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1040 Ez 2011 Form

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1040 Ez 2011 Form

1040 ez 2011 form 4. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form Category 1. 1040 ez 2011 form Category 2. 1040 ez 2011 form Category 3. 1040 ez 2011 form What's New for 2013 Standard mileage rate. 1040 ez 2011 form  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. 1040 ez 2011 form 5 cents. 1040 ez 2011 form See Truck and Car Expenses , later. 1040 ez 2011 form Simplified method for business use of home deduction. 1040 ez 2011 form  The IRS now provides a simplified method to determine your expenses for business use of your home. 1040 ez 2011 form For more information, see Schedule C (Form 1040), Part II, and its instructions. 1040 ez 2011 form Introduction You can generally deduct the current costs of operating your farm. 1040 ez 2011 form Current costs are expenses you do not have to capitalize or include in inventory costs. 1040 ez 2011 form However, your deduction for the cost of livestock feed and certain other supplies may be limited. 1040 ez 2011 form If you have an operating loss, you may not be able to deduct all of it. 1040 ez 2011 form 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. 1040 ez 2011 form Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. 1040 ez 2011 form “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. 1040 ez 2011 form Schedule F, Part II, lists some common farm expenses that are typically deductible. 1040 ez 2011 form This chapter discusses many of these expenses, as well as others not listed on Schedule F. 1040 ez 2011 form Reimbursed expenses. 1040 ez 2011 form   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. 1040 ez 2011 form If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. 1040 ez 2011 form See Refund or reimbursement under Income From Other Sources in chapter 3. 1040 ez 2011 form Personal and business expenses. 1040 ez 2011 form   Some expenses you pay during the tax year may be part personal and part business. 1040 ez 2011 form These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. 1040 ez 2011 form   You must allocate these mixed expenses between their business and personal parts. 1040 ez 2011 form Generally, the personal part of these expenses is not deductible. 1040 ez 2011 form The business portion of the expenses is deductible on Schedule F. 1040 ez 2011 form Example. 1040 ez 2011 form You paid $1,500 for electricity during the tax year. 1040 ez 2011 form You used 1/3 of the electricity for personal purposes and 2/3 for farming. 1040 ez 2011 form Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. 1040 ez 2011 form Reasonable allocation. 1040 ez 2011 form   It is not always easy to determine the business and nonbusiness parts of an expense. 1040 ez 2011 form There is no method of allocation that applies to all mixed expenses. 1040 ez 2011 form Any reasonable allocation is acceptable. 1040 ez 2011 form What is reasonable depends on the circumstances in each case. 1040 ez 2011 form Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. 1040 ez 2011 form 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. 1040 ez 2011 form Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. 1040 ez 2011 form 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. 1040 ez 2011 form Poultry bought for resale and not resold during the year. 1040 ez 2011 form Deduction limit. 1040 ez 2011 form   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). 1040 ez 2011 form This limit does not apply if you meet one of the exceptions described later. 1040 ez 2011 form See Chapter 2 for a discussion of the cash method of accounting. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. 1040 ez 2011 form Example. 1040 ez 2011 form You may not qualify for the exception described next. 1040 ez 2011 form During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. 1040 ez 2011 form Your total prepaid farm supplies expense for 2013 is $5,500. 1040 ez 2011 form Your other deductible farm expenses totaled $10,000 for 2013. 1040 ez 2011 form Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. 1040 ez 2011 form 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. 1040 ez 2011 form Exceptions. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form   You are a farm-related taxpayer if any of the following tests apply. 1040 ez 2011 form Your main home is on a farm. 1040 ez 2011 form Your principal business is farming. 1040 ez 2011 form A member of your family meets (1) or (2). 1040 ez 2011 form 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. 1040 ez 2011 form    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. 1040 ez 2011 form 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. 1040 ez 2011 form The payment is for the purchase of feed rather than a deposit. 1040 ez 2011 form The prepayment has a business purpose and is not merely for tax avoidance. 1040 ez 2011 form Deducting the prepayment does not result in a material distortion of your income. 1040 ez 2011 form If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. 1040 ez 2011 form If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. 1040 ez 2011 form This rule does not apply to the purchase of commodity futures contracts. 1040 ez 2011 form Payment for the purchase of feed. 1040 ez 2011 form   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. 1040 ez 2011 form 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. 1040 ez 2011 form   The following are some factors that show a payment is a deposit rather than for the purchase of feed. 1040 ez 2011 form The absence of specific quantity terms. 1040 ez 2011 form The right to a refund of any unapplied payment credit at the end of the contract. 1040 ez 2011 form The seller's treatment of the payment as a deposit. 1040 ez 2011 form The right to substitute other goods or products for those specified in the contract. 1040 ez 2011 form   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. 1040 ez 2011 form Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. 1040 ez 2011 form Business purpose. 1040 ez 2011 form   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. 1040 ez 2011 form The following are some examples of business benefits. 1040 ez 2011 form Fixing maximum prices and securing an assured feed supply. 1040 ez 2011 form Securing preferential treatment in anticipation of a feed shortage. 1040 ez 2011 form   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. 1040 ez 2011 form No material distortion of income. 1040 ez 2011 form   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. 1040 ez 2011 form Your customary business practice in conducting your livestock operations. 1040 ez 2011 form The expense in relation to past purchases. 1040 ez 2011 form The time of year you made the purchase. 1040 ez 2011 form The expense in relation to your income for the year. 1040 ez 2011 form 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. 1040 ez 2011 form You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. 1040 ez 2011 form The cost of boarding farm labor is a deductible labor cost. 1040 ez 2011 form Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. 1040 ez 2011 form 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. 1040 ez 2011 form See chapter 13 for more information on employment taxes. 1040 ez 2011 form 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. 1040 ez 2011 form See Taxes , later. 1040 ez 2011 form Property for services. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form   Treat the wages deducted as an amount received for the property. 1040 ez 2011 form 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. 1040 ez 2011 form Any gain or loss has the same character the exchanged property had in your hands. 1040 ez 2011 form For more information, see chapter 8. 1040 ez 2011 form Child as an employee. 1040 ez 2011 form   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. 1040 ez 2011 form Include these wages in the child's income. 1040 ez 2011 form The child may have to file an income tax return. 1040 ez 2011 form These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. 1040 ez 2011 form For more information, see Family Employees in chapter 13. 1040 ez 2011 form    A Form W-2, Wage and Tax Statement, should be issued to the child employee. 1040 ez 2011 form   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. 1040 ez 2011 form The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. 1040 ez 2011 form Spouse as an employee. 1040 ez 2011 form   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. 1040 ez 2011 form Wages you pay to your spouse are subject to social security and Medicare taxes. 1040 ez 2011 form For more information, see Family Employees in chapter 13. 1040 ez 2011 form Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. 1040 ez 2011 form However, those wages may be subject to the employment taxes discussed in chapter 13. 1040 ez 2011 form Household workers. 1040 ez 2011 form   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. 1040 ez 2011 form Construction labor. 1040 ez 2011 form   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. 1040 ez 2011 form These wages are part of the cost of the building or other improvement. 1040 ez 2011 form You must capitalize them. 1040 ez 2011 form Maintaining your home. 1040 ez 2011 form   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. 1040 ez 2011 form For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. 1040 ez 2011 form The employee devotes the remaining time to work on your farm. 1040 ez 2011 form You cannot deduct 5% of the wages and employment taxes you pay for that employee. 1040 ez 2011 form 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). 1040 ez 2011 form Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form For example, if you repair the barn roof, the cost is deductible. 1040 ez 2011 form But if you replace the roof, it is a capital expense. 1040 ez 2011 form For more information, see Capital Expenses , later. 1040 ez 2011 form Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. 1040 ez 2011 form Cash method. 1040 ez 2011 form   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. 1040 ez 2011 form You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. 1040 ez 2011 form You can, however, deduct the interest when you start making payments on the new loan. 1040 ez 2011 form For more information, see Cash Method in chapter 2. 1040 ez 2011 form Prepaid interest. 1040 ez 2011 form   Under the cash method, you generally cannot deduct any interest paid before the year it is due. 1040 ez 2011 form Interest paid in advance may be deducted only in the tax year in which it is due. 1040 ez 2011 form Accrual method. 1040 ez 2011 form   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. 1040 ez 2011 form 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. 1040 ez 2011 form For more information, see Accrual Method in chapter 2. 1040 ez 2011 form Allocation of interest. 1040 ez 2011 form   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. 1040 ez 2011 form Allocate the interest to the following categories. 1040 ez 2011 form Trade or business interest. 1040 ez 2011 form Passive activity interest. 1040 ez 2011 form Investment interest. 1040 ez 2011 form Portfolio interest. 1040 ez 2011 form Personal interest. 1040 ez 2011 form   You generally allocate interest on a loan the same way you allocate the loan proceeds. 1040 ez 2011 form You allocate loan proceeds by tracing disbursements to specific uses. 1040 ez 2011 form The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 1040 ez 2011 form Secured loan. 1040 ez 2011 form   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. 1040 ez 2011 form Example. 1040 ez 2011 form You secure a loan with property used in your farming business. 1040 ez 2011 form You use the loan proceeds to buy a car for personal use. 1040 ez 2011 form 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. 1040 ez 2011 form If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 1040 ez 2011 form The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 1040 ez 2011 form However, you can choose to treat the loan as not secured by your home. 1040 ez 2011 form For more information, see Publication 936. 1040 ez 2011 form Allocation period. 1040 ez 2011 form   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. 1040 ez 2011 form The date the loan is repaid. 1040 ez 2011 form The date the loan is reallocated to another use. 1040 ez 2011 form More information. 1040 ez 2011 form   For more information on interest, see chapter 4 in Publication 535. 1040 ez 2011 form Breeding Fees You can deduct breeding fees as a farm business expense. 1040 ez 2011 form 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. 1040 ez 2011 form For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. 1040 ez 2011 form 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. 1040 ez 2011 form You can also deduct the cost of applying these materials in the year you pay or incur it. 1040 ez 2011 form However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. 1040 ez 2011 form 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. 1040 ez 2011 form However, you can choose to deduct these expenses in the year paid or incurred. 1040 ez 2011 form If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. 1040 ez 2011 form 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. 1040 ez 2011 form Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. 1040 ez 2011 form It does not include land you have never used previously for producing crops or sustaining livestock. 1040 ez 2011 form You cannot deduct initial land preparation costs. 1040 ez 2011 form (See Capital Expenses , later. 1040 ez 2011 form ) Include government payments you receive for lime or fertilizer in income. 1040 ez 2011 form See Fertilizer and Lime under Agricultural Program Payments in chapter 3. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form For information on employment taxes, see chapter 13. 1040 ez 2011 form Allocation of taxes. 1040 ez 2011 form   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. 1040 ez 2011 form You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). 1040 ez 2011 form To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. 1040 ez 2011 form The allocation can be done from the assessed valuations. 1040 ez 2011 form If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. 1040 ez 2011 form State and local general sales taxes. 1040 ez 2011 form   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. 1040 ez 2011 form 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. 1040 ez 2011 form Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. 1040 ez 2011 form State and federal income taxes. 1040 ez 2011 form   Individuals cannot deduct state and federal income taxes as farm business expenses. 1040 ez 2011 form Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). 1040 ez 2011 form However, you cannot deduct federal income tax. 1040 ez 2011 form Highway use tax. 1040 ez 2011 form   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. 1040 ez 2011 form 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. 1040 ez 2011 form Self-employment tax deduction. 1040 ez 2011 form   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. 1040 ez 2011 form For more information, see chapter 12. 1040 ez 2011 form Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. 1040 ez 2011 form This includes premiums you pay for the following types of insurance. 1040 ez 2011 form Fire, storm, crop, theft, liability, and other insurance on farm business assets. 1040 ez 2011 form Health and accident insurance on your farm employees. 1040 ez 2011 form 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. 1040 ez 2011 form Business interruption insurance. 1040 ez 2011 form State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). 1040 ez 2011 form Insurance to secure a loan. 1040 ez 2011 form   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. 1040 ez 2011 form In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 1040 ez 2011 form Advance premiums. 1040 ez 2011 form   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. 1040 ez 2011 form Example. 1040 ez 2011 form On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. 1040 ez 2011 form The policy will cover a period of 3 years beginning on July 1, 2013. 1040 ez 2011 form Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. 1040 ez 2011 form Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. 1040 ez 2011 form In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). 1040 ez 2011 form Deduct the remaining $500 in 2016. 1040 ez 2011 form 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. 1040 ez 2011 form Business interruption insurance. 1040 ez 2011 form   Use and occupancy and business interruption insurance premiums are deductible as a business expense. 1040 ez 2011 form This insurance pays for lost profits if your business is shut down due to a fire or other cause. 1040 ez 2011 form Report any proceeds in full on Schedule F, Part I. 1040 ez 2011 form Self-employed health insurance deduction. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form Generally, this deduction cannot be more than the net profit from the business under which the plan was established. 1040 ez 2011 form   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. 1040 ez 2011 form   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. 1040 ez 2011 form Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. 1040 ez 2011 form   For more information, see Deductible Premiums in Publication 535, chapter 6. 1040 ez 2011 form Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. 1040 ez 2011 form However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. 1040 ez 2011 form Advance payments. 1040 ez 2011 form   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. 1040 ez 2011 form Farm home. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. 1040 ez 2011 form Conditional sales contract. 1040 ez 2011 form   Whether an agreement is a conditional sales contract depends on the intent of the parties. 1040 ez 2011 form Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 1040 ez 2011 form No single test, or special combination of tests, always applies. 1040 ez 2011 form However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 1040 ez 2011 form The agreement applies part of each payment toward an equity interest you will receive. 1040 ez 2011 form You get title to the property after you make a stated amount of required payments. 1040 ez 2011 form 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. 1040 ez 2011 form You pay much more than the current fair rental value of the property. 1040 ez 2011 form 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. 1040 ez 2011 form Determine this value when you make the agreement. 1040 ez 2011 form You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 1040 ez 2011 form The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. 1040 ez 2011 form Example. 1040 ez 2011 form You lease new farm equipment from a dealer who both sells and leases. 1040 ez 2011 form The agreement includes an option to purchase the equipment for a specified price. 1040 ez 2011 form The lease payments and the specified option price equal the sales price of the equipment plus interest. 1040 ez 2011 form Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. 1040 ez 2011 form For federal income tax purposes, the agreement is a conditional sales contract. 1040 ez 2011 form You cannot deduct any of the lease payments as rent. 1040 ez 2011 form You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. 1040 ez 2011 form Motor vehicle leases. 1040 ez 2011 form   Special rules apply to lease agreements that have a terminal rental adjustment clause. 1040 ez 2011 form 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. 1040 ez 2011 form If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. 1040 ez 2011 form For more information, see Internal Revenue Code (IRC) section 7701(h). 1040 ez 2011 form Leveraged leases. 1040 ez 2011 form   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). 1040 ez 2011 form 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. 1040 ez 2011 form irs. 1040 ez 2011 form gov/pub/irs-irbs/irb01-19. 1040 ez 2011 form pdf. 1040 ez 2011 form 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. 1040 ez 2011 form You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. 1040 ez 2011 form 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. 1040 ez 2011 form Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form You use it exclusively and regularly for the administrative or management activities of your trade or business. 1040 ez 2011 form You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 1040 ez 2011 form If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. 1040 ez 2011 form The IRS now provides a simplified method to determine your expenses for business use of your home. 1040 ez 2011 form For more information, see Schedule C (Form 1040), Part II, and its instructions. 1040 ez 2011 form Deduction limit. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form   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. 1040 ez 2011 form 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). 1040 ez 2011 form Farm expenses other than expenses that relate to the use of your home. 1040 ez 2011 form If you are self-employed, do not include your deduction for half of your self-employment tax. 1040 ez 2011 form   Deductions over the current year's limit can be carried over to your next tax year. 1040 ez 2011 form They are subject to the deduction limit for the next tax year. 1040 ez 2011 form More information. 1040 ez 2011 form   See Publication 587 for more information on deducting expenses for the business use of your home. 1040 ez 2011 form Telephone expense. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form Cell phone charges for calls relating to your farm business are deductible. 1040 ez 2011 form 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. 1040 ez 2011 form Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. 1040 ez 2011 form Only expenses for business use are deductible. 1040 ez 2011 form These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). 1040 ez 2011 form Standard mileage rate. 1040 ez 2011 form   Instead of using actual costs, under certain conditions you can use the standard mileage rate. 1040 ez 2011 form The standard mileage rate for each mile of business use is 56. 1040 ez 2011 form 5 cents in 2013. 1040 ez 2011 form 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. 1040 ez 2011 form   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. 1040 ez 2011 form 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. 1040 ez 2011 form Example. 1040 ez 2011 form Maureen owns a car and four pickup trucks that are used in her farm business. 1040 ez 2011 form Her farm employees use the trucks and she uses the car for business. 1040 ez 2011 form Maureen cannot use the standard mileage rate for the car or the trucks. 1040 ez 2011 form This is because all five vehicles are used in Maureen's farm business at the same time. 1040 ez 2011 form She must use actual expenses for all vehicles. 1040 ez 2011 form Business use percentage. 1040 ez 2011 form   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. 1040 ez 2011 form You choose this method of substantiating business use the first year the vehicle is placed in service. 1040 ez 2011 form Once you make this choice, you may not change to another method later. 1040 ez 2011 form The following are uses directly connected with the business of farming. 1040 ez 2011 form Cultivating land. 1040 ez 2011 form Raising or harvesting any agricultural or horticultural commodity. 1040 ez 2011 form Raising, shearing, feeding, caring for, training, and managing animals. 1040 ez 2011 form Driving to the feed or supply store. 1040 ez 2011 form   If you keep records and they show that your business use was more than 75%, you may be able to claim more. 1040 ez 2011 form See Recordkeeping requirements under Travel Expenses , below. 1040 ez 2011 form More information. 1040 ez 2011 form   For more information on deductible truck and car expenses, see Publication 463, chapter 4. 1040 ez 2011 form 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. 1040 ez 2011 form Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. 1040 ez 2011 form You cannot deduct lavish or extravagant expenses. 1040 ez 2011 form Usually, the location of your farm business is considered your home for tax purposes. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form The following are some types of deductible travel expenses. 1040 ez 2011 form 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. 1040 ez 2011 form Meals. 1040 ez 2011 form   You ordinarily can deduct only 50% of your business-related meals expenses. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form For information on entertainment expenses, see Publication 463, chapter 2. 1040 ez 2011 form   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. 1040 ez 2011 form You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. 1040 ez 2011 form    Recordkeeping requirements. 1040 ez 2011 form You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. 1040 ez 2011 form Estimates or approximations do not qualify as proof of an expense. 1040 ez 2011 form   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. 1040 ez 2011 form Generally, it is best to record the expense and get documentation of it at the time you pay it. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form More information. 1040 ez 2011 form   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. 1040 ez 2011 form Reimbursements to employees. 1040 ez 2011 form   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. 1040 ez 2011 form Employees may be reimbursed under an accountable or nonaccountable plan. 1040 ez 2011 form Under an accountable plan, the employee must provide evidence of expenses. 1040 ez 2011 form Under a nonaccountable plan, no evidence of expenses is required. 1040 ez 2011 form If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. 1040 ez 2011 form If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. 1040 ez 2011 form For more information, see Publication 535, chapter 11. 1040 ez 2011 form Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. 1040 ez 2011 form 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. 1040 ez 2011 form Do not take a separate deduction for the penalty. 1040 ez 2011 form Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. 1040 ez 2011 form These costs include repairs, utilities, insurance, and depreciation. 1040 ez 2011 form The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. 1040 ez 2011 form 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. 1040 ez 2011 form You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. 1040 ez 2011 form However, see Chickens, seeds, and young plants , below. 1040 ez 2011 form Example. 1040 ez 2011 form You use the cash method of accounting. 1040 ez 2011 form In 2013, you buy 50 steers you will sell in 2014. 1040 ez 2011 form You cannot deduct the cost of the steers on your 2013 tax return. 1040 ez 2011 form You deduct their cost on your 2014 Schedule F, Part I. 1040 ez 2011 form Chickens, seeds, and young plants. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. 1040 ez 2011 form   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. 1040 ez 2011 form You cannot also deduct the cost from the selling price. 1040 ez 2011 form   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. 1040 ez 2011 form Deduct the cost of these seeds and plants through depletion allowances. 1040 ez 2011 form For more information, see Depletion in chapter 7. 1040 ez 2011 form   The cost of chickens and plants used as food for your family is never deductible. 1040 ez 2011 form   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. 1040 ez 2011 form These rules are discussed in chapter 6. 1040 ez 2011 form Example. 1040 ez 2011 form You use the cash method of accounting. 1040 ez 2011 form In 2013, you buy 500 baby chicks to raise for resale in 2014. 1040 ez 2011 form You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. 1040 ez 2011 form 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. 1040 ez 2011 form Election to use crop method. 1040 ez 2011 form   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. 1040 ez 2011 form You must get IRS approval to use the crop method. 1040 ez 2011 form If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. 1040 ez 2011 form For more information, see Crop method under Special Methods of Accounting in chapter 2. 1040 ez 2011 form Choosing a method. 1040 ez 2011 form   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. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form For more information, see Change in Accounting Method in chapter 2. 1040 ez 2011 form Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. 1040 ez 2011 form 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. 1040 ez 2011 form Accounting fees. 1040 ez 2011 form Advertising. 1040 ez 2011 form Business travel and meals. 1040 ez 2011 form Commissions. 1040 ez 2011 form Consultant fees. 1040 ez 2011 form Crop scouting expenses. 1040 ez 2011 form Dues to cooperatives. 1040 ez 2011 form Educational expenses (to maintain and improve farming skills). 1040 ez 2011 form Farm-related attorney fees. 1040 ez 2011 form Farm magazines. 1040 ez 2011 form Ginning. 1040 ez 2011 form Insect sprays and dusts. 1040 ez 2011 form Litter and bedding. 1040 ez 2011 form Livestock fees. 1040 ez 2011 form Marketing fees. 1040 ez 2011 form Milk assessment. 1040 ez 2011 form Recordkeeping expenses. 1040 ez 2011 form Service charges. 1040 ez 2011 form Small tools expected to last one year or less. 1040 ez 2011 form Stamps and stationery. 1040 ez 2011 form Subscriptions to professional, technical, and trade journals that deal with farming. 1040 ez 2011 form Tying material and containers. 1040 ez 2011 form Loan expenses. 1040 ez 2011 form   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. 1040 ez 2011 form Tax preparation fees. 1040 ez 2011 form   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. 1040 ez 2011 form You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 1040 ez 2011 form   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. 1040 ez 2011 form Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. 1040 ez 2011 form Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. 1040 ez 2011 form Income from cooperatives. 1040 ez 2011 form   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. 1040 ez 2011 form This deduction amount is reported on Form 1099-PATR, box 6. 1040 ez 2011 form 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. 1040 ez 2011 form More information. 1040 ez 2011 form   For more information on the domestic production activities deduction, see the Instructions for Form 8903. 1040 ez 2011 form 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. 1040 ez 2011 form You include the expense in the basis of the asset. 1040 ez 2011 form Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. 1040 ez 2011 form See chapters 2  and 6. 1040 ez 2011 form Capital expenses are generally not deductible, but they may be depreciable. 1040 ez 2011 form However, you can elect to deduct certain capital expenses, such as the following. 1040 ez 2011 form The cost of fertilizer, lime, etc. 1040 ez 2011 form (See Fertilizer and Lime under Deductible Expenses , earlier. 1040 ez 2011 form ) Soil and water conservation expenses. 1040 ez 2011 form (See chapter 5. 1040 ez 2011 form ) The cost of property that qualifies for a deduction under section 179. 1040 ez 2011 form (See chapter 7. 1040 ez 2011 form ) Business start-up costs. 1040 ez 2011 form (See Business start-up and organizational costs , later. 1040 ez 2011 form ) Forestation and reforestation costs. 1040 ez 2011 form (See Forestation and reforestation costs , later. 1040 ez 2011 form ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. 1040 ez 2011 form Land and buildings. 1040 ez 2011 form Additions, alterations, and improvements to buildings, etc. 1040 ez 2011 form Cars and trucks. 1040 ez 2011 form Equipment and machinery. 1040 ez 2011 form Fences. 1040 ez 2011 form Draft, breeding, sport, and dairy livestock. 1040 ez 2011 form Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. 1040 ez 2011 form Water wells, including drilling and equipping costs. 1040 ez 2011 form 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. 1040 ez 2011 form Business start-up and organizational costs. 1040 ez 2011 form   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. 1040 ez 2011 form The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 1040 ez 2011 form Any remaining costs must be amortized. 1040 ez 2011 form See chapter 7. 1040 ez 2011 form   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. 1040 ez 2011 form 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). 1040 ez 2011 form Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 1040 ez 2011 form 9100-2” at the top of the amended return. 1040 ez 2011 form File the amended return at the same address you filed the original return. 1040 ez 2011 form The election applies when figuring taxable income for the current tax year and all subsequent years. 1040 ez 2011 form   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. 1040 ez 2011 form For more information about start-up and organizational costs, see chapter 7. 1040 ez 2011 form Crop production expenses. 1040 ez 2011 form   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. 1040 ez 2011 form 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. 1040 ez 2011 form For more information, see Uniform Capitalization Rules in chapter 6. 1040 ez 2011 form Timber. 1040 ez 2011 form   Capitalize the cost of acquiring timber. 1040 ez 2011 form Do not include the cost of land in the cost of the timber. 1040 ez 2011 form You must generally capitalize direct costs incurred in reforestation. 1040 ez 2011 form However, you can elect to deduct some forestation and reforestation costs. 1040 ez 2011 form See Forestation and reforestation costs next. 1040 ez 2011 form Reforestation costs include the following. 1040 ez 2011 form Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. 1040 ez 2011 form The cost of seed or seedlings. 1040 ez 2011 form Labor and tool expenses. 1040 ez 2011 form Depreciation on equipment used in planting or seeding. 1040 ez 2011 form Costs incurred in replanting to replace lost seedlings. 1040 ez 2011 form You can choose to capitalize certain indirect reforestation costs. 1040 ez 2011 form   These capitalized amounts are your basis for the timber. 1040 ez 2011 form Recover your basis when you sell the timber or take depletion allowances when you cut the timber. 1040 ez 2011 form See Depletion in chapter 7. 1040 ez 2011 form Forestation and reforestation costs. 1040 ez 2011 form   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. 1040 ez 2011 form Any remaining costs can be amortized over an 84-month period. 1040 ez 2011 form See chapter 7. 1040 ez 2011 form 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. 1040 ez 2011 form The accounts should include all reforestation treatments and the dates they were applied. 1040 ez 2011 form 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. 1040 ez 2011 form The timber account should be maintained until the timber is disposed of. 1040 ez 2011 form For more information, see Notice 2006-47, 2006-20 I. 1040 ez 2011 form R. 1040 ez 2011 form B. 1040 ez 2011 form 892, available at  www. 1040 ez 2011 form irs. 1040 ez 2011 form gov/irb/2006-20_IRB/ar11. 1040 ez 2011 form html. 1040 ez 2011 form   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. 1040 ez 2011 form If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. 1040 ez 2011 form If you are not filing Form T (Timber), attach a statement to your return with the following information. 1040 ez 2011 form The unique stand identification numbers. 1040 ez 2011 form The total number of acres reforested during the tax year. 1040 ez 2011 form The nature of the reforestation treatments. 1040 ez 2011 form The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. 1040 ez 2011 form   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). 1040 ez 2011 form Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 1040 ez 2011 form 9100-2” at the top of the amended return. 1040 ez 2011 form File the amended return at the same address you filed the original return. 1040 ez 2011 form    For more information about forestation and reforestation costs, see chapter 7. 1040 ez 2011 form    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. 1040 ez 2011 form You can view this publication on the Internet at  www. 1040 ez 2011 form fs. 1040 ez 2011 form fed. 1040 ez 2011 form us/publications. 1040 ez 2011 form Christmas tree cultivation. 1040 ez 2011 form   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. 1040 ez 2011 form Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. 1040 ez 2011 form For more information, see Timber Depletion under Depletion in chapter 7. 1040 ez 2011 form   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. 1040 ez 2011 form Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. 1040 ez 2011 form   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. 1040 ez 2011 form If the improvements do not have a determinable useful life, add their cost to the basis of the land. 1040 ez 2011 form The cost is recovered when you sell or otherwise dispose of it. 1040 ez 2011 form If the improvements have a determinable useful life, recover their cost through depreciation. 1040 ez 2011 form 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. 1040 ez 2011 form Recover these costs through depreciation. 1040 ez 2011 form Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. 1040 ez 2011 form Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. 1040 ez 2011 form 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. 1040 ez 2011 form Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. 1040 ez 2011 form Other Nondeductible Items You cannot deduct the following items on your tax return. 1040 ez 2011 form Loss of growing plants, produce, and crops. 1040 ez 2011 form   Losses of plants, produce, and crops raised for sale are generally not deductible. 1040 ez 2011 form However, you may have a deductible loss on plants with a preproductive period of more than 2 years. 1040 ez 2011 form See chapter 11 for more information. 1040 ez 2011 form Repayment of loans. 1040 ez 2011 form   You cannot deduct the repayment of a loan. 1040 ez 2011 form However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. 1040 ez 2011 form See Interest , earlier. 1040 ez 2011 form Estate, inheritance, legacy, succession, and gift taxes. 1040 ez 2011 form   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. 1040 ez 2011 form Loss of livestock. 1040 ez 2011 form   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. 1040 ez 2011 form Losses from sales or exchanges between related persons. 1040 ez 2011 form   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. 1040 ez 2011 form For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 1040 ez 2011 form Cost of raising unharvested crops. 1040 ez 2011 form   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. 1040 ez 2011 form Add these costs to the basis of the land to determine the gain or loss on the sale. 1040 ez 2011 form For more information, see Section 1231 Gains and Losses in chapter 9. 1040 ez 2011 form Cost of unharvested crops bought with land. 1040 ez 2011 form   Capitalize the purchase price of land, including the cost allocable to unharvested crops. 1040 ez 2011 form You cannot deduct the cost of the crops at the time of purchase. 1040 ez 2011 form However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. 1040 ez 2011 form Cost related to gifts. 1040 ez 2011 form   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. 1040 ez 2011 form The costs are not deductible in the year of the gift or any later year. 1040 ez 2011 form 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. 1040 ez 2011 form Club dues and membership fees. 1040 ez 2011 form   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. 1040 ez 2011 form 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. 1040 ez 2011 form Exception. 1040 ez 2011 form   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. 1040 ez 2011 form Boards of trade. 1040 ez 2011 form Business leagues. 1040 ez 2011 form Chambers of commerce. 1040 ez 2011 form Civic or public service organizations. 1040 ez 2011 form Professional associations. 1040 ez 2011 form Trade associations. 1040 ez 2011 form Real estate boards. 1040 ez 2011 form Fines and penalties. 1040 ez 2011 form   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. 1040 ez 2011 form 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. 1040 ez 2011 form The amount of the loss you can deduct when figuring your taxable income may be limited. 1040 ez 2011 form To figure your deductible loss, you must apply the following limits. 1040 ez 2011 form The at-risk limits. 1040 ez 2011 form The passive activity limits. 1040 ez 2011 form The following discussions explain these limits. 1040 ez 2011 form If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. 1040 ez 2011 form See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 1040 ez 2011 form 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. 1040 ez 2011 form See Not-for-Profit Farming, later. 1040 ez 2011 form At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. 1040 ez 2011 form These rules limit the losses you can deduct when figuring your taxable income. 1040 ez 2011 form The deductible loss from an activity is limited to the amount you have at risk in the activity. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form For more information, see Publication 925. 1040 ez 2011 form 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. 1040 ez 2011 form Generally, a rental activity is a passive activity. 1040 ez 2011 form If you have a passive activity, special rules limit the loss you can deduct in the tax year. 1040 ez 2011 form You generally can deduct losses from passive activities only up to income from passive activities. 1040 ez 2011 form Credits are similarly limited. 1040 ez 2011 form For more information, see Publication 925. 1040 ez 2011 form Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. 1040 ez 2011 form Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. 1040 ez 2011 form For more details, see IRC section 461(j). 1040 ez 2011 form Excess farm loss. 1040 ez 2011 form   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). 1040 ez 2011 form 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. 1040 ez 2011 form   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. 1040 ez 2011 form 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. 1040 ez 2011 form 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). 1040 ez 2011 form Also, there is a limit on the deductions you can take. 1040 ez 2011 form You cannot use a loss from that activity to offset income from other activities. 1040 ez 2011 form Activities you do as a hobby, or mainly for sport or recreation, come under this limit. 1040 ez 2011 form An investment activity intended only to produce tax losses for the investors also comes under this limit. 1040 ez 2011 form The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. 1040 ez 2011 form It does not apply to corporations other than S corporations. 1040 ez 2011 form In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. 1040 ez 2011 form No one factor alone is decisive. 1040 ez 2011 form 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. 1040 ez 2011 form Presumption of profit. 1040 ez 2011 form   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. 1040 ez 2011 form 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. 1040 ez 2011 form The activity must be substantially the same for each year within this period. 1040 ez 2011 form You have a profit when the gross income from an activity is more than the deductions for it. 1040 ez 2011 form   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. 1040 ez 2011 form   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. 1040 ez 2011 form This means the limits discussed here do not apply. 1040 ez 2011 form You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. 1040 ez 2011 form You can rely on this presumption in every case, unless the IRS shows it is not valid. 1040 ez 2011 form   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. 1040 ez 2011 form Using the presumption later. 1040 ez 2011 form   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. 1040 ez 2011 form   You can choose to do this by filing Form 5213. 1040 ez 2011 form 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. 1040 ez 2011 form 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. 1040 ez 2011 form   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. 1040 ez 2011 form Accordingly, it will not limit your deductions. 1040 ez 2011 form 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. 1040 ez 2011 form If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. 1040 ez 2011 form 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. 1040 ez 2011 form   Filing Form 5213 automatically extends the period of limitations on any year
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Affordable Care Act Tax Provisions

Check out the new Affordable Care Act Tax Provisions Home Page

Información en Español: Disposiciones de La Ley del Cuidado de Salud de Bajo Precio
 

Update

The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014. If you are seeking information about how to obtain health care coverage or financial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website, HealthCare.gov.

Effect of Sequestration on Small Business Health Care Tax Credit

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. This means that refund payments processed on or after Oct.1, 2013, and on or before Sept. 30, 2014, to a Section 45R applicant will be reduced by the fiscal year 2014 sequestration rate of 7.2 percent, irrespective of when the original or amended tax return was received by the IRS. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.

IRC §7216, Disclosure or Use of Information by Tax Return Preparers

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Net Investment Income Tax

A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. On Nov. 26, 2013, the IRS and the Treasury Department issued final regulations, which provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. In addition, on Nov. 26, 2013, the IRS and the Treasury Department issued proposed regulations on the computation of net investment income as it relates to certain specific types of property. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.

Additional Medicare Tax

A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. On Nov. 26, 2013, the IRS and the Department of the Treasury issued final regulations which provide guidance for employers and individuals relating to the implementation of Additional Medicare Tax, including the requirement to withhold Additional Medicare Tax on certain wages and compensation, the requirement to report Additional Medicare Tax, and the employer process for adjusting underpayments and overpayments of Additional Medicare Tax. In addition, the regulations provide guidance on the employer and individual processes for filing a claim for refund for an overpayment of Additional Medicare Tax. For additional information on the Additional Medicare Tax, see our questions and answers.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Coverage by Employers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on employer health insurance coverage information reporting. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45, announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Information Reporting on Health Coverage by Insurers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on minimum essential coverage information reporting. The information reporting is to be provided by health insurance issuers, certain sponsors of self-insured plans, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Disclosure of Return Information

On Aug. 13, 2013, the Department of the Treasury and the IRS issued final regulations with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. For additional information on the final regulations, see our questions and answers.

Small Business Health Care Tax Credit

This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On Aug. 23, 2013, the Department of Treasury and the IRS issued proposed regulations, which include information on the transition of eligibility for the credit and requiring the purchase of insurance coverage through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). Additionally, IRS Notice 2014-06 provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.

Application of the Affordable Care Act to Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements

The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.  

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs.

On Jan. 9, 2014, DOL and HHS issued FAQs that addressed, among other things, future rules relating to excepted benefits.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5. Additionally, Notice 2013-57 provides information about the definition of preventive care for purposes of high deductible health plans associated with HSAs. 

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules. On Oct. 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements. Learn more by reading the news release issued by the U.S. Department of the Treasury.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain health FSAs.   

Medical Device Excise Tax

On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on IRS.gov.

Changes to Itemized Deduction for Medical Expenses

Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from Jan. 1, 2013, to Dec. 31, 2016, for individuals age 65 and older and their spouses. For additional information, see our questions and answers.

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations, which provide guidance for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit, and for Marketplaces that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations on the premium tax credit affordability test for related individuals. On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Additionally, Notice 2013-41, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high-risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. On June 28, 2013, the Department of the Treasury and IRS issued proposed regulations on the new reporting requirements for Marketplaces. Notice 2014-23 was issued on March 26, 2014, and allows certain victims of domestic abuse to claim the premium tax credit while filing a return using the Married Filing Separately filing status for the 2014 calendar year. For more information on the credit, see our premium tax credit page and our questions and answers.

Individual Shared Responsibility Provision

Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On Aug. 27, 2013, the Department of the Treasury and the IRS issued final regulations on the Individual Shared Responsibility provision. On Jan. 23, 2014, the Department of the Treasury and the IRS issued proposed regulations addressing several issues that were identified in the preamble to the final regulations. In particular, the proposed regulations provide that certain limited-benefit Medicaid and TRICARE coverage is not minimum essential coverage. The proposed regulations also address the treatment of health reimbursement arrangements and wellness program incentives for purposes of determining the exemption for individuals who cannot afford employer-sponsored coverage. Comments are due April 28, 2014, and may be submitted electronically, by mail or hand delivered to the IRS. Additionally, because individuals may not be aware that these limited-benefit government health programs are not minimum essential coverage at the time of enrollment, Notice 2014-10, issued on Jan. 23, 2014, provides transition relief from the shared responsibility payment for months in 2014 in which individuals have certain Medicaid coverage or limited-benefit coverage under chapter 55 of title 10, U.S.C. For additional information on the Individual Shared Responsibility provision, the final regulations and Notice 2013-42, see our ISRP page and questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014.

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

Adoption Credit

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information. 

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On March 19, 2013, HHS, DOL and IRS issued proposed regulations on the ninety-day waiting period limitation.. 

More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 

Annual Fee on Health Insurance Providers

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks.

For additional information visit our Affordable Care Act Provision 9010 - Health Insurance Providers Fee page

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 and Notice 2011-52). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations and proposed regulations providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance. Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of section 501(r) will be excused.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid. On Aug. 5, 2013, the IRS issued Notice 2013-51, which provides additional guidance on the branded prescription drug fee for the 2014 fee year. For information on the fee for the 2012 fee year and for the 2013 fee year, see Notice 2011-92 and Notice 2012-74.

For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012. 

On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers (amended section 162(m))

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On April 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. 

Employer Shared Responsibility Payment

The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45. For additional transition relief generally applicable to 2015, see the preamble to the final regulations.  

Patient-Centered Outcomes Research Institute Fee

The Affordable Care Act imposes the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Department of the Treasury have issued final regulations on this fee. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summaryForm 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee.

Retiree Drug Subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.

For More Information

For tips, fact sheets, questions and answers, videos and more, see our Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance page.

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Page Last Reviewed or Updated: 26-Mar-2014

 

The 1040 Ez 2011 Form

1040 ez 2011 form Publication 583 - Introductory Material Table of Contents Introduction Introduction Table 1. 1040 ez 2011 form What New Business Owners Need To Know About Federal Taxes   (Note: This table is intended to help you, as a new business owner, learn what you need to know about your federal tax responsibilities. 1040 ez 2011 form To use it, ask yourself each question in the left column, then see the related discussion in the right column. 1040 ez 2011 form ) What Must I Know? Where To Find the Answer Which form of business will I use? See Forms of Business. 1040 ez 2011 form Will I need an employer identification number (EIN)? See Identification Numbers. 1040 ez 2011 form Do I have to start my tax year in January, or may I start it in any other month? See Tax Year. 1040 ez 2011 form What method can I use to account for my income and expenses? See Accounting Method. 1040 ez 2011 form What kinds of federal taxes will I have to pay? How should I pay my taxes? See Business Taxes. 1040 ez 2011 form What must I do if I have employees? See Employment Taxes. 1040 ez 2011 form Which forms must I file? See Table 2 and Information Returns. 1040 ez 2011 form Are there penalties if I do not pay my taxes or file my returns? See Penalties. 1040 ez 2011 form What business expenses can I deduct on my federal income tax return? See Business Expenses. 1040 ez 2011 form What records must I keep? How long must I keep them? See Recordkeeping. 1040 ez 2011 form This publication provides basic federal tax information for people who are starting a business. 1040 ez 2011 form It also provides information on keeping records and illustrates a recordkeeping system. 1040 ez 2011 form Throughout this publication we refer to other IRS publications and forms where you will find more information. 1040 ez 2011 form In addition, you may want to contact other government agencies, such as the Small Business Administration (SBA). 1040 ez 2011 form See How To Get More Information later. 1040 ez 2011 form Comments and suggestions. 1040 ez 2011 form   We welcome your comments about this publication and your suggestions for future editions. 1040 ez 2011 form   You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. 1040 ez 2011 form NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 1040 ez 2011 form Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 1040 ez 2011 form   You can email us at taxforms@irs. 1040 ez 2011 form gov. 1040 ez 2011 form Please put “Publications Comment” on the subject line. 1040 ez 2011 form You can also send us comments from www. 1040 ez 2011 form irs. 1040 ez 2011 form gov/formspubs, select “Comment on Tax Forms and Publications” under “Information about. 1040 ez 2011 form ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 1040 ez 2011 form Ordering forms and publications. 1040 ez 2011 form Visit www. 1040 ez 2011 form irs. 1040 ez 2011 form gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. 1040 ez 2011 form Internal Revenue Service 1201 N. 1040 ez 2011 form Mitsubishi Motorway Bloomington, IL 61705–6613 Tax questions. 1040 ez 2011 form   If you have a tax question, check the information available on IRS. 1040 ez 2011 form gov or call 1-800-829-1040. 1040 ez 2011 form We cannot answer tax questions sent to either of the above addresses. 1040 ez 2011 form Future Developments. 1040 ez 2011 form   The IRS has created a page on IRS. 1040 ez 2011 form gov for information about Publication 583 at www. 1040 ez 2011 form irs. 1040 ez 2011 form gov/pub583. 1040 ez 2011 form Information about any future developments affecting Publication 583 (such as legislation enacted after we release it) will be posted on that page. 1040 ez 2011 form Prev  Up  Next   Home   More Online Publications