www irs gov form1040a   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Www irs gov form1040a 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. Www irs gov form1040a Self-employment tax deduction. Www irs gov form1040a   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Www irs gov form1040a For more information, see chapter 12. Www irs gov form1040a Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Www irs gov form1040a This includes premiums you pay for the following types of insurance. Www irs gov form1040a Fire, storm, crop, theft, liability, and other insurance on farm business assets. Www irs gov form1040a Health and accident insurance on your farm employees. Www irs gov form1040a 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. Www irs gov form1040a Business interruption insurance. Www irs gov form1040a State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Www irs gov form1040a Insurance to secure a loan. Www irs gov form1040a   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. Www irs gov form1040a In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Www irs gov form1040a Advance premiums. Www irs gov form1040a   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Www irs gov form1040a Example. Www irs gov form1040a On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Www irs gov form1040a The policy will cover a period of 3 years beginning on July 1, 2013. Www irs gov form1040a Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Www irs gov form1040a Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Www irs gov form1040a In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Www irs gov form1040a Deduct the remaining $500 in 2016. Www irs gov form1040a 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. Www irs gov form1040a Business interruption insurance. Www irs gov form1040a   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Www irs gov form1040a This insurance pays for lost profits if your business is shut down due to a fire or other cause. Www irs gov form1040a Report any proceeds in full on Schedule F, Part I. Www irs gov form1040a Self-employed health insurance deduction. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Www irs gov form1040a   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. Www irs gov form1040a   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Www irs gov form1040a Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Www irs gov form1040a   For more information, see Deductible Premiums in Publication 535, chapter 6. Www irs gov form1040a Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Www irs gov form1040a However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Www irs gov form1040a Advance payments. Www irs gov form1040a   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Www irs gov form1040a Farm home. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Www irs gov form1040a Conditional sales contract. Www irs gov form1040a   Whether an agreement is a conditional sales contract depends on the intent of the parties. Www irs gov form1040a Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Www irs gov form1040a No single test, or special combination of tests, always applies. Www irs gov form1040a However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Www irs gov form1040a The agreement applies part of each payment toward an equity interest you will receive. Www irs gov form1040a You get title to the property after you make a stated amount of required payments. Www irs gov form1040a 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. Www irs gov form1040a You pay much more than the current fair rental value of the property. Www irs gov form1040a 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. Www irs gov form1040a Determine this value when you make the agreement. Www irs gov form1040a You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Www irs gov form1040a The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Www irs gov form1040a Example. Www irs gov form1040a You lease new farm equipment from a dealer who both sells and leases. Www irs gov form1040a The agreement includes an option to purchase the equipment for a specified price. Www irs gov form1040a The lease payments and the specified option price equal the sales price of the equipment plus interest. Www irs gov form1040a Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Www irs gov form1040a For federal income tax purposes, the agreement is a conditional sales contract. Www irs gov form1040a You cannot deduct any of the lease payments as rent. Www irs gov form1040a You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Www irs gov form1040a Motor vehicle leases. Www irs gov form1040a   Special rules apply to lease agreements that have a terminal rental adjustment clause. Www irs gov form1040a 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. Www irs gov form1040a If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Www irs gov form1040a For more information, see Internal Revenue Code (IRC) section 7701(h). Www irs gov form1040a Leveraged leases. Www irs gov form1040a   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Www irs gov form1040a 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. Www irs gov form1040a irs. Www irs gov form1040a gov/pub/irs-irbs/irb01-19. Www irs gov form1040a pdf. Www irs gov form1040a 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. Www irs gov form1040a You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Www irs gov form1040a 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. Www irs gov form1040a Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a You use it exclusively and regularly for the administrative or management activities of your trade or business. Www irs gov form1040a You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Www irs gov form1040a If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Www irs gov form1040a The IRS now provides a simplified method to determine your expenses for business use of your home. Www irs gov form1040a For more information, see Schedule C (Form 1040), Part II, and its instructions. Www irs gov form1040a Deduction limit. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a   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. Www irs gov form1040a 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). Www irs gov form1040a Farm expenses other than expenses that relate to the use of your home. Www irs gov form1040a If you are self-employed, do not include your deduction for half of your self-employment tax. Www irs gov form1040a   Deductions over the current year's limit can be carried over to your next tax year. Www irs gov form1040a They are subject to the deduction limit for the next tax year. Www irs gov form1040a More information. Www irs gov form1040a   See Publication 587 for more information on deducting expenses for the business use of your home. Www irs gov form1040a Telephone expense. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a Cell phone charges for calls relating to your farm business are deductible. Www irs gov form1040a 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. Www irs gov form1040a Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Www irs gov form1040a Only expenses for business use are deductible. Www irs gov form1040a These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Www irs gov form1040a Standard mileage rate. Www irs gov form1040a   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Www irs gov form1040a The standard mileage rate for each mile of business use is 56. Www irs gov form1040a 5 cents in 2013. Www irs gov form1040a 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. Www irs gov form1040a   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Www irs gov form1040a 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. Www irs gov form1040a Example. Www irs gov form1040a Maureen owns a car and four pickup trucks that are used in her farm business. Www irs gov form1040a Her farm employees use the trucks and she uses the car for business. Www irs gov form1040a Maureen cannot use the standard mileage rate for the car or the trucks. Www irs gov form1040a This is because all five vehicles are used in Maureen's farm business at the same time. Www irs gov form1040a She must use actual expenses for all vehicles. Www irs gov form1040a Business use percentage. Www irs gov form1040a   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. Www irs gov form1040a You choose this method of substantiating business use the first year the vehicle is placed in service. Www irs gov form1040a Once you make this choice, you may not change to another method later. Www irs gov form1040a The following are uses directly connected with the business of farming. Www irs gov form1040a Cultivating land. Www irs gov form1040a Raising or harvesting any agricultural or horticultural commodity. Www irs gov form1040a Raising, shearing, feeding, caring for, training, and managing animals. Www irs gov form1040a Driving to the feed or supply store. Www irs gov form1040a   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Www irs gov form1040a See Recordkeeping requirements under Travel Expenses , below. Www irs gov form1040a More information. Www irs gov form1040a   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Www irs gov form1040a 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. Www irs gov form1040a Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Www irs gov form1040a You cannot deduct lavish or extravagant expenses. Www irs gov form1040a Usually, the location of your farm business is considered your home for tax purposes. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a The following are some types of deductible travel expenses. Www irs gov form1040a 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. Www irs gov form1040a Meals. Www irs gov form1040a   You ordinarily can deduct only 50% of your business-related meals expenses. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a For information on entertainment expenses, see Publication 463, chapter 2. Www irs gov form1040a   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Www irs gov form1040a You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Www irs gov form1040a    Recordkeeping requirements. Www irs gov form1040a You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Www irs gov form1040a Estimates or approximations do not qualify as proof of an expense. Www irs gov form1040a   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. Www irs gov form1040a Generally, it is best to record the expense and get documentation of it at the time you pay it. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a More information. Www irs gov form1040a   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Www irs gov form1040a Reimbursements to employees. Www irs gov form1040a   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Www irs gov form1040a Employees may be reimbursed under an accountable or nonaccountable plan. Www irs gov form1040a Under an accountable plan, the employee must provide evidence of expenses. Www irs gov form1040a Under a nonaccountable plan, no evidence of expenses is required. Www irs gov form1040a If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Www irs gov form1040a If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Www irs gov form1040a For more information, see Publication 535, chapter 11. Www irs gov form1040a Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Www irs gov form1040a 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. Www irs gov form1040a Do not take a separate deduction for the penalty. Www irs gov form1040a Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Www irs gov form1040a These costs include repairs, utilities, insurance, and depreciation. Www irs gov form1040a The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Www irs gov form1040a 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. Www irs gov form1040a You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Www irs gov form1040a However, see Chickens, seeds, and young plants , below. Www irs gov form1040a Example. Www irs gov form1040a You use the cash method of accounting. Www irs gov form1040a In 2013, you buy 50 steers you will sell in 2014. Www irs gov form1040a You cannot deduct the cost of the steers on your 2013 tax return. Www irs gov form1040a You deduct their cost on your 2014 Schedule F, Part I. Www irs gov form1040a Chickens, seeds, and young plants. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Www irs gov form1040a   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Www irs gov form1040a You cannot also deduct the cost from the selling price. Www irs gov form1040a   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Www irs gov form1040a Deduct the cost of these seeds and plants through depletion allowances. Www irs gov form1040a For more information, see Depletion in chapter 7. Www irs gov form1040a   The cost of chickens and plants used as food for your family is never deductible. Www irs gov form1040a   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Www irs gov form1040a These rules are discussed in chapter 6. Www irs gov form1040a Example. Www irs gov form1040a You use the cash method of accounting. Www irs gov form1040a In 2013, you buy 500 baby chicks to raise for resale in 2014. Www irs gov form1040a You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Www irs gov form1040a 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. Www irs gov form1040a Election to use crop method. Www irs gov form1040a   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Www irs gov form1040a You must get IRS approval to use the crop method. Www irs gov form1040a If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Www irs gov form1040a For more information, see Crop method under Special Methods of Accounting in chapter 2. Www irs gov form1040a Choosing a method. Www irs gov form1040a   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. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a For more information, see Change in Accounting Method in chapter 2. Www irs gov form1040a Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Www irs gov form1040a 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. Www irs gov form1040a Accounting fees. Www irs gov form1040a Advertising. Www irs gov form1040a Business travel and meals. Www irs gov form1040a Commissions. Www irs gov form1040a Consultant fees. Www irs gov form1040a Crop scouting expenses. Www irs gov form1040a Dues to cooperatives. Www irs gov form1040a Educational expenses (to maintain and improve farming skills). Www irs gov form1040a Farm-related attorney fees. Www irs gov form1040a Farm magazines. Www irs gov form1040a Ginning. Www irs gov form1040a Insect sprays and dusts. Www irs gov form1040a Litter and bedding. Www irs gov form1040a Livestock fees. Www irs gov form1040a Marketing fees. Www irs gov form1040a Milk assessment. Www irs gov form1040a Recordkeeping expenses. Www irs gov form1040a Service charges. Www irs gov form1040a Small tools expected to last one year or less. Www irs gov form1040a Stamps and stationery. Www irs gov form1040a Subscriptions to professional, technical, and trade journals that deal with farming. Www irs gov form1040a Tying material and containers. Www irs gov form1040a Loan expenses. Www irs gov form1040a   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. Www irs gov form1040a Tax preparation fees. Www irs gov form1040a   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. Www irs gov form1040a You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Www irs gov form1040a   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Www irs gov form1040a Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Www irs gov form1040a Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Www irs gov form1040a Income from cooperatives. Www irs gov form1040a   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. Www irs gov form1040a This deduction amount is reported on Form 1099-PATR, box 6. Www irs gov form1040a 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. Www irs gov form1040a More information. Www irs gov form1040a   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Www irs gov form1040a 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. Www irs gov form1040a You include the expense in the basis of the asset. Www irs gov form1040a Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Www irs gov form1040a See chapters 2  and 6. Www irs gov form1040a Capital expenses are generally not deductible, but they may be depreciable. Www irs gov form1040a However, you can elect to deduct certain capital expenses, such as the following. Www irs gov form1040a The cost of fertilizer, lime, etc. Www irs gov form1040a (See Fertilizer and Lime under Deductible Expenses , earlier. Www irs gov form1040a ) Soil and water conservation expenses. Www irs gov form1040a (See chapter 5. Www irs gov form1040a ) The cost of property that qualifies for a deduction under section 179. Www irs gov form1040a (See chapter 7. Www irs gov form1040a ) Business start-up costs. Www irs gov form1040a (See Business start-up and organizational costs , later. Www irs gov form1040a ) Forestation and reforestation costs. Www irs gov form1040a (See Forestation and reforestation costs , later. Www irs gov form1040a ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Www irs gov form1040a Land and buildings. Www irs gov form1040a Additions, alterations, and improvements to buildings, etc. Www irs gov form1040a Cars and trucks. Www irs gov form1040a Equipment and machinery. Www irs gov form1040a Fences. Www irs gov form1040a Draft, breeding, sport, and dairy livestock. Www irs gov form1040a Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Www irs gov form1040a Water wells, including drilling and equipping costs. Www irs gov form1040a 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. Www irs gov form1040a Business start-up and organizational costs. Www irs gov form1040a   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. Www irs gov form1040a The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Www irs gov form1040a Any remaining costs must be amortized. Www irs gov form1040a See chapter 7. Www irs gov form1040a   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. Www irs gov form1040a 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). Www irs gov form1040a Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Www irs gov form1040a 9100-2” at the top of the amended return. Www irs gov form1040a File the amended return at the same address you filed the original return. Www irs gov form1040a The election applies when figuring taxable income for the current tax year and all subsequent years. Www irs gov form1040a   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. Www irs gov form1040a For more information about start-up and organizational costs, see chapter 7. Www irs gov form1040a Crop production expenses. Www irs gov form1040a   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Www irs gov form1040a 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. Www irs gov form1040a For more information, see Uniform Capitalization Rules in chapter 6. Www irs gov form1040a Timber. Www irs gov form1040a   Capitalize the cost of acquiring timber. Www irs gov form1040a Do not include the cost of land in the cost of the timber. Www irs gov form1040a You must generally capitalize direct costs incurred in reforestation. Www irs gov form1040a However, you can elect to deduct some forestation and reforestation costs. Www irs gov form1040a See Forestation and reforestation costs next. Www irs gov form1040a Reforestation costs include the following. Www irs gov form1040a Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Www irs gov form1040a The cost of seed or seedlings. Www irs gov form1040a Labor and tool expenses. Www irs gov form1040a Depreciation on equipment used in planting or seeding. Www irs gov form1040a Costs incurred in replanting to replace lost seedlings. Www irs gov form1040a You can choose to capitalize certain indirect reforestation costs. Www irs gov form1040a   These capitalized amounts are your basis for the timber. Www irs gov form1040a Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Www irs gov form1040a See Depletion in chapter 7. Www irs gov form1040a Forestation and reforestation costs. Www irs gov form1040a   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. Www irs gov form1040a Any remaining costs can be amortized over an 84-month period. Www irs gov form1040a See chapter 7. Www irs gov form1040a 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. Www irs gov form1040a The accounts should include all reforestation treatments and the dates they were applied. Www irs gov form1040a 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. Www irs gov form1040a The timber account should be maintained until the timber is disposed of. Www irs gov form1040a For more information, see Notice 2006-47, 2006-20 I. Www irs gov form1040a R. Www irs gov form1040a B. Www irs gov form1040a 892, available at  www. Www irs gov form1040a irs. Www irs gov form1040a gov/irb/2006-20_IRB/ar11. Www irs gov form1040a html. Www irs gov form1040a   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. Www irs gov form1040a If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Www irs gov form1040a If you are not filing Form T (Timber), attach a statement to your return with the following information. Www irs gov form1040a The unique stand identification numbers. Www irs gov form1040a The total number of acres reforested during the tax year. Www irs gov form1040a The nature of the reforestation treatments. Www irs gov form1040a The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Www irs gov form1040a   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). Www irs gov form1040a Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Www irs gov form1040a 9100-2” at the top of the amended return. Www irs gov form1040a File the amended return at the same address you filed the original return. Www irs gov form1040a    For more information about forestation and reforestation costs, see chapter 7. Www irs gov form1040a    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Www irs gov form1040a You can view this publication on the Internet at  www. Www irs gov form1040a fs. Www irs gov form1040a fed. Www irs gov form1040a us/publications. Www irs gov form1040a Christmas tree cultivation. Www irs gov form1040a   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. Www irs gov form1040a Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Www irs gov form1040a For more information, see Timber Depletion under Depletion in chapter 7. Www irs gov form1040a   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Www irs gov form1040a Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Www irs gov form1040a   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Www irs gov form1040a If the improvements do not have a determinable useful life, add their cost to the basis of the land. Www irs gov form1040a The cost is recovered when you sell or otherwise dispose of it. Www irs gov form1040a If the improvements have a determinable useful life, recover their cost through depreciation. Www irs gov form1040a 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. Www irs gov form1040a Recover these costs through depreciation. Www irs gov form1040a Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Www irs gov form1040a Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Www irs gov form1040a 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. Www irs gov form1040a Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Www irs gov form1040a Other Nondeductible Items You cannot deduct the following items on your tax return. Www irs gov form1040a Loss of growing plants, produce, and crops. Www irs gov form1040a   Losses of plants, produce, and crops raised for sale are generally not deductible. Www irs gov form1040a However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Www irs gov form1040a See chapter 11 for more information. Www irs gov form1040a Repayment of loans. Www irs gov form1040a   You cannot deduct the repayment of a loan. Www irs gov form1040a However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Www irs gov form1040a See Interest , earlier. Www irs gov form1040a Estate, inheritance, legacy, succession, and gift taxes. Www irs gov form1040a   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Www irs gov form1040a Loss of livestock. Www irs gov form1040a   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Www irs gov form1040a Losses from sales or exchanges between related persons. Www irs gov form1040a   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. Www irs gov form1040a For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Www irs gov form1040a Cost of raising unharvested crops. Www irs gov form1040a   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. Www irs gov form1040a Add these costs to the basis of the land to determine the gain or loss on the sale. Www irs gov form1040a For more information, see Section 1231 Gains and Losses in chapter 9. Www irs gov form1040a Cost of unharvested crops bought with land. Www irs gov form1040a   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Www irs gov form1040a You cannot deduct the cost of the crops at the time of purchase. Www irs gov form1040a However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Www irs gov form1040a Cost related to gifts. Www irs gov form1040a   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Www irs gov form1040a The costs are not deductible in the year of the gift or any later year. Www irs gov form1040a 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. Www irs gov form1040a Club dues and membership fees. Www irs gov form1040a   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Www irs gov form1040a 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. Www irs gov form1040a Exception. Www irs gov form1040a   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. Www irs gov form1040a Boards of trade. Www irs gov form1040a Business leagues. Www irs gov form1040a Chambers of commerce. Www irs gov form1040a Civic or public service organizations. Www irs gov form1040a Professional associations. Www irs gov form1040a Trade associations. Www irs gov form1040a Real estate boards. Www irs gov form1040a Fines and penalties. Www irs gov form1040a   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Www irs gov form1040a 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. Www irs gov form1040a The amount of the loss you can deduct when figuring your taxable income may be limited. Www irs gov form1040a To figure your deductible loss, you must apply the following limits. Www irs gov form1040a The at-risk limits. Www irs gov form1040a The passive activity limits. Www irs gov form1040a The following discussions explain these limits. Www irs gov form1040a If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Www irs gov form1040a See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Www irs gov form1040a 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. Www irs gov form1040a See Not-for-Profit Farming, later. Www irs gov form1040a At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Www irs gov form1040a These rules limit the losses you can deduct when figuring your taxable income. Www irs gov form1040a The deductible loss from an activity is limited to the amount you have at risk in the activity. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a For more information, see Publication 925. Www irs gov form1040a 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. Www irs gov form1040a Generally, a rental activity is a passive activity. Www irs gov form1040a If you have a passive activity, special rules limit the loss you can deduct in the tax year. Www irs gov form1040a You generally can deduct losses from passive activities only up to income from passive activities. Www irs gov form1040a Credits are similarly limited. Www irs gov form1040a For more information, see Publication 925. Www irs gov form1040a Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Www irs gov form1040a Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Www irs gov form1040a For more details, see IRC section 461(j). Www irs gov form1040a Excess farm loss. Www irs gov form1040a   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Www irs gov form1040a 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. Www irs gov form1040a   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Www irs gov form1040a 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. Www irs gov form1040a 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). Www irs gov form1040a Also, there is a limit on the deductions you can take. Www irs gov form1040a You cannot use a loss from that activity to offset income from other activities. Www irs gov form1040a Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Www irs gov form1040a An investment activity intended only to produce tax losses for the investors also comes under this limit. Www irs gov form1040a The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Www irs gov form1040a It does not apply to corporations other than S corporations. Www irs gov form1040a In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Www irs gov form1040a No one factor alone is decisive. Www irs gov form1040a 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. Www irs gov form1040a Presumption of profit. Www irs gov form1040a   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. Www irs gov form1040a 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. Www irs gov form1040a The activity must be substantially the same for each year within this period. Www irs gov form1040a You have a profit when the gross income from an activity is more than the deductions for it. Www irs gov form1040a   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. Www irs gov form1040a   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Www irs gov form1040a This means the limits discussed here do not apply. Www irs gov form1040a You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Www irs gov form1040a You can rely on this presumption in every case, unless the IRS shows it is not valid. Www irs gov form1040a   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. Www irs gov form1040a Using the presumption later. Www irs gov form1040a   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. Www irs gov form1040a   You can choose to do this by filing Form 5213. Www irs gov form1040a 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. Www irs gov form1040a 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. Www irs gov form1040a   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Www irs gov form1040a Accordingly, it will not limit your deductions. Www irs gov form1040a 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. Www irs gov form1040a If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Www irs gov form1040a 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. Www irs gov form1040a   Filing Form 5213 automatically extends the period of limitations on any year
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The Www Irs Gov Form1040a

Www irs gov form1040a IRAs and Other Retirement Plans Table of Contents 2002 ChangesSimplified Employee Pensions (SEPs) 403(b) Plans Later ChangeDeemed IRAs 2002 Changes Simplified Employee Pensions (SEPs) Contribution limit increased. Www irs gov form1040a   For plan years beginning after December 31, 2001, the annual limit on the amount of employer contributions to a SEP increases to the lesser of the following amounts. Www irs gov form1040a 25% of an eligible employee's compensation. Www irs gov form1040a $40,000 (subject to cost-of-living adjustments after 2002). Www irs gov form1040a Deduction limit. Www irs gov form1040a   For years beginning after 2001, the following changes apply to the SEP deduction limit. Www irs gov form1040a Elective deferrals (SARSEPs). Www irs gov form1040a   Elective deferrals under a SARSEP are not subject to the deduction limit that applies to employer contributions. Www irs gov form1040a Also, elective deferrals are not taken into account when figuring the amount you can deduct for employer contributions that are not elective deferrals. Www irs gov form1040a Definition of compensation. Www irs gov form1040a    Compensation for figuring the deduction for employer contributions includes elective deferrals under a SARSEP. Www irs gov form1040a More information. Www irs gov form1040a   For more information about SEPs, see Publication 560, Retirement Plans for Small Business. Www irs gov form1040a 403(b) Plans Figuring catch-up contributions. Www irs gov form1040a   When figuring allowable catch-up contributions, combine all contributions made by your employer on your behalf to the following plans. Www irs gov form1040a Qualified retirement plans. Www irs gov form1040a 403(b) plans. Www irs gov form1040a Simplified employee pensions (SEP). Www irs gov form1040a SIMPLE plans. Www irs gov form1040a   The total amount of the catch-up contributions to all plans maintained by your employer cannot exceed the annual limit. Www irs gov form1040a For 2002, the limit is $1,000. Www irs gov form1040a Rollovers to and from 403(b) plans. Www irs gov form1040a   If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). Www irs gov form1040a This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. Www irs gov form1040a Years of service for church employees and ministers. Www irs gov form1040a   If you are a minister or church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Www irs gov form1040a Prior law required church employees and ministers to figure years of service separately for each employer. Www irs gov form1040a   As a minister or church employee, all contributions made to 403(b) plans on your behalf, as an employee of a church or a convention or association of churches, are considered made by one employer. Www irs gov form1040a Foreign missionaries. Www irs gov form1040a   If you are a foreign missionary, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not more than the greater of: $3,000, or Your includible compensation. Www irs gov form1040a More information. Www irs gov form1040a   For more information about 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans). Www irs gov form1040a Later Change Deemed IRAs For plan years beginning after 2002, a qualified employer plan can provide for voluntary employee contributions to a separate account or annuity that is deemed to be an IRA. Www irs gov form1040a For this purpose, a qualified employer plan includes a deferred compensation plan (section 457(b) plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Www irs gov form1040a The term qualified employer plan also includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), and A tax-sheltered annuity plan (section 403(b) plan). Www irs gov form1040a More information about IRAs can be found in Publication 590, Individual Retirement Arrangements (IRAs). Www irs gov form1040a Prev  Up  Next   Home   More Online Publications