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1040ez Efile

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1040ez efile 4. 1040ez efile   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. 1040ez efile Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. 1040ez efile Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. 1040ez efile Category 1. 1040ez efile Category 2. 1040ez efile Category 3. 1040ez efile What's New for 2013 Standard mileage rate. 1040ez efile  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. 1040ez efile 5 cents. 1040ez efile See Truck and Car Expenses , later. 1040ez efile Simplified method for business use of home deduction. 1040ez efile  The IRS now provides a simplified method to determine your expenses for business use of your home. 1040ez efile For more information, see Schedule C (Form 1040), Part II, and its instructions. 1040ez efile Introduction You can generally deduct the current costs of operating your farm. 1040ez efile Current costs are expenses you do not have to capitalize or include in inventory costs. 1040ez efile However, your deduction for the cost of livestock feed and certain other supplies may be limited. 1040ez efile If you have an operating loss, you may not be able to deduct all of it. 1040ez efile Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. 1040ez efile Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. 1040ez efile “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. 1040ez efile Schedule F, Part II, lists some common farm expenses that are typically deductible. 1040ez efile This chapter discusses many of these expenses, as well as others not listed on Schedule F. 1040ez efile Reimbursed expenses. 1040ez efile   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. 1040ez efile If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. 1040ez efile See Refund or reimbursement under Income From Other Sources in chapter 3. 1040ez efile Personal and business expenses. 1040ez efile   Some expenses you pay during the tax year may be part personal and part business. 1040ez efile These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. 1040ez efile   You must allocate these mixed expenses between their business and personal parts. 1040ez efile Generally, the personal part of these expenses is not deductible. 1040ez efile The business portion of the expenses is deductible on Schedule F. 1040ez efile Example. 1040ez efile You paid $1,500 for electricity during the tax year. 1040ez efile You used 1/3 of the electricity for personal purposes and 2/3 for farming. 1040ez efile Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. 1040ez efile Reasonable allocation. 1040ez efile   It is not always easy to determine the business and nonbusiness parts of an expense. 1040ez efile There is no method of allocation that applies to all mixed expenses. 1040ez efile Any reasonable allocation is acceptable. 1040ez efile What is reasonable depends on the circumstances in each case. 1040ez efile Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. 1040ez efile Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. 1040ez efile Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. 1040ez efile However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. 1040ez efile Poultry bought for resale and not resold during the year. 1040ez efile Deduction limit. 1040ez efile   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). 1040ez efile This limit does not apply if you meet one of the exceptions described later. 1040ez efile See Chapter 2 for a discussion of the cash method of accounting. 1040ez efile   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. 1040ez efile The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. 1040ez efile The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. 1040ez efile Example. 1040ez efile You may not qualify for the exception described next. 1040ez efile During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. 1040ez efile Your total prepaid farm supplies expense for 2013 is $5,500. 1040ez efile Your other deductible farm expenses totaled $10,000 for 2013. 1040ez efile Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. 1040ez efile The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. 1040ez efile Exceptions. 1040ez efile   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. 1040ez efile Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. 1040ez efile Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. 1040ez efile   You are a farm-related taxpayer if any of the following tests apply. 1040ez efile Your main home is on a farm. 1040ez efile Your principal business is farming. 1040ez efile A member of your family meets (1) or (2). 1040ez efile For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. 1040ez efile    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. 1040ez efile Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. 1040ez efile The payment is for the purchase of feed rather than a deposit. 1040ez efile The prepayment has a business purpose and is not merely for tax avoidance. 1040ez efile Deducting the prepayment does not result in a material distortion of your income. 1040ez efile If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. 1040ez efile If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. 1040ez efile This rule does not apply to the purchase of commodity futures contracts. 1040ez efile Payment for the purchase of feed. 1040ez efile   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. 1040ez efile It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. 1040ez efile   The following are some factors that show a payment is a deposit rather than for the purchase of feed. 1040ez efile The absence of specific quantity terms. 1040ez efile The right to a refund of any unapplied payment credit at the end of the contract. 1040ez efile The seller's treatment of the payment as a deposit. 1040ez efile The right to substitute other goods or products for those specified in the contract. 1040ez efile   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. 1040ez efile Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. 1040ez efile Business purpose. 1040ez efile   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. 1040ez efile The following are some examples of business benefits. 1040ez efile Fixing maximum prices and securing an assured feed supply. 1040ez efile Securing preferential treatment in anticipation of a feed shortage. 1040ez efile   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. 1040ez efile No material distortion of income. 1040ez efile   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. 1040ez efile Your customary business practice in conducting your livestock operations. 1040ez efile The expense in relation to past purchases. 1040ez efile The time of year you made the purchase. 1040ez efile The expense in relation to your income for the year. 1040ez efile Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. 1040ez efile You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. 1040ez efile The cost of boarding farm labor is a deductible labor cost. 1040ez efile Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. 1040ez efile If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. 1040ez efile See chapter 13 for more information on employment taxes. 1040ez efile Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. 1040ez efile See Taxes , later. 1040ez efile Property for services. 1040ez efile   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. 1040ez efile If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. 1040ez efile   Treat the wages deducted as an amount received for the property. 1040ez efile You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. 1040ez efile Any gain or loss has the same character the exchanged property had in your hands. 1040ez efile For more information, see chapter 8. 1040ez efile Child as an employee. 1040ez efile   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. 1040ez efile Include these wages in the child's income. 1040ez efile The child may have to file an income tax return. 1040ez efile These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. 1040ez efile For more information, see Family Employees in chapter 13. 1040ez efile    A Form W-2, Wage and Tax Statement, should be issued to the child employee. 1040ez efile   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. 1040ez efile The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. 1040ez efile Spouse as an employee. 1040ez efile   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. 1040ez efile Wages you pay to your spouse are subject to social security and Medicare taxes. 1040ez efile For more information, see Family Employees in chapter 13. 1040ez efile Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. 1040ez efile However, those wages may be subject to the employment taxes discussed in chapter 13. 1040ez efile Household workers. 1040ez efile   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. 1040ez efile Construction labor. 1040ez efile   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. 1040ez efile These wages are part of the cost of the building or other improvement. 1040ez efile You must capitalize them. 1040ez efile Maintaining your home. 1040ez efile   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. 1040ez efile For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. 1040ez efile The employee devotes the remaining time to work on your farm. 1040ez efile You cannot deduct 5% of the wages and employment taxes you pay for that employee. 1040ez efile Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). 1040ez efile Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. 1040ez efile Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. 1040ez efile However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. 1040ez efile For example, if you repair the barn roof, the cost is deductible. 1040ez efile But if you replace the roof, it is a capital expense. 1040ez efile For more information, see Capital Expenses , later. 1040ez efile Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. 1040ez efile Cash method. 1040ez efile   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. 1040ez efile You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. 1040ez efile You can, however, deduct the interest when you start making payments on the new loan. 1040ez efile For more information, see Cash Method in chapter 2. 1040ez efile Prepaid interest. 1040ez efile   Under the cash method, you generally cannot deduct any interest paid before the year it is due. 1040ez efile Interest paid in advance may be deducted only in the tax year in which it is due. 1040ez efile Accrual method. 1040ez efile   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. 1040ez efile However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. 1040ez efile For more information, see Accrual Method in chapter 2. 1040ez efile Allocation of interest. 1040ez efile   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. 1040ez efile Allocate the interest to the following categories. 1040ez efile Trade or business interest. 1040ez efile Passive activity interest. 1040ez efile Investment interest. 1040ez efile Portfolio interest. 1040ez efile Personal interest. 1040ez efile   You generally allocate interest on a loan the same way you allocate the loan proceeds. 1040ez efile You allocate loan proceeds by tracing disbursements to specific uses. 1040ez efile The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. 1040ez efile Secured loan. 1040ez efile   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. 1040ez efile Example. 1040ez efile You secure a loan with property used in your farming business. 1040ez efile You use the loan proceeds to buy a car for personal use. 1040ez efile You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. 1040ez efile If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. 1040ez efile The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. 1040ez efile However, you can choose to treat the loan as not secured by your home. 1040ez efile For more information, see Publication 936. 1040ez efile Allocation period. 1040ez efile   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. 1040ez efile The date the loan is repaid. 1040ez efile The date the loan is reallocated to another use. 1040ez efile More information. 1040ez efile   For more information on interest, see chapter 4 in Publication 535. 1040ez efile Breeding Fees You can deduct breeding fees as a farm business expense. 1040ez efile However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. 1040ez efile For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. 1040ez efile Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. 1040ez efile You can also deduct the cost of applying these materials in the year you pay or incur it. 1040ez efile However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. 1040ez efile If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. 1040ez efile However, you can choose to deduct these expenses in the year paid or incurred. 1040ez efile If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. 1040ez efile If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. 1040ez efile Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. 1040ez efile It does not include land you have never used previously for producing crops or sustaining livestock. 1040ez efile You cannot deduct initial land preparation costs. 1040ez efile (See Capital Expenses , later. 1040ez efile ) Include government payments you receive for lime or fertilizer in income. 1040ez efile See Fertilizer and Lime under Agricultural Program Payments in chapter 3. 1040ez efile Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. 1040ez efile You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. 1040ez efile For information on employment taxes, see chapter 13. 1040ez efile Allocation of taxes. 1040ez efile   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. 1040ez efile You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). 1040ez efile To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. 1040ez efile The allocation can be done from the assessed valuations. 1040ez efile If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. 1040ez efile State and local general sales taxes. 1040ez efile   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. 1040ez efile Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. 1040ez efile Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. 1040ez efile State and federal income taxes. 1040ez efile   Individuals cannot deduct state and federal income taxes as farm business expenses. 1040ez efile Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). 1040ez efile However, you cannot deduct federal income tax. 1040ez efile Highway use tax. 1040ez efile   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. 1040ez efile For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. 1040ez efile Self-employment tax deduction. 1040ez efile   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. 1040ez efile For more information, see chapter 12. 1040ez efile Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. 1040ez efile This includes premiums you pay for the following types of insurance. 1040ez efile Fire, storm, crop, theft, liability, and other insurance on farm business assets. 1040ez efile Health and accident insurance on your farm employees. 1040ez efile Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. 1040ez efile Business interruption insurance. 1040ez efile State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). 1040ez efile Insurance to secure a loan. 1040ez efile   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. 1040ez efile In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. 1040ez efile Advance premiums. 1040ez efile   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. 1040ez efile Example. 1040ez efile On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. 1040ez efile The policy will cover a period of 3 years beginning on July 1, 2013. 1040ez efile Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. 1040ez efile Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. 1040ez efile In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). 1040ez efile Deduct the remaining $500 in 2016. 1040ez efile Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. 1040ez efile Business interruption insurance. 1040ez efile   Use and occupancy and business interruption insurance premiums are deductible as a business expense. 1040ez efile This insurance pays for lost profits if your business is shut down due to a fire or other cause. 1040ez efile Report any proceeds in full on Schedule F, Part I. 1040ez efile Self-employed health insurance deduction. 1040ez efile   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. 1040ez efile Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. 1040ez efile Generally, this deduction cannot be more than the net profit from the business under which the plan was established. 1040ez efile   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. 1040ez efile   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. 1040ez efile Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. 1040ez efile   For more information, see Deductible Premiums in Publication 535, chapter 6. 1040ez efile Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. 1040ez efile However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. 1040ez efile Advance payments. 1040ez efile   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. 1040ez efile Farm home. 1040ez efile   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. 1040ez efile Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. 1040ez efile If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. 1040ez efile Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. 1040ez efile Conditional sales contract. 1040ez efile   Whether an agreement is a conditional sales contract depends on the intent of the parties. 1040ez efile Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 1040ez efile No single test, or special combination of tests, always applies. 1040ez efile However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 1040ez efile The agreement applies part of each payment toward an equity interest you will receive. 1040ez efile You get title to the property after you make a stated amount of required payments. 1040ez efile The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. 1040ez efile You pay much more than the current fair rental value of the property. 1040ez efile You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. 1040ez efile Determine this value when you make the agreement. 1040ez efile You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 1040ez efile The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. 1040ez efile Example. 1040ez efile You lease new farm equipment from a dealer who both sells and leases. 1040ez efile The agreement includes an option to purchase the equipment for a specified price. 1040ez efile The lease payments and the specified option price equal the sales price of the equipment plus interest. 1040ez efile Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. 1040ez efile For federal income tax purposes, the agreement is a conditional sales contract. 1040ez efile You cannot deduct any of the lease payments as rent. 1040ez efile You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. 1040ez efile Motor vehicle leases. 1040ez efile   Special rules apply to lease agreements that have a terminal rental adjustment clause. 1040ez efile In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. 1040ez efile If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. 1040ez efile For more information, see Internal Revenue Code (IRC) section 7701(h). 1040ez efile Leveraged leases. 1040ez efile   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). 1040ez efile For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. 1040ez efile irs. 1040ez efile gov/pub/irs-irbs/irb01-19. 1040ez efile pdf. 1040ez efile Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. 1040ez efile You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. 1040ez efile However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. 1040ez efile Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. 1040ez efile Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. 1040ez efile Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. 1040ez efile You use it exclusively and regularly for the administrative or management activities of your trade or business. 1040ez efile You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. 1040ez efile If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. 1040ez efile The IRS now provides a simplified method to determine your expenses for business use of your home. 1040ez efile For more information, see Schedule C (Form 1040), Part II, and its instructions. 1040ez efile Deduction limit. 1040ez efile   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. 1040ez efile But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. 1040ez efile   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. 1040ez efile The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). 1040ez efile Farm expenses other than expenses that relate to the use of your home. 1040ez efile If you are self-employed, do not include your deduction for half of your self-employment tax. 1040ez efile   Deductions over the current year's limit can be carried over to your next tax year. 1040ez efile They are subject to the deduction limit for the next tax year. 1040ez efile More information. 1040ez efile   See Publication 587 for more information on deducting expenses for the business use of your home. 1040ez efile Telephone expense. 1040ez efile   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. 1040ez efile However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. 1040ez efile Cell phone charges for calls relating to your farm business are deductible. 1040ez efile If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. 1040ez efile Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. 1040ez efile Only expenses for business use are deductible. 1040ez efile These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). 1040ez efile Standard mileage rate. 1040ez efile   Instead of using actual costs, under certain conditions you can use the standard mileage rate. 1040ez efile The standard mileage rate for each mile of business use is 56. 1040ez efile 5 cents in 2013. 1040ez efile You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. 1040ez efile   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. 1040ez efile You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. 1040ez efile Example. 1040ez efile Maureen owns a car and four pickup trucks that are used in her farm business. 1040ez efile Her farm employees use the trucks and she uses the car for business. 1040ez efile Maureen cannot use the standard mileage rate for the car or the trucks. 1040ez efile This is because all five vehicles are used in Maureen's farm business at the same time. 1040ez efile She must use actual expenses for all vehicles. 1040ez efile Business use percentage. 1040ez efile   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. 1040ez efile You choose this method of substantiating business use the first year the vehicle is placed in service. 1040ez efile Once you make this choice, you may not change to another method later. 1040ez efile The following are uses directly connected with the business of farming. 1040ez efile Cultivating land. 1040ez efile Raising or harvesting any agricultural or horticultural commodity. 1040ez efile Raising, shearing, feeding, caring for, training, and managing animals. 1040ez efile Driving to the feed or supply store. 1040ez efile   If you keep records and they show that your business use was more than 75%, you may be able to claim more. 1040ez efile See Recordkeeping requirements under Travel Expenses , below. 1040ez efile More information. 1040ez efile   For more information on deductible truck and car expenses, see Publication 463, chapter 4. 1040ez efile If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. 1040ez efile Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. 1040ez efile You cannot deduct lavish or extravagant expenses. 1040ez efile Usually, the location of your farm business is considered your home for tax purposes. 1040ez efile You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. 1040ez efile If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. 1040ez efile The following are some types of deductible travel expenses. 1040ez efile Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. 1040ez efile Meals. 1040ez efile   You ordinarily can deduct only 50% of your business-related meals expenses. 1040ez efile You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. 1040ez efile You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. 1040ez efile For information on entertainment expenses, see Publication 463, chapter 2. 1040ez efile   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. 1040ez efile You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. 1040ez efile    Recordkeeping requirements. 1040ez efile You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. 1040ez efile Estimates or approximations do not qualify as proof of an expense. 1040ez efile   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. 1040ez efile Generally, it is best to record the expense and get documentation of it at the time you pay it. 1040ez efile   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. 1040ez efile However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. 1040ez efile More information. 1040ez efile   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. 1040ez efile Reimbursements to employees. 1040ez efile   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. 1040ez efile Employees may be reimbursed under an accountable or nonaccountable plan. 1040ez efile Under an accountable plan, the employee must provide evidence of expenses. 1040ez efile Under a nonaccountable plan, no evidence of expenses is required. 1040ez efile If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. 1040ez efile If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. 1040ez efile For more information, see Publication 535, chapter 11. 1040ez efile Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. 1040ez efile However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. 1040ez efile Do not take a separate deduction for the penalty. 1040ez efile Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. 1040ez efile These costs include repairs, utilities, insurance, and depreciation. 1040ez efile The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. 1040ez efile Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. 1040ez efile You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. 1040ez efile However, see Chickens, seeds, and young plants , below. 1040ez efile Example. 1040ez efile You use the cash method of accounting. 1040ez efile In 2013, you buy 50 steers you will sell in 2014. 1040ez efile You cannot deduct the cost of the steers on your 2013 tax return. 1040ez efile You deduct their cost on your 2014 Schedule F, Part I. 1040ez efile Chickens, seeds, and young plants. 1040ez efile   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. 1040ez efile You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. 1040ez efile However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. 1040ez efile   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. 1040ez efile You cannot also deduct the cost from the selling price. 1040ez efile   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. 1040ez efile Deduct the cost of these seeds and plants through depletion allowances. 1040ez efile For more information, see Depletion in chapter 7. 1040ez efile   The cost of chickens and plants used as food for your family is never deductible. 1040ez efile   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. 1040ez efile These rules are discussed in chapter 6. 1040ez efile Example. 1040ez efile You use the cash method of accounting. 1040ez efile In 2013, you buy 500 baby chicks to raise for resale in 2014. 1040ez efile You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. 1040ez efile Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. 1040ez efile Election to use crop method. 1040ez efile   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. 1040ez efile You must get IRS approval to use the crop method. 1040ez efile If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. 1040ez efile For more information, see Crop method under Special Methods of Accounting in chapter 2. 1040ez efile Choosing a method. 1040ez efile   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. 1040ez efile   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. 1040ez efile Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. 1040ez efile For more information, see Change in Accounting Method in chapter 2. 1040ez efile Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. 1040ez efile These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. 1040ez efile Accounting fees. 1040ez efile Advertising. 1040ez efile Business travel and meals. 1040ez efile Commissions. 1040ez efile Consultant fees. 1040ez efile Crop scouting expenses. 1040ez efile Dues to cooperatives. 1040ez efile Educational expenses (to maintain and improve farming skills). 1040ez efile Farm-related attorney fees. 1040ez efile Farm magazines. 1040ez efile Ginning. 1040ez efile Insect sprays and dusts. 1040ez efile Litter and bedding. 1040ez efile Livestock fees. 1040ez efile Marketing fees. 1040ez efile Milk assessment. 1040ez efile Recordkeeping expenses. 1040ez efile Service charges. 1040ez efile Small tools expected to last one year or less. 1040ez efile Stamps and stationery. 1040ez efile Subscriptions to professional, technical, and trade journals that deal with farming. 1040ez efile Tying material and containers. 1040ez efile Loan expenses. 1040ez efile   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. 1040ez efile Tax preparation fees. 1040ez efile   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. 1040ez efile You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. 1040ez efile   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. 1040ez efile Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. 1040ez efile You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. 1040ez efile Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. 1040ez efile For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. 1040ez efile Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. 1040ez efile Income from cooperatives. 1040ez efile   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. 1040ez efile This deduction amount is reported on Form 1099-PATR, box 6. 1040ez efile In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. 1040ez efile More information. 1040ez efile   For more information on the domestic production activities deduction, see the Instructions for Form 8903. 1040ez efile Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. 1040ez efile You include the expense in the basis of the asset. 1040ez efile Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. 1040ez efile See chapters 2  and 6. 1040ez efile Capital expenses are generally not deductible, but they may be depreciable. 1040ez efile However, you can elect to deduct certain capital expenses, such as the following. 1040ez efile The cost of fertilizer, lime, etc. 1040ez efile (See Fertilizer and Lime under Deductible Expenses , earlier. 1040ez efile ) Soil and water conservation expenses. 1040ez efile (See chapter 5. 1040ez efile ) The cost of property that qualifies for a deduction under section 179. 1040ez efile (See chapter 7. 1040ez efile ) Business start-up costs. 1040ez efile (See Business start-up and organizational costs , later. 1040ez efile ) Forestation and reforestation costs. 1040ez efile (See Forestation and reforestation costs , later. 1040ez efile ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. 1040ez efile Land and buildings. 1040ez efile Additions, alterations, and improvements to buildings, etc. 1040ez efile Cars and trucks. 1040ez efile Equipment and machinery. 1040ez efile Fences. 1040ez efile Draft, breeding, sport, and dairy livestock. 1040ez efile Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. 1040ez efile Water wells, including drilling and equipping costs. 1040ez efile Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. 1040ez efile Business start-up and organizational costs. 1040ez efile   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. 1040ez efile The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. 1040ez efile Any remaining costs must be amortized. 1040ez efile See chapter 7. 1040ez efile   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. 1040ez efile However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 1040ez efile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 1040ez efile 9100-2” at the top of the amended return. 1040ez efile File the amended return at the same address you filed the original return. 1040ez efile The election applies when figuring taxable income for the current tax year and all subsequent years. 1040ez efile   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. 1040ez efile For more information about start-up and organizational costs, see chapter 7. 1040ez efile Crop production expenses. 1040ez efile   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. 1040ez efile However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. 1040ez efile For more information, see Uniform Capitalization Rules in chapter 6. 1040ez efile Timber. 1040ez efile   Capitalize the cost of acquiring timber. 1040ez efile Do not include the cost of land in the cost of the timber. 1040ez efile You must generally capitalize direct costs incurred in reforestation. 1040ez efile However, you can elect to deduct some forestation and reforestation costs. 1040ez efile See Forestation and reforestation costs next. 1040ez efile Reforestation costs include the following. 1040ez efile Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. 1040ez efile The cost of seed or seedlings. 1040ez efile Labor and tool expenses. 1040ez efile Depreciation on equipment used in planting or seeding. 1040ez efile Costs incurred in replanting to replace lost seedlings. 1040ez efile You can choose to capitalize certain indirect reforestation costs. 1040ez efile   These capitalized amounts are your basis for the timber. 1040ez efile Recover your basis when you sell the timber or take depletion allowances when you cut the timber. 1040ez efile See Depletion in chapter 7. 1040ez efile Forestation and reforestation costs. 1040ez efile   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. 1040ez efile Any remaining costs can be amortized over an 84-month period. 1040ez efile See chapter 7. 1040ez efile If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. 1040ez efile The accounts should include all reforestation treatments and the dates they were applied. 1040ez efile Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. 1040ez efile The timber account should be maintained until the timber is disposed of. 1040ez efile For more information, see Notice 2006-47, 2006-20 I. 1040ez efile R. 1040ez efile B. 1040ez efile 892, available at  www. 1040ez efile irs. 1040ez efile gov/irb/2006-20_IRB/ar11. 1040ez efile html. 1040ez efile   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. 1040ez efile If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. 1040ez efile If you are not filing Form T (Timber), attach a statement to your return with the following information. 1040ez efile The unique stand identification numbers. 1040ez efile The total number of acres reforested during the tax year. 1040ez efile The nature of the reforestation treatments. 1040ez efile The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. 1040ez efile   However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 1040ez efile Clearly indicate the election on your amended return and write “Filed pursuant to section 301. 1040ez efile 9100-2” at the top of the amended return. 1040ez efile File the amended return at the same address you filed the original return. 1040ez efile    For more information about forestation and reforestation costs, see chapter 7. 1040ez efile    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. 1040ez efile You can view this publication on the Internet at  www. 1040ez efile fs. 1040ez efile fed. 1040ez efile us/publications. 1040ez efile Christmas tree cultivation. 1040ez efile   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. 1040ez efile Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. 1040ez efile For more information, see Timber Depletion under Depletion in chapter 7. 1040ez efile   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. 1040ez efile Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. 1040ez efile   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. 1040ez efile If the improvements do not have a determinable useful life, add their cost to the basis of the land. 1040ez efile The cost is recovered when you sell or otherwise dispose of it. 1040ez efile If the improvements have a determinable useful life, recover their cost through depreciation. 1040ez efile Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. 1040ez efile Recover these costs through depreciation. 1040ez efile Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. 1040ez efile Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. 1040ez efile These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. 1040ez efile Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. 1040ez efile Other Nondeductible Items You cannot deduct the following items on your tax return. 1040ez efile Loss of growing plants, produce, and crops. 1040ez efile   Losses of plants, produce, and crops raised for sale are generally not deductible. 1040ez efile However, you may have a deductible loss on plants with a preproductive period of more than 2 years. 1040ez efile See chapter 11 for more information. 1040ez efile Repayment of loans. 1040ez efile   You cannot deduct the repayment of a loan. 1040ez efile However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. 1040ez efile See Interest , earlier. 1040ez efile Estate, inheritance, legacy, succession, and gift taxes. 1040ez efile   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. 1040ez efile Loss of livestock. 1040ez efile   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. 1040ez efile Losses from sales or exchanges between related persons. 1040ez efile   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. 1040ez efile For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 1040ez efile Cost of raising unharvested crops. 1040ez efile   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. 1040ez efile Add these costs to the basis of the land to determine the gain or loss on the sale. 1040ez efile For more information, see Section 1231 Gains and Losses in chapter 9. 1040ez efile Cost of unharvested crops bought with land. 1040ez efile   Capitalize the purchase price of land, including the cost allocable to unharvested crops. 1040ez efile You cannot deduct the cost of the crops at the time of purchase. 1040ez efile However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. 1040ez efile Cost related to gifts. 1040ez efile   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. 1040ez efile The costs are not deductible in the year of the gift or any later year. 1040ez efile For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. 1040ez efile Club dues and membership fees. 1040ez efile   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. 1040ez efile This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. 1040ez efile Exception. 1040ez efile   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. 1040ez efile Boards of trade. 1040ez efile Business leagues. 1040ez efile Chambers of commerce. 1040ez efile Civic or public service organizations. 1040ez efile Professional associations. 1040ez efile Trade associations. 1040ez efile Real estate boards. 1040ez efile Fines and penalties. 1040ez efile   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. 1040ez efile Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. 1040ez efile The amount of the loss you can deduct when figuring your taxable income may be limited. 1040ez efile To figure your deductible loss, you must apply the following limits. 1040ez efile The at-risk limits. 1040ez efile The passive activity limits. 1040ez efile The following discussions explain these limits. 1040ez efile If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. 1040ez efile See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. 1040ez efile If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. 1040ez efile See Not-for-Profit Farming, later. 1040ez efile At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. 1040ez efile These rules limit the losses you can deduct when figuring your taxable income. 1040ez efile The deductible loss from an activity is limited to the amount you have at risk in the activity. 1040ez efile You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. 1040ez efile You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. 1040ez efile For more information, see Publication 925. 1040ez efile Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. 1040ez efile Generally, a rental activity is a passive activity. 1040ez efile If you have a passive activity, special rules limit the loss you can deduct in the tax year. 1040ez efile You generally can deduct losses from passive activities only up to income from passive activities. 1040ez efile Credits are similarly limited. 1040ez efile For more information, see Publication 925. 1040ez efile Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. 1040ez efile This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. 1040ez efile Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. 1040ez efile Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. 1040ez efile Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. 1040ez efile For more details, see IRC section 461(j). 1040ez efile Excess farm loss. 1040ez efile   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). 1040ez efile This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. 1040ez efile   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. 1040ez efile Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. 1040ez efile However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). 1040ez efile Also, there is a limit on the deductions you can take. 1040ez efile You cannot use a loss from that activity to offset income from other activities. 1040ez efile Activities you do as a hobby, or mainly for sport or recreation, come under this limit. 1040ez efile An investment activity intended only to produce tax losses for the investors also comes under this limit. 1040ez efile The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. 1040ez efile It does not apply to corporations other than S corporations. 1040ez efile In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. 1040ez efile No one factor alone is decisive. 1040ez efile Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. 1040ez efile Presumption of profit. 1040ez efile   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. 1040ez efile Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. 1040ez efile The activity must be substantially the same for each year within this period. 1040ez efile You have a profit when the gross income from an activity is more than the deductions for it. 1040ez efile   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. 1040ez efile   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. 1040ez efile This means the limits discussed here do not apply. 1040ez efile You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. 1040ez efile You can rely on this presumption in every case, unless the IRS shows it is not valid. 1040ez efile   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. 1040ez efile Using the presumption later. 1040ez efile   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. 1040ez efile   You can choose to do this by filing Form 5213. 1040ez efile Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. 1040ez efile You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. 1040ez efile   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. 1040ez efile Accordingly, it will not limit your deductions. 1040ez efile Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. 1040ez efile If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. 1040ez efile If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. 1040ez efile   Filing Form 5213 automatically extends the period of limitations on any year
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The 1040ez Efile

1040ez efile 12. 1040ez efile   Other Income Table of Contents Introduction Useful Items - You may want to see: Bartering Canceled DebtsInterest included in canceled debt. 1040ez efile Exceptions Host or Hostess Life Insurance ProceedsSurviving spouse. 1040ez efile Endowment Contract Proceeds Accelerated Death Benefits Public Safety Officer Killed in the Line of Duty Partnership Income S Corporation Income RecoveriesItemized Deduction Recoveries Rents from Personal Property RepaymentsMethod 1. 1040ez efile Method 2. 1040ez efile RoyaltiesDepletion. 1040ez efile Coal and iron ore. 1040ez efile Sale of property interest. 1040ez efile Part of future production sold. 1040ez efile Unemployment BenefitsTypes of unemployment compensation. 1040ez efile Governmental program. 1040ez efile Repayment of unemployment compensation. 1040ez efile Tax withholding. 1040ez efile Repayment of benefits. 1040ez efile Welfare and Other Public Assistance Benefits Other IncomeEmotional distress. 1040ez efile Deduction for costs involved in unlawful discrimination suits. 1040ez efile Energy conservation measure. 1040ez efile Dwelling unit. 1040ez efile Current income required to be distributed. 1040ez efile Current income not required to be distributed. 1040ez efile How to report. 1040ez efile Losses. 1040ez efile Grantor trust. 1040ez efile Nonemployee compensation. 1040ez efile Corporate director. 1040ez efile Personal representatives. 1040ez efile Manager of trade or business for bankruptcy estate. 1040ez efile Notary public. 1040ez efile Election precinct official. 1040ez efile Difficulty-of-care payments. 1040ez efile Maintaining space in home. 1040ez efile Reporting taxable payments. 1040ez efile Lotteries and raffles. 1040ez efile Form W-2G. 1040ez efile Reporting winnings and recordkeeping. 1040ez efile Inherited pension or IRA. 1040ez efile Employee awards or bonuses. 1040ez efile Pulitzer, Nobel, and similar prizes. 1040ez efile Payment for services. 1040ez efile VA payments. 1040ez efile Prizes. 1040ez efile Strike and lockout benefits. 1040ez efile Introduction You must include on your return all items of income you receive in the form of money, property, and services unless the tax law states that you do not include them. 1040ez efile Some items, however, are only partly excluded from income. 1040ez efile This chapter discusses many kinds of income and explains whether they are taxable or nontaxable. 1040ez efile Income that is taxable must be reported on your tax return and is subject to tax. 1040ez efile Income that is nontaxable may have to be shown on your tax return but is not taxable. 1040ez efile This chapter begins with discussions of the following income items. 1040ez efile Bartering. 1040ez efile Canceled debts. 1040ez efile Sales parties at which you are the host or hostess. 1040ez efile Life insurance proceeds. 1040ez efile Partnership income. 1040ez efile S Corporation income. 1040ez efile Recoveries (including state income tax refunds). 1040ez efile Rents from personal property. 1040ez efile Repayments. 1040ez efile Royalties. 1040ez efile Unemployment benefits. 1040ez efile Welfare and other public assistance benefits. 1040ez efile These discussions are followed by brief discussions of other income items. 1040ez efile Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 544 Sales and Other Dispositions of Assets 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Bartering Bartering is an exchange of property or services. 1040ez efile You must include in your income, at the time received, the fair market value of property or services you receive in bartering. 1040ez efile If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. 1040ez efile Generally, you report this income on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. 1040ez efile However, if the barter involves an exchange of something other than services, such as in Example 3 below, you may have to use another form or schedule instead. 1040ez efile Example 1. 1040ez efile You are a self-employed attorney who performs legal services for a client, a small corporation. 1040ez efile The corporation gives you shares of its stock as payment for your services. 1040ez efile You must include the fair market value of the shares in your income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) in the year you receive them. 1040ez efile Example 2. 1040ez efile You are self-employed and a member of a barter club. 1040ez efile The club uses “credit units” as a means of exchange. 1040ez efile It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. 1040ez efile The club subtracts credit units from your account when you receive goods or services from other members. 1040ez efile You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year. 1040ez efile Example 3. 1040ez efile You own a small apartment building. 1040ez efile In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. 1040ez efile You must report as rental income on Schedule E (Form 1040), Supplemental Income and Loss, the fair market value of the artwork, and the artist must report as income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) the fair rental value of the apartment. 1040ez efile Form 1099-B from barter exchange. 1040ez efile   If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by February 18, 2014. 1040ez efile It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2013. 1040ez efile The IRS also will receive a copy of Form 1099-B. 1040ez efile Canceled Debts In most cases, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. 1040ez efile You have no income from the canceled debt if it is intended as a gift to you. 1040ez efile A debt includes any indebtedness for which you are liable or which attaches to property you hold. 1040ez efile If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. 1040ez efile If it is a business debt, report the amount on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) (or on Schedule F (Form 1040), Profit or Loss From Farming, if the debt is farm debt and you are a farmer). 1040ez efile Form 1099-C. 1040ez efile   If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. 1040ez efile The amount of the canceled debt is shown in box 2. 1040ez efile Interest included in canceled debt. 1040ez efile   If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. 1040ez efile Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible when you paid it. 1040ez efile See Deductible debt under Exceptions, later. 1040ez efile   If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. 1040ez efile If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3). 1040ez efile Discounted mortgage loan. 1040ez efile   If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. 1040ez efile You must include the canceled amount in your income. 1040ez efile Mortgage relief upon sale or other disposition. 1040ez efile   If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. 1040ez efile To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt , later. 1040ez efile Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21. 1040ez efile    You may be able to exclude part of the mortgage relief on your principal residence. 1040ez efile See Excluded debt, later. 1040ez efile   If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure), that relief is included in the amount you realize. 1040ez efile You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. 1040ez efile Report any gain on nonbusiness property as a capital gain. 1040ez efile   See Publication 4681 for more information. 1040ez efile Stockholder debt. 1040ez efile   If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution that is generally dividend income to you. 1040ez efile For more information, see Publication 542, Corporations. 1040ez efile   If you are a stockholder in a corporation and you cancel a debt owed to you by the corporation, you generally do not realize income. 1040ez efile This is because the canceled debt is considered as a contribution to the capital of the corporation equal to the amount of debt principal that you canceled. 1040ez efile Repayment of canceled debt. 1040ez efile   If you included a canceled amount in your income and later pay the debt, you may be able to file a claim for refund for the year the amount was included in income. 1040ez efile You can file a claim on Form 1040X if the statute of limitations for filing a claim is still open. 1040ez efile The statute of limitations generally does not end until 3 years after the due date of your original return. 1040ez efile Exceptions There are several exceptions to the inclusion of canceled debt in income. 1040ez efile These are explained next. 1040ez efile Student loans. 1040ez efile   Certain student loans contain a provision that all or part of the debt incurred to attend the qualified educational institution will be canceled if you work for a certain period of time in certain professions for any of a broad class of employers. 1040ez efile   You do not have income if your student loan is canceled after you agreed to this provision and then performed the services required. 1040ez efile To qualify, the loan must have been made by: The Federal Government, a state or local government, or an instrumentality, agency, or subdivision thereof, A tax-exempt public benefit corporation that has assumed control of a state, county, or municipal hospital, and whose employees are considered public employees under state law, or An educational institution: Under an agreement with an entity described in (1) or (2) that provided the funds to the institution to make the loan, or As part of a program of the institution designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or a tax-exempt organization described in section 501(c)(3). 1040ez efile   A loan to refinance a qualified student loan also will qualify if it was made by an educational institution or a qualified tax-exempt organization under its program designed as described in (3)(b) above. 1040ez efile Education loan repayment assistance. 1040ez efile   Education loan repayments made to you by the National Health Service Corps Loan Repayment Program (NHSC Loan Repayment Program), a state education loan repayment program eligible for funds under the Public Health Service Act, or any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas are not taxable. 1040ez efile    The provision relating to the “other state loan repayment or loan forgiveness program” was added to this exclusion for amounts received in tax years beginning after December 31, 2008. 1040ez efile If you included these amounts in income in 2010, 2011, or 2012, you should file an amended tax return to exclude this income. 1040ez efile See Form 1040X and its instructions for details on filing. 1040ez efile Deductible debt. 1040ez efile   You do not have income from the cancellation of a debt if your payment of the debt would be deductible. 1040ez efile This exception applies only if you use the cash method of accounting. 1040ez efile For more information, see chapter 5 of Publication 334, Tax Guide for Small Business. 1040ez efile Price reduced after purchase. 1040ez efile   In most cases, if the seller reduces the amount of debt you owe for property you purchased, you do not have income from the reduction. 1040ez efile The reduction of the debt is treated as a purchase price adjustment and reduces your basis in the property. 1040ez efile Excluded debt. 1040ez efile   Do not include a canceled debt in your gross income in the following situations. 1040ez efile The debt is canceled in a bankruptcy case under title 11 of the U. 1040ez efile S. 1040ez efile Code. 1040ez efile See Publication 908, Bankruptcy Tax Guide. 1040ez efile The debt is canceled when you are insolvent. 1040ez efile However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent. 1040ez efile See Publication 908. 1040ez efile The debt is qualified farm debt and is canceled by a qualified person. 1040ez efile See chapter 3 of Publication 225, Farmer's Tax Guide. 1040ez efile The debt is qualified real property business debt. 1040ez efile See chapter 5 of Publication 334. 1040ez efile The cancellation is intended as a gift. 1040ez efile The debt is qualified principal residence indebtedness. 1040ez efile See Publication 525 for additional information. 1040ez efile Host or Hostess If you host a party or event at which sales are made, any gift or gratuity you receive for giving the event is a payment for helping a direct seller make sales. 1040ez efile You must report this item as income at its fair market value. 1040ez efile Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses. 1040ez efile These expenses are deductible as miscellaneous itemized deductions subject to the 2%-of-AGI limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. 1040ez efile For more information about the 50% limit for meal and entertainment expenses, see chapter 26. 1040ez efile Life Insurance Proceeds Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. 1040ez efile This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. 1040ez efile However, interest income received as a result of life insurance proceeds may be taxable. 1040ez efile Proceeds not received in installments. 1040ez efile   If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. 1040ez efile If the benefit payable at death is not specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death. 1040ez efile Proceeds received in installments. 1040ez efile   If you receive life insurance proceeds in installments, you can exclude part of each installment from your income. 1040ez efile   To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. 1040ez efile Include anything over this excluded part in your income as interest. 1040ez efile Surviving spouse. 1040ez efile   If your spouse died before October 23, 1986, and insurance proceeds paid to you because of the death of your spouse are received in installments, you can exclude up to $1,000 a year of the interest included in the installments. 1040ez efile If you remarry, you can continue to take the exclusion. 1040ez efile Surrender of policy for cash. 1040ez efile   If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. 1040ez efile In most cases, your cost (or investment in the contract) is the total of premiums that you paid for the life insurance policy, less any refunded premiums, rebates, dividends, or unrepaid loans that were not included in your income. 1040ez efile    You should receive a Form 1099-R showing the total proceeds and the taxable part. 1040ez efile Report these amounts on lines 16a and 16b of Form 1040 or lines 12a and 12b of Form 1040A. 1040ez efile More information. 1040ez efile   For more information, see Life Insurance Proceeds in Publication 525. 1040ez efile Endowment Contract Proceeds An endowment contract is a policy under which you are paid a specified amount of money on a certain date unless you die before that date, in which case, the money is paid to your designated beneficiary. 1040ez efile Endowment proceeds paid in a lump sum to you at maturity are taxable only if the proceeds are more than the cost of the policy. 1040ez efile To determine your cost, subtract any amount that you previously received under the contract and excluded from your income from the total premiums (or other consideration) paid for the contract. 1040ez efile Include the part of the lump sum payment that is more than your cost in your income. 1040ez efile Accelerated Death Benefits Certain amounts paid as accelerated death benefits under a life insurance contract or viatical settlement before the insured's death are excluded from income if the insured is terminally or chronically ill. 1040ez efile Viatical settlement. 1040ez efile   This is the sale or assignment of any part of the death benefit under a life insurance contract to a viatical settlement provider. 1040ez efile A viatical settlement provider is a person who regularly engages in the business of buying or taking assignment of life insurance contracts on the lives of insured individuals who are terminally or chronically ill and who meets the requirements of section 101(g)(2)(B) of the Internal Revenue Code. 1040ez efile Exclusion for terminal illness. 1040ez efile    Accelerated death benefits are fully excludable if the insured is a terminally ill individual. 1040ez efile This is a person who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death within 24 months from the date of the certification. 1040ez efile Exclusion for chronic illness. 1040ez efile    If the insured is a chronically ill individual who is not terminally ill, accelerated death benefits paid on the basis of costs incurred for qualified long-term care services are fully excludable. 1040ez efile Accelerated death benefits paid on a per diem or other periodic basis are excludable up to a limit. 1040ez efile This limit applies to the total of the accelerated death benefits and any periodic payments received from long-term care insurance contracts. 1040ez efile For information on the limit and the definitions of chronically ill individual, qualified long-term care services, and long-term care insurance contracts, see Long-Term Care Insurance Contracts under Sickness and Injury Benefits in Publication 525. 1040ez efile Exception. 1040ez efile   The exclusion does not apply to any amount paid to a person (other than the insured) who has an insurable interest in the life of the insured because the insured: Is a director, officer, or employee of the person, or Has a financial interest in the person's business. 1040ez efile Form 8853. 1040ez efile   To claim an exclusion for accelerated death benefits made on a per diem or other periodic basis, you must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your return. 1040ez efile You do not have to file Form 8853 to exclude accelerated death benefits paid on the basis of actual expenses incurred. 1040ez efile Public Safety Officer Killed in the Line of Duty If you are a survivor of a public safety officer who was killed in the line of duty, you may be able to exclude from income certain amounts you receive. 1040ez efile For this purpose, the term public safety officer includes law enforcement officers, firefighters, chaplains, and rescue squad and ambulance crew members. 1040ez efile For more information, see Publication 559, Survivors, Executors, and Administrators. 1040ez efile Partnership Income A partnership generally is not a taxable entity. 1040ez efile The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner's distributive share of these items. 1040ez efile Schedule K-1 (Form 1065). 1040ez efile    Although a partnership generally pays no tax, it must file an information return on Form 1065, U. 1040ez efile S. 1040ez efile Return of Partnership Income, and send Schedule K-1 (Form 1065) to each partner. 1040ez efile In addition, the partnership will send each partner a copy of the Partner's Instructions for Schedule K-1 (Form 1065) to help each partner report his or her share of the partnership's income, deductions, credits, and tax preference items. 1040ez efile Keep Schedule K-1 (Form 1065) for your records. 1040ez efile Do not attach it to your Form 1040, unless you are specifically required to do so. 1040ez efile For more information on partnerships, see Publication 541, Partnerships. 1040ez efile Qualified joint venture. 1040ez efile   If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. 1040ez efile To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. 1040ez efile For further information on how to make the election and which schedule(s) to file, see the instructions for your individual tax return. 1040ez efile S Corporation Income In most cases, an S corporation does not pay tax on its income. 1040ez efile Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder's pro rata share. 1040ez efile Schedule K-1 (Form 1120S). 1040ez efile   An S corporation must file a return on Form 1120S, U. 1040ez efile S. 1040ez efile Income Tax Return for an S Corporation, and send Schedule K-1 (Form 1120S) to each shareholder. 1040ez efile In addition, the S corporation will send each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S) to help each shareholder report his or her share of the S corporation's income, losses, credits, and deductions. 1040ez efile Keep Schedule K-1 (Form 1120S) for your records. 1040ez efile Do not attach it to your Form 1040, unless you are specifically required to do so. 1040ez efile For more information on S corporations and their shareholders, see the Instructions for Form 1120S. 1040ez efile Recoveries A recovery is a return of an amount you deducted or took a credit for in an earlier year. 1040ez efile The most common recoveries are refunds, reimbursements, and rebates of deductions itemized on Schedule A (Form 1040). 1040ez efile You also may have recoveries of non-itemized deductions (such as payments on previously deducted bad debts) and recoveries of items for which you previously claimed a tax credit. 1040ez efile Tax benefit rule. 1040ez efile   You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. 1040ez efile For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year. 1040ez efile For more information, see Publication 525. 1040ez efile Federal income tax refund. 1040ez efile   Refunds of federal income taxes are not included in your income because they are never allowed as a deduction from income. 1040ez efile State tax refund. 1040ez efile   If you received a state or local income tax refund (or credit or offset) in 2013, you generally must include it in income if you deducted the tax in an earlier year. 1040ez efile The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2014. 1040ez efile The IRS also will receive a copy of the Form 1099-G. 1040ez efile If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2013 Form 1040 instructions for line 10 to figure the amount (if any) to include in your income. 1040ez efile See Publication 525 for when you must use another worksheet. 1040ez efile   If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year. 1040ez efile For examples, see Publication 525. 1040ez efile Mortgage interest refund. 1040ez efile    If you received a refund or credit in 2013 of mortgage interest paid in an earlier year, the amount should be shown in box 3 of your Form 1098, Mortgage Interest Statement. 1040ez efile Do not subtract the refund amount from the interest you paid in 2013. 1040ez efile You may have to include it in your income under the rules explained in the following discussions. 1040ez efile Interest on recovery. 1040ez efile   Interest on any of the amounts you recover must be reported as interest income in the year received. 1040ez efile For example, report any interest you received on state or local income tax refunds on Form 1040, line 8a. 1040ez efile Recovery and expense in same year. 1040ez efile   If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income. 1040ez efile Recovery for 2 or more years. 1040ez efile   If you receive a refund or other recovery that is for amounts you paid in 2 or more separate years, you must allocate, on a pro rata basis, the recovered amount between the years in which you paid it. 1040ez efile This allocation is necessary to determine the amount of recovery from any earlier years and to determine the amount, if any, of your allowable deduction for this item for the current year. 1040ez efile For information on how to compute the allocation, see Recoveries in Publication 525. 1040ez efile Itemized Deduction Recoveries If you recover any amount that you deducted in an earlier year on Schedule A (Form 1040), you generally must include the full amount of the recovery in your income in the year you receive it. 1040ez efile Where to report. 1040ez efile   Enter your state or local income tax refund on Form 1040, line 10, and the total of all other recoveries as other income on Form 1040, line 21. 1040ez efile You cannot use Form 1040A or Form 1040EZ. 1040ez efile Standard deduction limit. 1040ez efile   You generally are allowed to claim the standard deduction if you do not itemize your deductions. 1040ez efile Only your itemized deductions that are more than your standard deduction are subject to the recovery rule (unless you are required to itemize your deductions). 1040ez efile If your total deductions on the earlier year return were not more than your income for that year, include in your income this year the lesser of: Your recoveries, or The amount by which your itemized deductions exceeded the standard deduction. 1040ez efile Example. 1040ez efile For 2012, you filed a joint return. 1040ez efile Your taxable income was $60,000 and you were not entitled to any tax credits. 1040ez efile Your standard deduction was $11,900, and you had itemized deductions of $14,000. 1040ez efile In 2013, you received the following recoveries for amounts deducted on your 2012 return: Medical expenses $200 State and local income tax refund 400 Refund of mortgage interest 325 Total recoveries $925 None of the recoveries were more than the deductions taken for 2012. 1040ez efile The difference between the state and local income tax you deducted and your local general sales tax was more than $400. 1040ez efile Your total recoveries are less than the amount by which your itemized deductions exceeded the standard deduction ($14,000 − 11,900 = $2,100), so you must include your total recoveries in your income for 2013. 1040ez efile Report the state and local income tax refund of $400 on Form 1040, line 10, and the balance of your recoveries, $525, on Form 1040, line 21. 1040ez efile Standard deduction for earlier years. 1040ez efile   To determine if amounts recovered in 2013 must be included in your income, you must know the standard deduction for your filing status for the year the deduction was claimed. 1040ez efile Look in the instructions for your tax return from prior years to locate the standard deduction for the filing status for that prior year. 1040ez efile Example. 1040ez efile You filed a joint return on Form 1040 for 2012 with taxable income of $45,000. 1040ez efile Your itemized deductions were $12,350. 1040ez efile The standard deduction that you could have claimed was $11,900. 1040ez efile In 2013, you recovered $2,100 of your 2012 itemized deductions. 1040ez efile None of the recoveries were more than the actual deductions for 2012. 1040ez efile Include $450 of the recoveries in your 2013 income. 1040ez efile This is the smaller of your recoveries ($2,100) or the amount by which your itemized deductions were more than the standard deduction ($12,350 − $11,900 = $450). 1040ez efile Recovery limited to deduction. 1040ez efile   You do not include in your income any amount of your recovery that is more than the amount you deducted in the earlier year. 1040ez efile The amount you include in your income is limited to the smaller of: The amount deducted on Schedule A (Form 1040), or The amount recovered. 1040ez efile Example. 1040ez efile During 2012 you paid $1,700 for medical expenses. 1040ez efile From this amount you subtracted $1,500, which was 7. 1040ez efile 5% of your adjusted gross income. 1040ez efile Your actual medical expense deduction was $200. 1040ez efile In 2013, you received a $500 reimbursement from your medical insurance for your 2012 expenses. 1040ez efile The only amount of the $500 reimbursement that must be included in your income for 2013 is $200—the amount actually deducted. 1040ez efile Other recoveries. 1040ez efile   See Recoveries in Publication 525 if: You have recoveries of items other than itemized deductions, or You received a recovery for an item for which you claimed a tax credit (other than investment credit or foreign tax credit) in a prior year. 1040ez efile Rents from Personal Property If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by: Whether or not the rental activity is a business, and Whether or not the rental activity is conducted for profit. 1040ez efile In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. 1040ez efile See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities. 1040ez efile Reporting business income and expenses. 1040ez efile    If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile The form instructions have information on how to complete them. 1040ez efile Reporting nonbusiness income. 1040ez efile   If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. 1040ez efile List the type and amount of the income on the dotted line next to line 21. 1040ez efile Reporting nonbusiness expenses. 1040ez efile   If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. 1040ez efile Also enter the amount and “PPR” on the dotted line next to line 36. 1040ez efile   If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. 1040ez efile See Activity not for profit , under Other Income, later. 1040ez efile Repayments If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. 1040ez efile Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. 1040ez efile Generally, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. 1040ez efile Type of deduction. 1040ez efile   The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. 1040ez efile You generally deduct the repayment on the same form or schedule on which you previously reported it as income. 1040ez efile For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). 1040ez efile If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). 1040ez efile If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040). 1040ez efile Repaid social security benefits. 1040ez efile   If you repaid social security benefits or equivalent railroad retirement benefits, see Repayment of benefits in chapter 11. 1040ez efile Repayment of $3,000 or less. 1040ez efile   If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. 1040ez efile If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. 1040ez efile Repayment over $3,000. 1040ez efile   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained under Type of deduction , earlier). 1040ez efile However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. 1040ez efile This means that at the time you included the income, it appeared that you had an unrestricted right to it. 1040ez efile If you qualify for this choice, figure your tax under both methods and compare the results. 1040ez efile Use the method (deduction or credit) that results in less tax. 1040ez efile When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. 1040ez efile Each instance of repayment is not considered separately. 1040ez efile Method 1. 1040ez efile   Figure your tax for 2013 claiming a deduction for the repaid amount. 1040ez efile If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 28. 1040ez efile Method 2. 1040ez efile   Figure your tax for 2013 claiming a credit for the repaid amount. 1040ez efile Follow these steps. 1040ez efile Figure your tax for 2013 without deducting the repaid amount. 1040ez efile Refigure your tax from the earlier year without including in income the amount you repaid in 2013. 1040ez efile Subtract the tax in (2) from the tax shown on your return for the earlier year. 1040ez efile This is the credit. 1040ez efile Subtract the answer in (3) from the tax for 2013 figured without the deduction (Step 1). 1040ez efile   If method 1 results in less tax, deduct the amount repaid. 1040ez efile If method 2 results in less tax, claim the credit figured in (3) above on Form 1040, line 71, by adding the amount of the credit to any other credits on this line, and entering “I. 1040ez efile R. 1040ez efile C. 1040ez efile 1341” in the column to the right of line 71. 1040ez efile   An example of this computation can be found in Publication 525. 1040ez efile Repaid wages subject to social security and Medicare taxes. 1040ez efile   If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. 1040ez efile If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. 1040ez efile File a claim for refund using Form 843, Claim for Refund and Request for Abatement. 1040ez efile Repaid wages subject to Additional Medicare Tax. 1040ez efile   Employers cannot make an adjustment or file a claim for refund for Additional Medicare Tax withholding when there is a repayment of wages received by an employee in a prior year because the employee determines liability for Additional Medicare Tax on the employee's income tax return for the prior year. 1040ez efile If you had to repay an amount that you included in your wages or compensation in an earlier year, and on which Additional Medicare Tax was paid, you may be able to recover the Additional Medicare Tax paid on the amount. 1040ez efile To recover Additional Medicare Tax on the repaid wages or compensation, you must file Form 1040X, Amended U. 1040ez efile S. 1040ez efile Individual Income Tax Return, for the prior year in which the wages or compensation were originally received. 1040ez efile See the Instructions for Form 1040X. 1040ez efile Royalties Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. 1040ez efile In most cases you report royalties in Part I of Schedule E (Form 1040). 1040ez efile However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc. 1040ez efile , report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile Copyrights and patents. 1040ez efile   Royalties from copyrights on literary, musical, or artistic works, and similar property, or from patents on inventions, are amounts paid to you for the right to use your work over a specified period of time. 1040ez efile Royalties generally are based on the number of units sold, such as the number of books, tickets to a performance, or machines sold. 1040ez efile Oil, gas, and minerals. 1040ez efile   Royalty income from oil, gas, and mineral properties is the amount you receive when natural resources are extracted from your property. 1040ez efile The royalties are based on units, such as barrels, tons, etc. 1040ez efile , and are paid to you by a person or company who leases the property from you. 1040ez efile Depletion. 1040ez efile   If you are the owner of an economic interest in mineral deposits or oil and gas wells, you can recover your investment through the depletion allowance. 1040ez efile For information on this subject, see chapter 9 of Publication 535. 1040ez efile Coal and iron ore. 1040ez efile   Under certain circumstances, you can treat amounts you receive from the disposal of coal and iron ore as payments from the sale of a capital asset, rather than as royalty income. 1040ez efile For information about gain or loss from the sale of coal and iron ore, see Publication 544. 1040ez efile Sale of property interest. 1040ez efile   If you sell your complete interest in oil, gas, or mineral rights, the amount you receive is considered payment for the sale of property used in a trade or business under section 1231, not royalty income. 1040ez efile Under certain circumstances, the sale is subject to capital gain or loss treatment as explained in the Instructions for Schedule D (Form 1040). 1040ez efile For more information on selling section 1231 property, see chapter 3 of Publication 544. 1040ez efile   If you retain a royalty, an overriding royalty, or a net profit interest in a mineral property for the life of the property, you have made a lease or a sublease, and any cash you receive for the assignment of other interests in the property is ordinary income subject to a depletion allowance. 1040ez efile Part of future production sold. 1040ez efile   If you own mineral property but sell part of the future production, in most cases you treat the money you receive from the buyer at the time of the sale as a loan from the buyer. 1040ez efile Do not include it in your income or take depletion based on it. 1040ez efile   When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property. 1040ez efile Unemployment Benefits The tax treatment of unemployment benefits you receive depends on the type of program paying the benefits. 1040ez efile Unemployment compensation. 1040ez efile   You must include in income all unemployment compensation you receive. 1040ez efile You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you. 1040ez efile In most cases, you enter unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040ez efile Types of unemployment compensation. 1040ez efile   Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. 1040ez efile It includes the following benefits. 1040ez efile Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund. 1040ez efile State unemployment insurance benefits. 1040ez efile Railroad unemployment compensation benefits. 1040ez efile Disability payments from a government program paid as a substitute for unemployment compensation. 1040ez efile (Amounts received as workers' compensation for injuries or illness are not unemployment compensation. 1040ez efile See chapter 5 for more information. 1040ez efile ) Trade readjustment allowances under the Trade Act of 1974. 1040ez efile Unemployment assistance under the Disaster Relief and Emergency Assistance Act. 1040ez efile Unemployment assistance under the Airline Deregulation Act of 1974 Program. 1040ez efile Governmental program. 1040ez efile   If you contribute to a governmental unemployment compensation program and your contributions are not deductible, amounts you receive under the program are not included as unemployment compensation until you recover your contributions. 1040ez efile If you deducted all of your contributions to the program, the entire amount you receive under the program is included in your income. 1040ez efile Repayment of unemployment compensation. 1040ez efile   If you repaid in 2013 unemployment compensation you received in 2013, subtract the amount you repaid from the total amount you received and enter the difference on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040ez efile On the dotted line next to your entry enter “Repaid” and the amount you repaid. 1040ez efile If you repaid unemployment compensation in 2013 that you included in income in an earlier year, you can deduct the amount repaid on Schedule A (Form 1040), line 23, if you itemize deductions. 1040ez efile If the amount is more than $3,000, see Repayments , earlier. 1040ez efile Tax withholding. 1040ez efile   You can choose to have federal income tax withheld from your unemployment compensation. 1040ez efile To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. 1040ez efile Tax will be withheld at 10% of your payment. 1040ez efile    If you do not choose to have tax withheld from your unemployment compensation, you may be liable for estimated tax. 1040ez efile If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. 1040ez efile For more information on estimated tax, see chapter 4. 1040ez efile Supplemental unemployment benefits. 1040ez efile   Benefits received from an employer-financed fund (to which the employees did not contribute) are not unemployment compensation. 1040ez efile They are taxable as wages and are subject to withholding for income tax. 1040ez efile They may be subject to social security and Medicare taxes. 1040ez efile For more information, see Supplemental Unemployment Benefits in section 5 of Publication 15-A, Employer's Supplemental Tax Guide. 1040ez efile Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040ez efile Repayment of benefits. 1040ez efile   You may have to repay some of your supplemental unemployment benefits to qualify for trade readjustment allowances under the Trade Act of 1974. 1040ez efile If you repay supplemental unemployment benefits in the same year you receive them, reduce the total benefits by the amount you repay. 1040ez efile If you repay the benefits in a later year, you must include the full amount of the benefits received in your income for the year you received them. 1040ez efile   Deduct the repayment in the later year as an adjustment to gross income on Form 1040. 1040ez efile (You cannot use Form 1040A or Form 1040EZ. 1040ez efile ) Include the repayment on Form 1040, line 36, and enter “Sub-Pay TRA” and the amount on the dotted line next to line 36. 1040ez efile If the amount you repay in a later year is more than $3,000, you may be able to take a credit against your tax for the later year instead of deducting the amount repaid. 1040ez efile For more information on this, see Repayments , earlier. 1040ez efile Private unemployment fund. 1040ez efile   Unemployment benefit payments from a private (nonunion) fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. 1040ez efile Report the taxable amount on Form 1040, line 21. 1040ez efile Payments by a union. 1040ez efile   Benefits paid to you as an unemployed member of a union from regular union dues are included in your income on Form 1040, line 21. 1040ez efile However, if you contribute to a special union fund and your payments to the fund are not deductible, the unemployment benefits you receive from the fund are includible in your income only to the extent they are more than your contributions. 1040ez efile Guaranteed annual wage. 1040ez efile   Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. 1040ez efile Include them on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040ez efile State employees. 1040ez efile   Payments similar to a state's unemployment compensation may be made by the state to its employees who are not covered by the state's unemployment compensation law. 1040ez efile Although the payments are fully taxable, do not report them as unemployment compensation. 1040ez efile Report these payments on Form 1040, line 21. 1040ez efile Welfare and Other Public Assistance Benefits Do not include in your income governmental benefit payments from a public welfare fund based upon need, such as payments to blind individuals under a state public assistance law. 1040ez efile Payments from a state fund for the victims of crime should not be included in the victims' incomes if they are in the nature of welfare payments. 1040ez efile Do not deduct medical expenses that are reimbursed by such a fund. 1040ez efile You must include in your income any welfare payments that are compensation for services or that are obtained fraudulently. 1040ez efile Reemployment Trade Adjustment Assistance (RTAA) payments. 1040ez efile   RTAA payments received from a state must be included in your income. 1040ez efile The state must send you Form 1099-G to advise you of the amount you should include in income. 1040ez efile The amount should be reported on Form 1040, line 21. 1040ez efile Persons with disabilities. 1040ez efile   If you have a disability, you must include in income compensation you receive for services you perform unless the compensation is otherwise excluded. 1040ez efile However, you do not include in income the value of goods, services, and cash that you receive, not in return for your services, but for your training and rehabilitation because you have a disability. 1040ez efile Excludable amounts include payments for transportation and attendant care, such as interpreter services for the deaf, reader services for the blind, and services to help individuals with an intellectual disability do their work. 1040ez efile Disaster relief grants. 1040ez efile    Do not include post-disaster grants received under the Robert T. 1040ez efile Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, child care, or funeral expenses. 1040ez efile Do not deduct casualty losses or medical expenses that are specifically reimbursed by these disaster relief grants. 1040ez efile If you have deducted a casualty loss for the loss of your personal residence and you later receive a disaster relief grant for the loss of the same residence, you may have to include part or all of the grant in your taxable income. 1040ez efile See Recoveries , earlier. 1040ez efile Unemployment assistance payments under the Act are taxable unemployment compensation. 1040ez efile See Unemployment compensation under Unemployment Benefits, earlier. 1040ez efile Disaster relief payments. 1040ez efile   You can exclude from income any amount you receive that is a qualified disaster relief payment. 1040ez efile A qualified disaster relief payment is an amount paid to you: To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses that result from a qualified disaster; To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of your home or repair or replacement of its contents to the extent it is due to a qualified disaster; By a person engaged in the furnishing or sale of transportation as a common carrier because of the death or personal physical injuries incurred as a result of a qualified disaster; or By a federal, state, or local government, or agency, or instrumentality in connection with a qualified disaster in order to promote the general welfare. 1040ez efile You can exclude this amount only to the extent any expense it pays for is not paid for by insurance or otherwise. 1040ez efile The exclusion does not apply if you were a participant or conspirator in a terrorist action or a representative of one. 1040ez efile   A qualified disaster is: A disaster which results from a terrorist or military action; A federally declared disaster; or A disaster which results from an accident involving a common carrier, or from any other event, which is determined to be catastrophic by the Secretary of the Treasury or his or her delegate. 1040ez efile   For amounts paid under item (4), a disaster is qualified if it is determined by an applicable federal, state, or local authority to warrant assistance from the federal, state, or local government, agency, or instrumentality. 1040ez efile Disaster mitigation payments. 1040ez efile   You also can exclude from income any amount you receive that is a qualified disaster mitigation payment. 1040ez efile Qualified disaster mitigation payments are also most commonly paid to you in the period immediately following damage to property as a result of a natural disaster. 1040ez efile However, disaster mitigation payments are used to mitigate (reduce the severity of) potential damage from future natural disasters. 1040ez efile They are paid to you through state and local governments based on the provisions of the Robert T. 1040ez efile Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act. 1040ez efile   You cannot increase the basis or adjusted basis of your property for improvements made with nontaxable disaster mitigation payments. 1040ez efile Home Affordable Modification Program (HAMP). 1040ez efile   If you benefit from Pay-for-Performance Success Payments under HAMP, the payments are not taxable. 1040ez efile Mortgage assistance payments under section 235 of the National Housing Act. 1040ez efile   Payments made under section 235 of the National Housing Act for mortgage assistance are not included in the homeowner's income. 1040ez efile Interest paid for the homeowner under the mortgage assistance program cannot be deducted. 1040ez efile Medicare. 1040ez efile   Medicare benefits received under title XVIII of the Social Security Act are not includible in the gross income of the individuals for whom they are paid. 1040ez efile This includes basic (part A (Hospital Insurance Benefits for the Aged)) and supplementary (part B (Supplementary Medical Insurance Benefits for the Aged)). 1040ez efile Old-age, survivors, and disability insurance benefits (OASDI). 1040ez efile   Generally, OASDI payments under section 202 of title II of the Social Security Act are not includible in the gross income of the individuals to whom they are paid. 1040ez efile This applies to old-age insurance benefits, and insurance benefits for wives, husbands, children, widows, widowers, mothers and fathers, and parents, as well as the lump-sum death payment. 1040ez efile Nutrition Program for the Elderly. 1040ez efile    Food benefits you receive under the Nutrition Program for the Elderly are not taxable. 1040ez efile If you prepare and serve free meals for the program, include in your income as wages the cash pay you receive, even if you are also eligible for food benefits. 1040ez efile Payments to reduce cost of winter energy. 1040ez efile   Payments made by a state to qualified people to reduce their cost of winter energy use are not taxable. 1040ez efile Other Income The following brief discussions are arranged in alphabetical order. 1040ez efile Other income items briefly discussed below are referenced to publications which provide more topical information. 1040ez efile Activity not for profit. 1040ez efile   You must include on your return income from an activity from which you do not expect to make a profit. 1040ez efile An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. 1040ez efile Enter this income on Form 1040, line 21. 1040ez efile Deductions for expenses related to the activity are limited. 1040ez efile They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). 1040ez efile See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit. 1040ez efile Alaska Permanent Fund dividend. 1040ez efile   If you received a payment from Alaska's mineral income fund (Alaska Permanent Fund dividend), report it as income on line 21 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ. 1040ez efile The state of Alaska sends each recipient a document that shows the amount of the payment with the check. 1040ez efile The amount also is reported to IRS. 1040ez efile Alimony. 1040ez efile   Include in your income on Form 1040, line 11, any alimony payments you receive. 1040ez efile Amounts you receive for child support are not income to you. 1040ez efile Alimony and child support payments are discussed in chapter 18. 1040ez efile Bribes. 1040ez efile   If you receive a bribe, include it in your income. 1040ez efile Campaign contributions. 1040ez efile   These contributions are not income to a candidate unless they are diverted to his or her personal use. 1040ez efile To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns. 1040ez efile However, interest earned on bank deposits, dividends received on contributed securities, and net gains realized on sales of contributed securities are taxable and must be reported on Form 1120-POL, U. 1040ez efile S. 1040ez efile Income Tax Return for Certain Political Organizations. 1040ez efile Excess campaign funds transferred to an office account must be included in the officeholder's income on Form 1040, line 21, in the year transferred. 1040ez efile Car pools. 1040ez efile   Do not include in your income amounts you receive from the passengers for driving a car in a car pool to and from work. 1040ez efile These amounts are considered reimbursement for your expenses. 1040ez efile However, this rule does not apply if you have developed car pool arrangements into a profit-making business of transporting workers for hire. 1040ez efile Cash rebates. 1040ez efile   A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate. 1040ez efile Example. 1040ez efile You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. 1040ez efile The $2,000 is not income to you. 1040ez efile Your basis in the car is $22,000. 1040ez efile This is the basis on which you figure gain or loss if you sell the car and depreciation if you use it for business. 1040ez efile Casualty insurance and other reimbursements. 1040ez efile   You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft. 1040ez efile See chapter 25 for more information. 1040ez efile Child support payments. 1040ez efile   You should not report these payments on your return. 1040ez efile See chapter 18 for more information. 1040ez efile Court awards and damages. 1040ez efile   To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. 1040ez efile The character of the income as ordinary income or capital gain depends on the nature of the underlying claim. 1040ez efile Include the following as ordinary income. 1040ez efile Interest on any award. 1040ez efile Compensation for lost wages or lost profits in most cases. 1040ez efile Punitive damages, in most cases. 1040ez efile It does not matter if they relate to a physical injury or physical sickness. 1040ez efile Amounts received in settlement of pension rights (if you did not contribute to the plan). 1040ez efile Damages for: Patent or copyright infringement, Breach of contract, or Interference with business operations. 1040ez efile Back pay and damages for emotional distress received to satisfy a claim under title VII of the Civil Rights Act of 1964. 1040ez efile Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income. 1040ez efile   Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments). 1040ez efile Emotional distress. 1040ez efile   Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. 1040ez efile Do not include them in your income. 1040ez efile   If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. 1040ez efile Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders. 1040ez efile Deduction for costs involved in unlawful discrimination suits. 1040ez efile   You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. 1040ez efile For more information, see Publication 525. 1040ez efile Credit card insurance. 1040ez efile   In most cases, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. 1040ez efile These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability, or unemployment. 1040ez efile Report on Form 1040, line 21, the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year. 1040ez efile Down payment assistance. 1040ez efile   If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. 1040ez efile If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. 1040ez efile If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis. 1040ez efile Employment agency fees. 1040ez efile   If you get a job through an employment agency, and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. 1040ez efile However, if you pay it and your employer reimburses you for it, it is includible in your income. 1040ez efile Energy conservation subsidies. 1040ez efile   You can exclude from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit. 1040ez efile Energy conservation measure. 1040ez efile   This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. 1040ez efile Dwelling unit. 1040ez efile   This includes a house, apartment, condominium, mobile home, boat, or similar property. 1040ez efile If a building or structure contains both dwelling and other units, any subsidy must be properly allocated. 1040ez efile Estate and trust income. 1040ez efile    An estate or trust, unlike a partnership, may have to pay federal income tax. 1040ez efile If you are a beneficiary of an estate or trust, you may be taxed on your share of its income distributed or required to be distributed to you. 1040ez efile However, there is never a double tax. 1040ez efile Estates and trusts file their returns on Form 1041, U. 1040ez efile S. 1040ez efile Income Tax Return for Estates and Trusts, and your share of the income is reported to you on Schedule K-1 (Form 1041). 1040ez efile Current income required to be distributed. 1040ez efile   If you are the beneficiary of an estate or trust that must distribute all of its current income, you must report your share of the distributable net income, whether or not you actually received it. 1040ez efile Current income not required to be distributed. 1040ez efile    If you are the beneficiary of an estate or trust and the fiduciary has the choice of whether to distribute all or part of the current income, you must report: All income that is required to be distributed to you, whether or not it is actually distributed, plus All other amounts actually paid or credited to you, up to the amount of your share of distributable net income. 1040ez efile How to report. 1040ez efile   Treat each item of income the same way that the estate or trust would treat it. 1040ez efile For example, if a trust's dividend income is distributed to you, you report the distribution as dividend income on your return. 1040ez efile The same rule applies to distributions of tax-exempt interest and capital gains. 1040ez efile   The fiduciary of the estate or trust must tell you the type of items making up your share of the estate or trust income and any credits you are allowed on your individual income tax return. 1040ez efile Losses. 1040ez efile   Losses of estates and trusts generally are not deductible by the beneficiaries. 1040ez efile Grantor trust. 1040ez efile   Income earned by a grantor trust is taxable to the grantor, not the beneficiary, if the grantor keeps certain control over the trust. 1040ez efile (The grantor is the one who transferred property to the trust. 1040ez efile ) This rule applies if the property (or income from the property) put into the trust will or may revert (be returned) to the grantor or the grantor's spouse. 1040ez efile   Generally, a trust is a grantor trust if the grantor has a reversionary interest valued (at the date of transfer) at more than 5% of the value of the transferred property. 1040ez efile Expenses paid by another. 1040ez efile   If your personal expenses are paid for by another person, such as a corporation, the payment may be taxable to you depending upon your relationship with that person and the nature of the payment. 1040ez efile But if the payment makes up for a loss caused by that person, and only restores you to the position you were in before the loss, the payment is not includible in your income. 1040ez efile Fees for services. 1040ez efile   Include all fees for your services in your income. 1040ez efile Examples of these fees are amounts you receive for services you perform as: A corporate director, An executor, administrator, or personal representative of an estate, A manager of a trade or business you operated before declaring Chapter 11 bankruptcy, A notary public, or An election precinct official. 1040ez efile Nonemployee compensation. 1040ez efile   If you are not an employee and the fees for your services from the same payer total $600 or more for the year, you may receive a Form 1099-MISC. 1040ez efile You may need to report your fees as self-employment income. 1040ez efile See Self-Employed Persons , in chapter 1, for a discussion of when you are considered self-employed. 1040ez efile Corporate director. 1040ez efile   Corporate director fees are self-employment income. 1040ez efile Report these payments on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile Personal representatives. 1040ez efile   All personal representatives must include in their gross income fees paid to them from an estate. 1040ez efile If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on Form 1040, line 21. 1040ez efile If you are in the trade or business of being an executor, report these fees as self-employment income on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile The fee is not includible in income if it is waived. 1040ez efile Manager of trade or business for bankruptcy estate. 1040ez efile   Include in your income all payments received from your bankruptcy estate for managing or operating a trade or business that you operated before you filed for bankruptcy. 1040ez efile Report this income on Form 1040, line 21. 1040ez efile Notary public. 1040ez efile    Report payments for these services on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile These payments are not subject to self-employment tax. 1040ez efile See the separate instructions for Schedule SE (Form 1040) for details. 1040ez efile Election precinct official. 1040ez efile    You should receive a Form W-2 showing payments for services performed as an election official or election worker. 1040ez efile Report these payments on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040EZ. 1040ez efile Foster care providers. 1040ez efile   Payments you receive from a state, political subdivision, or a qualified foster care placement agency for providing care to qualified foster individuals in your home generally are not included in your income. 1040ez efile However, you must include in your income payments received for the care of more than 5 individuals age 19 or older and certain difficulty-of-care payments. 1040ez efile   A qualified foster individual is a person who: Is living in a foster family home, and Was placed there by: An agency of a state or one of its political subdivisions, or A qualified foster care placement agency. 1040ez efile Difficulty-of-care payments. 1040ez efile   These are additional payments that are designated by the payer as compensation for providing the additional care that is required for physically, mentally, or emotionally handicapped qualified foster individuals. 1040ez efile A state must determine that the additional compensation is needed, and the care for which the payments are made must be provided in your home. 1040ez efile   You must include in your income difficulty-of-care payments received for more than: 10 qualified foster individuals under age 19, or 5 qualified foster individuals age 19 or older. 1040ez efile Maintaining space in home. 1040ez efile   If you are paid to maintain space in your home for emergency foster care, you must include the payment in your income. 1040ez efile Reporting taxable payments. 1040ez efile    If you receive payments that you must include in your income, you are in business as a foster care provider and you are self-employed. 1040ez efile Report the payments on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile See Publication 587, Business Use of Your Home, to help you determine the amount you can deduct for the use of your home. 1040ez efile Found property. 1040ez efile   If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession. 1040ez efile Free tour. 1040ez efile   If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. 1040ez efile Report the fair market value of the tour on Form 1040, line 21, if you are not in the trade or business of organizing tours. 1040ez efile You cannot deduct your expenses in serving as the voluntary leader of the group at the group's request. 1040ez efile If you organize tours as a trade or business, report the tour's value on Schedule C or Schedule C-EZ (Form 1040). 1040ez efile Gambling winnings. 1040ez efile   You must include your gambling winnings in income on Form 1040, line 21. 1040ez efile If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. 1040ez efile Lotteries and raffles. 1040ez efile   Winnings from lotteries and raffles are gambling winnings. 1040ez efile In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes. 1040ez efile    If you win a state lottery prize payable in installments, see Publication 525 for more information. 1040ez efile Form W-2G. 1040ez efile   You may have received a Form W-2G, Certain Gambling Winnings, showing the amount of your gambling winnings and any tax taken out of them. 1040ez efile Include the amount from box 1 on Form 1040, line 21. 1040ez efile Include the amount shown in box 4 on Form 1040, line 62, as federal income tax withheld. 1040ez efile Reporting winnings and recordkeeping. 1040ez efile   For more information on reporting gam