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Amend 2010 Tax

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Amend 2010 Tax

Amend 2010 tax 28. Amend 2010 tax   Miscellaneous Deductions Table of Contents What's New Introduction Useful Items - You may want to see: Deductions Subject to the 2% LimitUnreimbursed Employee Expenses (Line 21) Tax Preparation Fees (Line 22) Other Expenses (Line 23) Deductions Not Subject to the 2% LimitList of Deductions Nondeductible ExpensesList of Nondeductible Expenses What's New Standard mileage rate. Amend 2010 tax  The 2013 rate for business use of a vehicle is 56½ cents per mile. Amend 2010 tax Introduction This chapter explains which expenses you can claim as miscellaneous itemized deductions on Schedule A (Form 1040). Amend 2010 tax You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. Amend 2010 tax This chapter covers the following topics. Amend 2010 tax Deductions subject to the 2% limit. Amend 2010 tax Deductions not subject to the 2% limit. Amend 2010 tax Expenses you cannot deduct. Amend 2010 tax You must keep records to verify your deductions. Amend 2010 tax You should keep receipts, canceled checks, substitute checks, financial account statements, and other documentary evidence. Amend 2010 tax For more information on recordkeeping, get Publication 552, Record- keeping for Individuals. Amend 2010 tax Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) 946 How To Depreciate Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses Deductions Subject to the 2% Limit You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040). Amend 2010 tax You can claim the amount of expenses that is more than 2% of your adjusted gross income. Amend 2010 tax You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Amend 2010 tax Your adjusted gross income is the amount on Form 1040, line 38. Amend 2010 tax Generally, you apply the 2% limit after you apply any other deduction limit. Amend 2010 tax For example, you apply the 50% (or 80%) limit on business-related meals and entertainment (discussed in chapter 26) before you apply the 2% limit. Amend 2010 tax Deductions subject to the 2% limit are discussed in the three categories in which you report them on Schedule A (Form 1040). Amend 2010 tax Unreimbursed employee expenses (line 21). Amend 2010 tax Tax preparation fees (line 22). Amend 2010 tax Other expenses (line 23). Amend 2010 tax Unreimbursed Employee Expenses (Line 21) Generally, you can deduct on Schedule A (Form 1040), line 21, unreimbursed employee expenses that are: Paid or incurred during your tax year, For carrying on your trade or business of being an employee, and Ordinary and necessary. Amend 2010 tax An expense is ordinary if it is common and accepted in your trade, business, or profession. Amend 2010 tax An expense is necessary if it is appropriate and helpful to your business. Amend 2010 tax An expense does not have to be required to be considered necessary. Amend 2010 tax Examples of unreimbursed employee expenses are listed next. Amend 2010 tax The list is followed by discussions of additional unreimbursed employee expenses. Amend 2010 tax Business bad debt of an employee. Amend 2010 tax Education that is work related. Amend 2010 tax (See chapter 27. Amend 2010 tax ) Legal fees related to your job. Amend 2010 tax Licenses and regulatory fees. Amend 2010 tax Malpractice insurance premiums. Amend 2010 tax Medical examinations required by an employer. Amend 2010 tax Occupational taxes. Amend 2010 tax Passport for a business trip. Amend 2010 tax Subscriptions to professional journals and trade magazines related to your work. Amend 2010 tax Travel, transportation, entertainment, and gifts related to your work. Amend 2010 tax (See chapter 26. Amend 2010 tax ) Business Liability Insurance You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job. Amend 2010 tax Damages for Breach of Employment Contract If you break an employment contract, you can deduct damages you pay your former employer that are attributable to the pay you received from that employer. Amend 2010 tax Depreciation on Computers You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is: For the convenience of your employer, and Required as a condition of your employment. Amend 2010 tax For more information about the rules and exceptions to the rules affecting the allowable deductions for a home computer, see Publication 529. Amend 2010 tax Dues to Chambers of Commerce and Professional Societies You may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job. Amend 2010 tax Similar organizations include: Boards of trade, Business leagues, Civic or public service organizations, Real estate boards, and Trade associations. Amend 2010 tax Lobbying and political activities. Amend 2010 tax   You may not be able to deduct that part of your dues that is for certain lobbying and political activities. Amend 2010 tax See Dues used for lobbying under Nondeductible Expenses, later. Amend 2010 tax Educator Expenses If you were an eligible educator in 2013, you can deduct up to $250 of qualified expenses you paid in 2013 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. Amend 2010 tax If you file Form 1040A, you can deduct these expenses on line 16. Amend 2010 tax If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. Amend 2010 tax However, neither spouse can deduct more than $250 of his or her qualified expenses. Amend 2010 tax Home Office If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. Amend 2010 tax You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business, As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or In the case of a separate structure not attached to your home, in connection with your trade or business. Amend 2010 tax The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job. Amend 2010 tax See Publication 587 for more detailed information and a worksheet. Amend 2010 tax Job Search Expenses You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job. Amend 2010 tax You cannot deduct these expenses if: You are looking for a job in a new occupation, There was a substantial break between the ending of your last job and your looking for a new one, or You are looking for a job for the first time. Amend 2010 tax Employment and outplacement agency fees. Amend 2010 tax   You can deduct employment and outplacement agency fees you pay in looking for a new job in your present occupation. Amend 2010 tax Employer pays you back. Amend 2010 tax   If, in a later year, your employer pays you back for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Amend 2010 tax (See Recoveries in chapter 12. Amend 2010 tax ) Employer pays the employment agency. Amend 2010 tax   If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income. Amend 2010 tax Résumé. Amend 2010 tax   You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers if you are looking for a new job in your present occupation. Amend 2010 tax Travel and transportation expenses. Amend 2010 tax   If you travel to an area and, while there, you look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. Amend 2010 tax You can deduct the travel expenses if the trip is primarily to look for a new job. Amend 2010 tax The amount of time you spend on personal activity compared to the amount of time you spend in looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. Amend 2010 tax   Even if you cannot deduct the travel expenses to and from an area, you can deduct the expenses of looking for a new job in your present occupation while in the area. Amend 2010 tax   You can choose to use the standard mileage rate to figure your car expenses. Amend 2010 tax The 2013 rate for business use of a vehicle is 56½ cents per mile. Amend 2010 tax See chapter 26 for more information. Amend 2010 tax Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession. Amend 2010 tax Occupational Taxes You can deduct an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Amend 2010 tax If you are an employee, you can claim occupational taxes only as a miscellaneous deduction subject to the 2% limit; you cannot claim them as a deduction for taxes elsewhere on your return. Amend 2010 tax Repayment of Income Aid Payment An “income aid payment” is one that is received under an employer's plan to aid employees who lose their jobs because of lack of work. Amend 2010 tax If you repay a lump-sum income aid payment that you received and included in income in an earlier year, you can deduct the repayment. Amend 2010 tax Research Expenses of a College Professor If you are a college professor, you can deduct research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to your teaching duties. Amend 2010 tax You must have undertaken the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. Amend 2010 tax However, you cannot deduct the cost of travel as a form of education. Amend 2010 tax Tools Used in Your Work Generally, you can deduct amounts you spend for tools used in your work if the tools wear out and are thrown away within 1 year from the date of purchase. Amend 2010 tax You can depreciate the cost of tools that have a useful life substantially beyond the tax year. Amend 2010 tax For more information about depreciation, see Publication 946. Amend 2010 tax Union Dues and Expenses You can deduct dues and initiation fees you pay for union membership. Amend 2010 tax You can also deduct assessments for benefit payments to unemployed union members. Amend 2010 tax However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Amend 2010 tax Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions. Amend 2010 tax You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. Amend 2010 tax See Lobbying Expenses under Nondeductible Expenses, later. Amend 2010 tax Work Clothes and Uniforms You can deduct the cost and upkeep of work clothes if the following two requirements are met. Amend 2010 tax You must wear them as a condition of your employment. Amend 2010 tax The clothes are not suitable for everyday wear. Amend 2010 tax It is not enough that you wear distinctive clothing. Amend 2010 tax The clothing must be specifically required by your employer. Amend 2010 tax Nor is it enough that you do not, in fact, wear your work clothes away from work. Amend 2010 tax The clothing must not be suitable for taking the place of your regular clothing. Amend 2010 tax Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc. Amend 2010 tax ). Amend 2010 tax Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear. Amend 2010 tax However, work clothing consisting of white cap, white shirt or white jacket, white bib overalls, and standard work shoes, which a painter is required by his union to wear on the job, is not distinctive in character or in the nature of a uniform. Amend 2010 tax Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman are not deductible. Amend 2010 tax Protective clothing. Amend 2010 tax   You can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Amend 2010 tax   Examples of workers who may be required to wear safety items are: carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters, and truck drivers. Amend 2010 tax Military uniforms. Amend 2010 tax   You generally cannot deduct the cost of your uniforms if you are on full-time active duty in the armed forces. Amend 2010 tax However, if you are an armed forces reservist, you can deduct the unreimbursed cost of your uniform if military regulations restrict you from wearing it except while on duty as a reservist. Amend 2010 tax In figuring the deduction, you must reduce the cost by any nontaxable allowance you receive for these expenses. Amend 2010 tax   If local military rules do not allow you to wear fatigue uniforms when you are off duty, you can deduct the amount by which the cost of buying and keeping up these uniforms is more than the uniform allowance you receive. Amend 2010 tax   You can deduct the cost of your uniforms if you are a civilian faculty or staff member of a military school. Amend 2010 tax Tax Preparation Fees (Line 22) You can usually deduct tax preparation fees in the year you pay them. Amend 2010 tax Thus, on your 2013 return, you can deduct fees paid in 2013 for preparing your 2012 return. Amend 2010 tax These fees include the cost of tax preparation software programs and tax publications. Amend 2010 tax They also include any fee you paid for electronic filing of your return. Amend 2010 tax Other Expenses (Line 23) You can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% limit. Amend 2010 tax On Schedule A (Form 1040), line 23, you can deduct expenses that you pay: To produce or collect income that must be included in your gross income, To manage, conserve, or maintain property held for producing such income, or To determine, contest, pay, or claim a refund of any tax. Amend 2010 tax You can deduct expenses you pay for the purposes in (1) and (2) above only if they are reasonably and closely related to these purposes. Amend 2010 tax Some of these other expenses are explained in the following discussions. Amend 2010 tax If the expenses you pay produce income that is only partially taxable, see Tax-Exempt Income Expenses , later, under Nondeductible Expenses. Amend 2010 tax Appraisal Fees You can deduct appraisal fees if you pay them to figure a casualty loss or the fair market value of donated property. Amend 2010 tax Casualty and Theft Losses You can deduct a casualty or theft loss as a miscellaneous itemized deduction subject to the 2% limit if you used the damaged or stolen property in performing services as an employee. Amend 2010 tax First report the loss in Section B of Form 4684, Casualties and Thefts. Amend 2010 tax You may also have to include the loss on Form 4797, Sales of Business Property, if you are otherwise required to file that form. Amend 2010 tax To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Amend 2010 tax For other casualty and theft losses, see chapter 25. Amend 2010 tax Clerical Help and Office Rent You can deduct office expenses, such as rent and clerical help, that you have in connection with your investments and collecting the taxable income on them. Amend 2010 tax Credit or Debit Card Convenience Fees You can deduct the convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. Amend 2010 tax The fees are deductible in the year paid. Amend 2010 tax Depreciation on Home Computer You can deduct depreciation on your home computer if you use it to produce income (for example, to manage your investments that produce taxable income). Amend 2010 tax You generally must depreciate the computer using the straight line method over the Alternative Depreciation System (ADS) recovery period. Amend 2010 tax But if you work as an employee and also use the computer in that work, see Publication 946. Amend 2010 tax Excess Deductions of an Estate If an estate's total deductions in its last tax year are more than its gross income for that year, the beneficiaries succeeding to the estate's property can deduct the excess. Amend 2010 tax Do not include deductions for the estate's personal exemption and charitable contributions when figuring the estate's total deductions. Amend 2010 tax The beneficiaries can claim the deduction only for the tax year in which, or with which, the estate terminates, whether the year of termination is a normal year or a short tax year. Amend 2010 tax For more information, see Termination of Estate in Publication 559, Survivors, Executors, and Administrators. Amend 2010 tax Fees to Collect Interest and Dividends You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect your taxable bond interest or dividends on shares of stock. Amend 2010 tax But you cannot deduct a fee you pay to a broker to buy investment property, such as stocks or bonds. Amend 2010 tax You must add the fee to the cost of the property. Amend 2010 tax You cannot deduct the fee you pay to a broker to sell securities. Amend 2010 tax You can use the fee only to figure gain or loss from the sale. Amend 2010 tax See the Instructions for Form 8949 for information on how to report the fee. Amend 2010 tax Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income. Amend 2010 tax A hobby is not a business because it is not carried on to make a profit. Amend 2010 tax See Activity not for profit in chapter 12 under Other Income. Amend 2010 tax Indirect Deductions of Pass-Through Entities Pass-through entities include partnerships, S corporations, and mutual funds that are not publicly offered. Amend 2010 tax Deductions of pass-through entities are passed through to the partners or shareholders. Amend 2010 tax The partners or shareholders can deduct their share of passed-through deductions for investment expenses as miscellaneous itemized deductions subject to the 2% limit. Amend 2010 tax Example. Amend 2010 tax You are a member of an investment club that is formed solely to invest in securities. Amend 2010 tax The club is treated as a partnership. Amend 2010 tax The partnership's income is solely from taxable dividends, interest, and gains from sales of securities. Amend 2010 tax In this case, you can deduct your share of the partnership's operating expenses as miscellaneous itemized deductions subject to the 2% limit. Amend 2010 tax However, if the investment club partnership has investments that also produce nontaxable income, you cannot deduct your share of the partnership's expenses that produce the nontaxable income. Amend 2010 tax Publicly offered mutual funds. Amend 2010 tax   Publicly offered mutual funds do not pass deductions for investment expenses through to shareholders. Amend 2010 tax A mutual fund is “publicly offered” if it is: Continuously offered pursuant to a public offering, Regularly traded on an established securities market, or Held by or for at least 500 persons at all times during the tax year. Amend 2010 tax   A publicly offered mutual fund will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing the net amount of dividend income (gross dividends minus investment expenses). Amend 2010 tax This net figure is the amount you report on your return as income. Amend 2010 tax You cannot further deduct investment expenses related to publicly offered mutual funds because they are already included as part of the net income amount. Amend 2010 tax Information returns. Amend 2010 tax   You should receive information returns from pass-through entities. Amend 2010 tax Partnerships and S corporations. Amend 2010 tax   These entities issue Schedule K-1, which lists the items and amounts you must report and identifies the tax return schedules and lines to use. Amend 2010 tax Nonpublicly offered mutual funds. Amend 2010 tax   These funds will send you a Form 1099-DIV, Dividends and Distributions, or a substitute form, showing your share of gross income and investment expenses. Amend 2010 tax You can claim the expenses only as a miscellaneous itemized deduction subject to the 2% limit. Amend 2010 tax Investment Fees and Expenses You can deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income. Amend 2010 tax Legal Expenses You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Amend 2010 tax You can also deduct legal expenses that are: Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business, For tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or To collect taxable alimony. Amend 2010 tax You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C or C-EZ), rentals or royalties (Schedule E), or farm income and expenses (Schedule F), on the appropriate schedule. Amend 2010 tax You deduct expenses of resolving nonbusiness tax issues on Schedule A (Form 1040). Amend 2010 tax See Tax Preparation Fees , earlier. Amend 2010 tax Loss on Deposits For information on whether, and if so, how, you may deduct a loss on your deposit in a qualified financial institution, see Loss on Deposits in chapter 25. Amend 2010 tax Repayments of Income If you had to repay an amount that you included in income in an earlier year, you may be able to deduct the amount you repaid. Amend 2010 tax If the amount you had to repay was ordinary income of $3,000 or less, the deduction is subject to the 2% limit. Amend 2010 tax If it was more than $3,000, see Repayments Under Claim of Right under Deductions Not Subject to the 2% Limit, later. Amend 2010 tax Repayments of Social Security Benefits For information on how to deduct your repayments of certain social security benefits, see Repayments More Than Gross Benefits in chapter 11. Amend 2010 tax Safe Deposit Box Rent You can deduct safe deposit box rent if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. Amend 2010 tax You cannot deduct the rent if you use the box only for jewelry, other personal items, or tax-exempt securities. Amend 2010 tax Service Charges on Dividend Reinvestment Plans You can deduct service charges you pay as a subscriber in a dividend reinvestment plan. Amend 2010 tax These service charges include payments for: Holding shares acquired through a plan, Collecting and reinvesting cash dividends, and Keeping individual records and providing detailed statements of accounts. Amend 2010 tax Trustee's Administrative Fees for IRA Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. Amend 2010 tax For more information about IRAs, see chapter 17. Amend 2010 tax Deductions Not Subject to the 2% Limit You can deduct the items listed below as miscellaneous itemized deductions. Amend 2010 tax They are not subject to the 2% limit. Amend 2010 tax Report these items on Schedule A (Form 1040), line 28. Amend 2010 tax List of Deductions Each of the following items is discussed in detail after the list (except where indicated). Amend 2010 tax Amortizable premium on taxable bonds. Amend 2010 tax Casualty and theft losses from income- producing property. Amend 2010 tax Federal estate tax on income in respect of a decedent. Amend 2010 tax Gambling losses up to the amount of gambling winnings. Amend 2010 tax Impairment-related work expenses of persons with disabilities. Amend 2010 tax Loss from other activities from Schedule K-1 (Form 1065-B), box 2. Amend 2010 tax Losses from Ponzi-type investment schemes. Amend 2010 tax See Losses from Ponzi-type investment schemes under Theft in chapter 25. Amend 2010 tax Repayments of more than $3,000 under a claim of right. Amend 2010 tax Unrecovered investment in an annuity. Amend 2010 tax Amortizable Premium on Taxable Bonds In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. Amend 2010 tax You can elect to amortize the premium on taxable bonds. Amend 2010 tax The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item. Amend 2010 tax Part of the premium on some bonds may be a miscellaneous deduction not subject to the 2% limit. Amend 2010 tax For more information, see Amortizable Premium on Taxable Bonds in Publication 529, and Bond Premium Amortization in chapter 3 of Publication 550, Investment Income and Expenses. Amend 2010 tax Casualty and Theft Losses of Income-Producing Property You can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit if the damaged or stolen property was income-producing property (property held for investment, such as stocks, notes, bonds, gold, silver, vacant lots, and works of art). Amend 2010 tax First, report the loss in Form 4684, Section B. Amend 2010 tax You may also have to include the loss on Form 4797, Sales of Business Property if you are otherwise required to file that form. Amend 2010 tax To figure your deduction, add all casualty or theft losses from this type of property included on Form 4684, lines 32 and 38b, or Form 4797, line 18a. Amend 2010 tax For more information on casualty and theft losses, see chapter 25. Amend 2010 tax Federal Estate Tax on Income in Respect of a Decedent You can deduct the federal estate tax attributable to income in respect of a decedent that you as a beneficiary include in your gross income. Amend 2010 tax Income in respect of the decedent is gross income that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return. Amend 2010 tax See Publication 559 for more information. Amend 2010 tax Gambling Losses Up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Form 1040, line 21. Amend 2010 tax You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. Amend 2010 tax You cannot deduct gambling losses that are more than your winnings. Amend 2010 tax You cannot reduce your gambling winnings by your gambling losses and report the difference. Amend 2010 tax You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Amend 2010 tax Therefore, your records should show your winnings separately from your losses. Amend 2010 tax Diary of winnings and losses. Amend 2010 tax You must keep an accurate diary or similar record of your losses and winnings. Amend 2010 tax Your diary should contain at least the following information. Amend 2010 tax The date and type of your specific wager or wagering activity. Amend 2010 tax The name and address or location of the gambling establishment. Amend 2010 tax The names of other persons present with you at the gambling establishment. Amend 2010 tax The amount(s) you won or lost. Amend 2010 tax See Publication 529 for more information. Amend 2010 tax Impairment-Related Work Expenses If you have a physical or mental disability that limits your being employed, or substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, you can deduct your impairment-related work expenses. Amend 2010 tax Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at your place of work and for other expenses in connection with your place of work that are necessary for you to be able to work. Amend 2010 tax Self-employed. Amend 2010 tax   If you are self-employed, enter your impairment-related work expenses on the appropriate form (Schedule C, C-EZ, E, or F) used to report your business income and expenses. Amend 2010 tax Loss From Other Activities From Schedule K-1 (Form 1065-B), Box 2 If the amount reported in Schedule K-1 (Form 1065-B), box 2, is a loss, report it on Schedule A (Form 1040), line 28. Amend 2010 tax It is not subject to the passive activity limitations. Amend 2010 tax Repayments Under Claim of Right If you had to repay more than $3,000 that you included in your income in an earlier year because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount you repaid or take a credit against your tax. Amend 2010 tax See Repayments in chapter 12 for more information. Amend 2010 tax Unrecovered Investment in Annuity A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree's investment. Amend 2010 tax If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree's final income tax return. Amend 2010 tax See chapter 10 for more information about the tax treatment of pensions and annuities. Amend 2010 tax Nondeductible Expenses Examples of nondeductible expenses are listed next. Amend 2010 tax The list is followed by discussions of additional nondeductible expenses. Amend 2010 tax List of Nondeductible Expenses Broker's commissions that you paid in connection with your IRA or other investment property. Amend 2010 tax Burial or funeral expenses, including the cost of a cemetery lot. Amend 2010 tax Capital expenses. Amend 2010 tax Fees and licenses, such as car licenses, marriage licenses, and dog tags. Amend 2010 tax Hobby losses, but see Hobby Expenses , earlier. Amend 2010 tax Home repairs, insurance, and rent. Amend 2010 tax Illegal bribes and kickbacks. Amend 2010 tax See Bribes and kickbacks in chapter 11 of Publication 535. Amend 2010 tax Losses from the sale of your home, furniture, personal car, etc. Amend 2010 tax Personal disability insurance premiums. Amend 2010 tax Personal, living, or family expenses. Amend 2010 tax The value of wages never received or lost vacation time. Amend 2010 tax Adoption Expenses You cannot deduct the expenses of adopting a child, but you may be able to take a credit for those expenses. Amend 2010 tax See chapter 37. Amend 2010 tax Campaign Expenses You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. Amend 2010 tax These include qualification and registration fees for primary elections. Amend 2010 tax Legal fees. Amend 2010 tax   You cannot deduct legal fees paid to defend charges that arise from participation in a political campaign. Amend 2010 tax Check-Writing Fees on Personal Account If you have a personal checking account, you cannot deduct fees charged by the bank for the privilege of writing checks, even if the account pays interest. Amend 2010 tax Club Dues Generally, you cannot deduct the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Amend 2010 tax This includes business, social, athletic, luncheon, sporting, airline, hotel, golf, and country clubs. Amend 2010 tax You cannot deduct dues paid to an organization if one of its main purposes is to: Conduct entertainment activities for members or their guests, or Provide members or their guests with access to entertainment facilities. Amend 2010 tax Dues paid to airline, hotel, and luncheon clubs are not deductible. Amend 2010 tax Commuting Expenses You cannot deduct commuting expenses (the cost of transportation between your home and your main or regular place of work). Amend 2010 tax If you haul tools, instruments, or other items, in your car to and from work, you can deduct only the additional cost of hauling the items such as the rent on a trailer to carry the items. Amend 2010 tax Fines or Penalties You cannot deduct fines or penalties you pay to a governmental unit for violating a law. Amend 2010 tax This includes an amount paid in settlement of your actual or potential liability for a fine or penalty (civil or criminal). Amend 2010 tax Fines or penalties include parking tickets, tax penalties, and penalties deducted from teachers' paychecks after an illegal strike. Amend 2010 tax Health Spa Expenses You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition, such as might be required of a law enforcement officer. Amend 2010 tax Home Security System You cannot deduct the cost of a home security system as a miscellaneous deduction. Amend 2010 tax However, you may be able to claim a deduction for a home security system as a business expense if you have a home office. Amend 2010 tax See Home Office under Unreimbursed Employee Expenses, earlier, and Security System under Deducting Expenses in Publication 587. Amend 2010 tax Investment-Related Seminars You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes. Amend 2010 tax Life Insurance Premiums You cannot deduct premiums you pay on your life insurance. Amend 2010 tax You may be able to deduct, as alimony, premiums you pay on life insurance policies assigned to your former spouse. Amend 2010 tax See chapter 18 for information on alimony. Amend 2010 tax Lobbying Expenses You generally cannot deduct amounts paid or incurred for lobbying expenses. Amend 2010 tax These include expenses to: Influence legislation, Participate or intervene in any political campaign for, or against, any candidate for public office, Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or Communicate directly with covered executive branch officials in any attempt to influence the official actions or positions of those officials. Amend 2010 tax Lobbying expenses also include any amounts paid or incurred for research, preparation, planning, or coordination of any of these activities. Amend 2010 tax Dues used for lobbying. Amend 2010 tax   If a tax-exempt organization notifies you that part of the dues or other amounts you pay to the organization are used to pay nondeductible lobbying expenses, you cannot deduct that part. Amend 2010 tax See Lobbying Expenses in Publication 529 for information on exceptions. Amend 2010 tax Lost or Mislaid Cash or Property You cannot deduct a loss based on the mere disappearance of money or property. Amend 2010 tax However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Amend 2010 tax See chapter 25. Amend 2010 tax Example. Amend 2010 tax A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Amend 2010 tax The diamond falls from the ring and is never found. Amend 2010 tax The loss of the diamond is a casualty. Amend 2010 tax Lunches with Co-workers You cannot deduct the expenses of lunches with co-workers, except while traveling away from home on business. Amend 2010 tax See chapter 26 for information on deductible expenses while traveling away from home. Amend 2010 tax Meals While Working Late You cannot deduct the cost of meals while working late. Amend 2010 tax However, you may be able to claim a deduction if the cost of meals is a deductible entertainment expense, or if you are traveling away from home. Amend 2010 tax See chapter 26 for information on deductible entertainment expenses and expenses while traveling away from home. Amend 2010 tax Personal Legal Expenses You cannot deduct personal legal expenses such as those for the following. Amend 2010 tax Custody of children. Amend 2010 tax Breach of promise to marry suit. Amend 2010 tax Civil or criminal charges resulting from a personal relationship. Amend 2010 tax Damages for personal injury, except for certain unlawful discrimination and whistleblower claims. Amend 2010 tax Preparation of a title (or defense or perfection of a title). Amend 2010 tax Preparation of a will. Amend 2010 tax Property claims or property settlement in a divorce. Amend 2010 tax You cannot deduct these expenses even if a result of the legal proceeding is the loss of income-producing property. Amend 2010 tax Political Contributions You cannot deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Amend 2010 tax Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate are not deductible. Amend 2010 tax Professional Accreditation Fees You cannot deduct professional accreditation fees such as the following. Amend 2010 tax Accounting certificate fees paid for the initial right to practice accounting. Amend 2010 tax Bar exam fees and incidental expenses in securing initial admission to the bar. Amend 2010 tax Medical and dental license fees paid to get initial licensing. Amend 2010 tax Professional Reputation You cannot deduct expenses of radio and TV appearances to increase your personal prestige or establish your professional reputation. Amend 2010 tax Relief Fund Contributions You cannot deduct contributions paid to a private plan that pays benefits to any covered employee who cannot work because of any injury or illness not related to the job. Amend 2010 tax Residential Telephone Service You cannot deduct any charge (including taxes) for basic local telephone service for the first telephone line to your residence, even if it is used in a trade or business. Amend 2010 tax Stockholders' Meetings You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you own stock but have no other interest. Amend 2010 tax You cannot deduct these expenses even if you are attending the meeting to get information that would be useful in making further investments. Amend 2010 tax Tax-Exempt Income Expenses You cannot deduct expenses to produce tax-exempt income. Amend 2010 tax You cannot deduct interest on a debt incurred or continued to buy or carry  tax-exempt securities. Amend 2010 tax If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. Amend 2010 tax Example. Amend 2010 tax During the year, you received taxable interest of $4,800 and tax-exempt interest of $1,200. Amend 2010 tax In earning this income, you had total expenses of $500 during the year. Amend 2010 tax You cannot identify the amount of each expense item that is for each income item. Amend 2010 tax Therefore, 80% ($4,800/$6,000) of the expense is for the taxable interest and 20% ($1,200/$6,000) is for the tax-exempt interest. Amend 2010 tax You can deduct, subject to the 2% limit, expenses of $400 (80% of $500). Amend 2010 tax Travel Expenses for Another Individual You generally cannot deduct travel expenses you pay or incur for a spouse, dependent, or other individual who accompanies you (or your employee) on business or personal travel unless the spouse, dependent, or other individual is an employee of the taxpayer, the travel is for a bona fide business purpose, and such expenses would otherwise be deductible by the spouse, dependent, or other individual. Amend 2010 tax See chapter 26 for more information on deductible travel expenses. Amend 2010 tax Voluntary Unemployment Benefit Fund Contributions You cannot deduct voluntary unemployment benefit fund contributions you make to a union fund or a private fund. Amend 2010 tax However, you can deduct contributions as taxes if state law requires you to make them to a state unemployment fund that covers you for the loss of wages from unemployment caused by business conditions. Amend 2010 tax Wristwatches You cannot deduct the cost of a wristwatch, even if there is a job requirement that you know the correct time to properly perform your duties. Amend 2010 tax Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Florida

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City Street Address Days/Hours of Service Telephone*
Daytona Beach/
Holly Hill
149 S. Ridgewood Ave
Daytona Beach, FL 32114

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(386) 254-7360
Fort Myers 4210 Metro Parkway
Ft Myers, FL 33916

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(239) 938-7601
Gainesville 104 N. Main St.
Gainesville, FL 32601

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(352) 395-6197
Jacksonville 400 West Bay St.
Jacksonville, FL 32202

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(904) 665-1040
Lakeland 2133 Harden Blvd
Lakeland, FL 33803

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(863) 904-3399
Maitland/Orlando 850 Trafalgar Ct.
Maitland, FL 32751

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(407) 660-5830
Melbourne 431 N. Wickham Road
Melbourne, FL 32935

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(321) 253-7700
 
Miami 51 S.W. First Ave.
Miami, FL 33130

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(305) 982-5077
Ocala 3300 SW 34th Ave
Ocala, FL. 34474

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(352) 401-0010 
Panama City  651-F West 14th St.
Panama City, FL 32401 

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 

 

Services Provided

(850)481-4016
 
Pensacola  7180 9th Ave North
Pensacola, FL. 32504 

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(850) 435-8468
 
Plantation/
Fort Lauderdale 
7850 S.W. 6th Court
Plantation, FL 33324 

Monday-Friday - 8:30 a.m.-4:30 p.m.


Services Provided

(954) 423-7300 
Port St. Lucie  7410 South US Hwy. 1
Port St. Lucie, FL 34952 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**

 

Services Provided

(772) 340-5606 
Saint Petersburg  9450 Koger Blvd.
Saint Petersburg, FL 33702 

Monday-Friday - 8:30 a.m.-4:30 p.m.  

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(727) 568-2459 
Sarasota 5971 Cattle Ridge Blvd.
Sarasota, FL 34232

Monday-Friday - 8:30 a.m.-4:30 p.m. 

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(941) 378-6448
Tallahassee   1211 Governor's Square Blvd.
Tallahassee, FL 32301

Monday-Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.) 

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(850) 942-8995 
Tampa 3848 W. Columbus Dr. 
Tampa, FL 33607

Monday-Friday - 8:30 a.m.-4:30 p.m. 

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(813) 348-1831
West Palm Beach  1700 Palm Beach Lakes Blvd.
West Palm Beach, FL 33401 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(561) 616-2002 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Within Florida call:

 Jacksonville  (904) 665-1000
 Plantation  (954) 423-7677

 Call 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
400 West Bay Street, Stop 1200
Jacksonville, FL 32202

Internal Revenue Service
7850 SW 6th Court, Stop 6030
Plantation, FL 33324

Internal Revenue Service
9450 Koger Blvd, Room 101
St. Petersburg, FL 33702

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Amend 2010 Tax

Amend 2010 tax 4. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax Category 1. Amend 2010 tax Category 2. Amend 2010 tax Category 3. Amend 2010 tax What's New for 2013 Standard mileage rate. Amend 2010 tax  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. Amend 2010 tax 5 cents. Amend 2010 tax See Truck and Car Expenses , later. Amend 2010 tax Simplified method for business use of home deduction. Amend 2010 tax  The IRS now provides a simplified method to determine your expenses for business use of your home. Amend 2010 tax For more information, see Schedule C (Form 1040), Part II, and its instructions. Amend 2010 tax Introduction You can generally deduct the current costs of operating your farm. Amend 2010 tax Current costs are expenses you do not have to capitalize or include in inventory costs. Amend 2010 tax However, your deduction for the cost of livestock feed and certain other supplies may be limited. Amend 2010 tax If you have an operating loss, you may not be able to deduct all of it. Amend 2010 tax 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. Amend 2010 tax Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Amend 2010 tax “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Amend 2010 tax Schedule F, Part II, lists some common farm expenses that are typically deductible. Amend 2010 tax This chapter discusses many of these expenses, as well as others not listed on Schedule F. Amend 2010 tax Reimbursed expenses. Amend 2010 tax   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Amend 2010 tax If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Amend 2010 tax See Refund or reimbursement under Income From Other Sources in chapter 3. Amend 2010 tax Personal and business expenses. Amend 2010 tax   Some expenses you pay during the tax year may be part personal and part business. Amend 2010 tax These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Amend 2010 tax   You must allocate these mixed expenses between their business and personal parts. Amend 2010 tax Generally, the personal part of these expenses is not deductible. Amend 2010 tax The business portion of the expenses is deductible on Schedule F. Amend 2010 tax Example. Amend 2010 tax You paid $1,500 for electricity during the tax year. Amend 2010 tax You used 1/3 of the electricity for personal purposes and 2/3 for farming. Amend 2010 tax Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Amend 2010 tax Reasonable allocation. Amend 2010 tax   It is not always easy to determine the business and nonbusiness parts of an expense. Amend 2010 tax There is no method of allocation that applies to all mixed expenses. Amend 2010 tax Any reasonable allocation is acceptable. Amend 2010 tax What is reasonable depends on the circumstances in each case. Amend 2010 tax Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Amend 2010 tax 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. Amend 2010 tax Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Amend 2010 tax 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. Amend 2010 tax Poultry bought for resale and not resold during the year. Amend 2010 tax Deduction limit. Amend 2010 tax   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). Amend 2010 tax This limit does not apply if you meet one of the exceptions described later. Amend 2010 tax See Chapter 2 for a discussion of the cash method of accounting. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Amend 2010 tax Example. Amend 2010 tax You may not qualify for the exception described next. Amend 2010 tax During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Amend 2010 tax Your total prepaid farm supplies expense for 2013 is $5,500. Amend 2010 tax Your other deductible farm expenses totaled $10,000 for 2013. Amend 2010 tax Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Amend 2010 tax 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. Amend 2010 tax Exceptions. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax   You are a farm-related taxpayer if any of the following tests apply. Amend 2010 tax Your main home is on a farm. Amend 2010 tax Your principal business is farming. Amend 2010 tax A member of your family meets (1) or (2). Amend 2010 tax 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. Amend 2010 tax    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. Amend 2010 tax 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. Amend 2010 tax The payment is for the purchase of feed rather than a deposit. Amend 2010 tax The prepayment has a business purpose and is not merely for tax avoidance. Amend 2010 tax Deducting the prepayment does not result in a material distortion of your income. Amend 2010 tax If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Amend 2010 tax If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Amend 2010 tax This rule does not apply to the purchase of commodity futures contracts. Amend 2010 tax Payment for the purchase of feed. Amend 2010 tax   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Amend 2010 tax 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. Amend 2010 tax   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Amend 2010 tax The absence of specific quantity terms. Amend 2010 tax The right to a refund of any unapplied payment credit at the end of the contract. Amend 2010 tax The seller's treatment of the payment as a deposit. Amend 2010 tax The right to substitute other goods or products for those specified in the contract. Amend 2010 tax   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. Amend 2010 tax Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Amend 2010 tax Business purpose. Amend 2010 tax   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. Amend 2010 tax The following are some examples of business benefits. Amend 2010 tax Fixing maximum prices and securing an assured feed supply. Amend 2010 tax Securing preferential treatment in anticipation of a feed shortage. Amend 2010 tax   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. Amend 2010 tax No material distortion of income. Amend 2010 tax   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Amend 2010 tax Your customary business practice in conducting your livestock operations. Amend 2010 tax The expense in relation to past purchases. Amend 2010 tax The time of year you made the purchase. Amend 2010 tax The expense in relation to your income for the year. Amend 2010 tax 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. Amend 2010 tax You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Amend 2010 tax The cost of boarding farm labor is a deductible labor cost. Amend 2010 tax Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Amend 2010 tax 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. Amend 2010 tax See chapter 13 for more information on employment taxes. Amend 2010 tax 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. Amend 2010 tax See Taxes , later. Amend 2010 tax Property for services. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax   Treat the wages deducted as an amount received for the property. Amend 2010 tax 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. Amend 2010 tax Any gain or loss has the same character the exchanged property had in your hands. Amend 2010 tax For more information, see chapter 8. Amend 2010 tax Child as an employee. Amend 2010 tax   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. Amend 2010 tax Include these wages in the child's income. Amend 2010 tax The child may have to file an income tax return. Amend 2010 tax These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Amend 2010 tax For more information, see Family Employees in chapter 13. Amend 2010 tax    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Amend 2010 tax   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. Amend 2010 tax The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Amend 2010 tax Spouse as an employee. Amend 2010 tax   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. Amend 2010 tax Wages you pay to your spouse are subject to social security and Medicare taxes. Amend 2010 tax For more information, see Family Employees in chapter 13. Amend 2010 tax Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Amend 2010 tax However, those wages may be subject to the employment taxes discussed in chapter 13. Amend 2010 tax Household workers. Amend 2010 tax   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. Amend 2010 tax Construction labor. Amend 2010 tax   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Amend 2010 tax These wages are part of the cost of the building or other improvement. Amend 2010 tax You must capitalize them. Amend 2010 tax Maintaining your home. Amend 2010 tax   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. Amend 2010 tax For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Amend 2010 tax The employee devotes the remaining time to work on your farm. Amend 2010 tax You cannot deduct 5% of the wages and employment taxes you pay for that employee. Amend 2010 tax 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). Amend 2010 tax Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax For example, if you repair the barn roof, the cost is deductible. Amend 2010 tax But if you replace the roof, it is a capital expense. Amend 2010 tax For more information, see Capital Expenses , later. Amend 2010 tax Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Amend 2010 tax Cash method. Amend 2010 tax   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Amend 2010 tax You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Amend 2010 tax You can, however, deduct the interest when you start making payments on the new loan. Amend 2010 tax For more information, see Cash Method in chapter 2. Amend 2010 tax Prepaid interest. Amend 2010 tax   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Amend 2010 tax Interest paid in advance may be deducted only in the tax year in which it is due. Amend 2010 tax Accrual method. Amend 2010 tax   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Amend 2010 tax 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. Amend 2010 tax For more information, see Accrual Method in chapter 2. Amend 2010 tax Allocation of interest. Amend 2010 tax   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Amend 2010 tax Allocate the interest to the following categories. Amend 2010 tax Trade or business interest. Amend 2010 tax Passive activity interest. Amend 2010 tax Investment interest. Amend 2010 tax Portfolio interest. Amend 2010 tax Personal interest. Amend 2010 tax   You generally allocate interest on a loan the same way you allocate the loan proceeds. Amend 2010 tax You allocate loan proceeds by tracing disbursements to specific uses. Amend 2010 tax The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Amend 2010 tax Secured loan. Amend 2010 tax   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Amend 2010 tax Example. Amend 2010 tax You secure a loan with property used in your farming business. Amend 2010 tax You use the loan proceeds to buy a car for personal use. Amend 2010 tax 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. Amend 2010 tax If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Amend 2010 tax The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Amend 2010 tax However, you can choose to treat the loan as not secured by your home. Amend 2010 tax For more information, see Publication 936. Amend 2010 tax Allocation period. Amend 2010 tax   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. Amend 2010 tax The date the loan is repaid. Amend 2010 tax The date the loan is reallocated to another use. Amend 2010 tax More information. Amend 2010 tax   For more information on interest, see chapter 4 in Publication 535. Amend 2010 tax Breeding Fees You can deduct breeding fees as a farm business expense. Amend 2010 tax 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. Amend 2010 tax For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Amend 2010 tax 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. Amend 2010 tax You can also deduct the cost of applying these materials in the year you pay or incur it. Amend 2010 tax However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Amend 2010 tax 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. Amend 2010 tax However, you can choose to deduct these expenses in the year paid or incurred. Amend 2010 tax If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Amend 2010 tax 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. Amend 2010 tax Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Amend 2010 tax It does not include land you have never used previously for producing crops or sustaining livestock. Amend 2010 tax You cannot deduct initial land preparation costs. Amend 2010 tax (See Capital Expenses , later. Amend 2010 tax ) Include government payments you receive for lime or fertilizer in income. Amend 2010 tax See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax For information on employment taxes, see chapter 13. Amend 2010 tax Allocation of taxes. Amend 2010 tax   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. Amend 2010 tax You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Amend 2010 tax To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Amend 2010 tax The allocation can be done from the assessed valuations. Amend 2010 tax If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Amend 2010 tax State and local general sales taxes. Amend 2010 tax   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Amend 2010 tax 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. Amend 2010 tax Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Amend 2010 tax State and federal income taxes. Amend 2010 tax   Individuals cannot deduct state and federal income taxes as farm business expenses. Amend 2010 tax Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Amend 2010 tax However, you cannot deduct federal income tax. Amend 2010 tax Highway use tax. Amend 2010 tax   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Amend 2010 tax 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. Amend 2010 tax Self-employment tax deduction. Amend 2010 tax   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Amend 2010 tax For more information, see chapter 12. Amend 2010 tax Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Amend 2010 tax This includes premiums you pay for the following types of insurance. Amend 2010 tax Fire, storm, crop, theft, liability, and other insurance on farm business assets. Amend 2010 tax Health and accident insurance on your farm employees. Amend 2010 tax 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. Amend 2010 tax Business interruption insurance. Amend 2010 tax State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Amend 2010 tax Insurance to secure a loan. Amend 2010 tax   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. Amend 2010 tax In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amend 2010 tax Advance premiums. Amend 2010 tax   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Amend 2010 tax Example. Amend 2010 tax On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Amend 2010 tax The policy will cover a period of 3 years beginning on July 1, 2013. Amend 2010 tax Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Amend 2010 tax Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Amend 2010 tax In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Amend 2010 tax Deduct the remaining $500 in 2016. Amend 2010 tax 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. Amend 2010 tax Business interruption insurance. Amend 2010 tax   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Amend 2010 tax This insurance pays for lost profits if your business is shut down due to a fire or other cause. Amend 2010 tax Report any proceeds in full on Schedule F, Part I. Amend 2010 tax Self-employed health insurance deduction. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Amend 2010 tax   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. Amend 2010 tax   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Amend 2010 tax Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Amend 2010 tax   For more information, see Deductible Premiums in Publication 535, chapter 6. Amend 2010 tax Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Amend 2010 tax However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Amend 2010 tax Advance payments. Amend 2010 tax   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Amend 2010 tax Farm home. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Amend 2010 tax Conditional sales contract. Amend 2010 tax   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amend 2010 tax Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amend 2010 tax No single test, or special combination of tests, always applies. Amend 2010 tax However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amend 2010 tax The agreement applies part of each payment toward an equity interest you will receive. Amend 2010 tax You get title to the property after you make a stated amount of required payments. Amend 2010 tax 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. Amend 2010 tax You pay much more than the current fair rental value of the property. Amend 2010 tax 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. Amend 2010 tax Determine this value when you make the agreement. Amend 2010 tax You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amend 2010 tax The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Amend 2010 tax Example. Amend 2010 tax You lease new farm equipment from a dealer who both sells and leases. Amend 2010 tax The agreement includes an option to purchase the equipment for a specified price. Amend 2010 tax The lease payments and the specified option price equal the sales price of the equipment plus interest. Amend 2010 tax Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Amend 2010 tax For federal income tax purposes, the agreement is a conditional sales contract. Amend 2010 tax You cannot deduct any of the lease payments as rent. Amend 2010 tax You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Amend 2010 tax Motor vehicle leases. Amend 2010 tax   Special rules apply to lease agreements that have a terminal rental adjustment clause. Amend 2010 tax 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. Amend 2010 tax If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Amend 2010 tax For more information, see Internal Revenue Code (IRC) section 7701(h). Amend 2010 tax Leveraged leases. Amend 2010 tax   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Amend 2010 tax 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. Amend 2010 tax irs. Amend 2010 tax gov/pub/irs-irbs/irb01-19. Amend 2010 tax pdf. Amend 2010 tax 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. Amend 2010 tax You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Amend 2010 tax 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. Amend 2010 tax Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax You use it exclusively and regularly for the administrative or management activities of your trade or business. Amend 2010 tax You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amend 2010 tax If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Amend 2010 tax The IRS now provides a simplified method to determine your expenses for business use of your home. Amend 2010 tax For more information, see Schedule C (Form 1040), Part II, and its instructions. Amend 2010 tax Deduction limit. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax   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. Amend 2010 tax 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). Amend 2010 tax Farm expenses other than expenses that relate to the use of your home. Amend 2010 tax If you are self-employed, do not include your deduction for half of your self-employment tax. Amend 2010 tax   Deductions over the current year's limit can be carried over to your next tax year. Amend 2010 tax They are subject to the deduction limit for the next tax year. Amend 2010 tax More information. Amend 2010 tax   See Publication 587 for more information on deducting expenses for the business use of your home. Amend 2010 tax Telephone expense. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax Cell phone charges for calls relating to your farm business are deductible. Amend 2010 tax 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. Amend 2010 tax Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Amend 2010 tax Only expenses for business use are deductible. Amend 2010 tax These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Amend 2010 tax Standard mileage rate. Amend 2010 tax   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Amend 2010 tax The standard mileage rate for each mile of business use is 56. Amend 2010 tax 5 cents in 2013. Amend 2010 tax 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. Amend 2010 tax   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Amend 2010 tax 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. Amend 2010 tax Example. Amend 2010 tax Maureen owns a car and four pickup trucks that are used in her farm business. Amend 2010 tax Her farm employees use the trucks and she uses the car for business. Amend 2010 tax Maureen cannot use the standard mileage rate for the car or the trucks. Amend 2010 tax This is because all five vehicles are used in Maureen's farm business at the same time. Amend 2010 tax She must use actual expenses for all vehicles. Amend 2010 tax Business use percentage. Amend 2010 tax   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. Amend 2010 tax You choose this method of substantiating business use the first year the vehicle is placed in service. Amend 2010 tax Once you make this choice, you may not change to another method later. Amend 2010 tax The following are uses directly connected with the business of farming. Amend 2010 tax Cultivating land. Amend 2010 tax Raising or harvesting any agricultural or horticultural commodity. Amend 2010 tax Raising, shearing, feeding, caring for, training, and managing animals. Amend 2010 tax Driving to the feed or supply store. Amend 2010 tax   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Amend 2010 tax See Recordkeeping requirements under Travel Expenses , below. Amend 2010 tax More information. Amend 2010 tax   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Amend 2010 tax 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. Amend 2010 tax Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Amend 2010 tax You cannot deduct lavish or extravagant expenses. Amend 2010 tax Usually, the location of your farm business is considered your home for tax purposes. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax The following are some types of deductible travel expenses. Amend 2010 tax 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. Amend 2010 tax Meals. Amend 2010 tax   You ordinarily can deduct only 50% of your business-related meals expenses. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax For information on entertainment expenses, see Publication 463, chapter 2. Amend 2010 tax   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Amend 2010 tax You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Amend 2010 tax    Recordkeeping requirements. Amend 2010 tax You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Amend 2010 tax Estimates or approximations do not qualify as proof of an expense. Amend 2010 tax   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. Amend 2010 tax Generally, it is best to record the expense and get documentation of it at the time you pay it. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax More information. Amend 2010 tax   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Amend 2010 tax Reimbursements to employees. Amend 2010 tax   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Amend 2010 tax Employees may be reimbursed under an accountable or nonaccountable plan. Amend 2010 tax Under an accountable plan, the employee must provide evidence of expenses. Amend 2010 tax Under a nonaccountable plan, no evidence of expenses is required. Amend 2010 tax If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Amend 2010 tax If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Amend 2010 tax For more information, see Publication 535, chapter 11. Amend 2010 tax Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Amend 2010 tax 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. Amend 2010 tax Do not take a separate deduction for the penalty. Amend 2010 tax Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Amend 2010 tax These costs include repairs, utilities, insurance, and depreciation. Amend 2010 tax The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Amend 2010 tax 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. Amend 2010 tax You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Amend 2010 tax However, see Chickens, seeds, and young plants , below. Amend 2010 tax Example. Amend 2010 tax You use the cash method of accounting. Amend 2010 tax In 2013, you buy 50 steers you will sell in 2014. Amend 2010 tax You cannot deduct the cost of the steers on your 2013 tax return. Amend 2010 tax You deduct their cost on your 2014 Schedule F, Part I. Amend 2010 tax Chickens, seeds, and young plants. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Amend 2010 tax   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Amend 2010 tax You cannot also deduct the cost from the selling price. Amend 2010 tax   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Amend 2010 tax Deduct the cost of these seeds and plants through depletion allowances. Amend 2010 tax For more information, see Depletion in chapter 7. Amend 2010 tax   The cost of chickens and plants used as food for your family is never deductible. Amend 2010 tax   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Amend 2010 tax These rules are discussed in chapter 6. Amend 2010 tax Example. Amend 2010 tax You use the cash method of accounting. Amend 2010 tax In 2013, you buy 500 baby chicks to raise for resale in 2014. Amend 2010 tax You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Amend 2010 tax 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. Amend 2010 tax Election to use crop method. Amend 2010 tax   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Amend 2010 tax You must get IRS approval to use the crop method. Amend 2010 tax If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Amend 2010 tax For more information, see Crop method under Special Methods of Accounting in chapter 2. Amend 2010 tax Choosing a method. Amend 2010 tax   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. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax For more information, see Change in Accounting Method in chapter 2. Amend 2010 tax Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Amend 2010 tax 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. Amend 2010 tax Accounting fees. Amend 2010 tax Advertising. Amend 2010 tax Business travel and meals. Amend 2010 tax Commissions. Amend 2010 tax Consultant fees. Amend 2010 tax Crop scouting expenses. Amend 2010 tax Dues to cooperatives. Amend 2010 tax Educational expenses (to maintain and improve farming skills). Amend 2010 tax Farm-related attorney fees. Amend 2010 tax Farm magazines. Amend 2010 tax Ginning. Amend 2010 tax Insect sprays and dusts. Amend 2010 tax Litter and bedding. Amend 2010 tax Livestock fees. Amend 2010 tax Marketing fees. Amend 2010 tax Milk assessment. Amend 2010 tax Recordkeeping expenses. Amend 2010 tax Service charges. Amend 2010 tax Small tools expected to last one year or less. Amend 2010 tax Stamps and stationery. Amend 2010 tax Subscriptions to professional, technical, and trade journals that deal with farming. Amend 2010 tax Tying material and containers. Amend 2010 tax Loan expenses. Amend 2010 tax   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. Amend 2010 tax Tax preparation fees. Amend 2010 tax   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. Amend 2010 tax You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amend 2010 tax   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Amend 2010 tax Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Amend 2010 tax Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Amend 2010 tax Income from cooperatives. Amend 2010 tax   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. Amend 2010 tax This deduction amount is reported on Form 1099-PATR, box 6. Amend 2010 tax 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. Amend 2010 tax More information. Amend 2010 tax   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Amend 2010 tax 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. Amend 2010 tax You include the expense in the basis of the asset. Amend 2010 tax Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Amend 2010 tax See chapters 2  and 6. Amend 2010 tax Capital expenses are generally not deductible, but they may be depreciable. Amend 2010 tax However, you can elect to deduct certain capital expenses, such as the following. Amend 2010 tax The cost of fertilizer, lime, etc. Amend 2010 tax (See Fertilizer and Lime under Deductible Expenses , earlier. Amend 2010 tax ) Soil and water conservation expenses. Amend 2010 tax (See chapter 5. Amend 2010 tax ) The cost of property that qualifies for a deduction under section 179. Amend 2010 tax (See chapter 7. Amend 2010 tax ) Business start-up costs. Amend 2010 tax (See Business start-up and organizational costs , later. Amend 2010 tax ) Forestation and reforestation costs. Amend 2010 tax (See Forestation and reforestation costs , later. Amend 2010 tax ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Amend 2010 tax Land and buildings. Amend 2010 tax Additions, alterations, and improvements to buildings, etc. Amend 2010 tax Cars and trucks. Amend 2010 tax Equipment and machinery. Amend 2010 tax Fences. Amend 2010 tax Draft, breeding, sport, and dairy livestock. Amend 2010 tax Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Amend 2010 tax Water wells, including drilling and equipping costs. Amend 2010 tax 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. Amend 2010 tax Business start-up and organizational costs. Amend 2010 tax   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. Amend 2010 tax The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amend 2010 tax Any remaining costs must be amortized. Amend 2010 tax See chapter 7. Amend 2010 tax   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. Amend 2010 tax 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). Amend 2010 tax Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amend 2010 tax 9100-2” at the top of the amended return. Amend 2010 tax File the amended return at the same address you filed the original return. Amend 2010 tax The election applies when figuring taxable income for the current tax year and all subsequent years. Amend 2010 tax   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. Amend 2010 tax For more information about start-up and organizational costs, see chapter 7. Amend 2010 tax Crop production expenses. Amend 2010 tax   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Amend 2010 tax 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. Amend 2010 tax For more information, see Uniform Capitalization Rules in chapter 6. Amend 2010 tax Timber. Amend 2010 tax   Capitalize the cost of acquiring timber. Amend 2010 tax Do not include the cost of land in the cost of the timber. Amend 2010 tax You must generally capitalize direct costs incurred in reforestation. Amend 2010 tax However, you can elect to deduct some forestation and reforestation costs. Amend 2010 tax See Forestation and reforestation costs next. Amend 2010 tax Reforestation costs include the following. Amend 2010 tax Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Amend 2010 tax The cost of seed or seedlings. Amend 2010 tax Labor and tool expenses. Amend 2010 tax Depreciation on equipment used in planting or seeding. Amend 2010 tax Costs incurred in replanting to replace lost seedlings. Amend 2010 tax You can choose to capitalize certain indirect reforestation costs. Amend 2010 tax   These capitalized amounts are your basis for the timber. Amend 2010 tax Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Amend 2010 tax See Depletion in chapter 7. Amend 2010 tax Forestation and reforestation costs. Amend 2010 tax   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. Amend 2010 tax Any remaining costs can be amortized over an 84-month period. Amend 2010 tax See chapter 7. Amend 2010 tax 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. Amend 2010 tax The accounts should include all reforestation treatments and the dates they were applied. Amend 2010 tax 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. Amend 2010 tax The timber account should be maintained until the timber is disposed of. Amend 2010 tax For more information, see Notice 2006-47, 2006-20 I. Amend 2010 tax R. Amend 2010 tax B. Amend 2010 tax 892, available at  www. Amend 2010 tax irs. Amend 2010 tax gov/irb/2006-20_IRB/ar11. Amend 2010 tax html. Amend 2010 tax   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. Amend 2010 tax If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Amend 2010 tax If you are not filing Form T (Timber), attach a statement to your return with the following information. Amend 2010 tax The unique stand identification numbers. Amend 2010 tax The total number of acres reforested during the tax year. Amend 2010 tax The nature of the reforestation treatments. Amend 2010 tax The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Amend 2010 tax   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). Amend 2010 tax Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amend 2010 tax 9100-2” at the top of the amended return. Amend 2010 tax File the amended return at the same address you filed the original return. Amend 2010 tax    For more information about forestation and reforestation costs, see chapter 7. Amend 2010 tax    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Amend 2010 tax You can view this publication on the Internet at  www. Amend 2010 tax fs. Amend 2010 tax fed. Amend 2010 tax us/publications. Amend 2010 tax Christmas tree cultivation. Amend 2010 tax   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. Amend 2010 tax Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Amend 2010 tax For more information, see Timber Depletion under Depletion in chapter 7. Amend 2010 tax   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Amend 2010 tax Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Amend 2010 tax   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Amend 2010 tax If the improvements do not have a determinable useful life, add their cost to the basis of the land. Amend 2010 tax The cost is recovered when you sell or otherwise dispose of it. Amend 2010 tax If the improvements have a determinable useful life, recover their cost through depreciation. Amend 2010 tax 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. Amend 2010 tax Recover these costs through depreciation. Amend 2010 tax Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Amend 2010 tax Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Amend 2010 tax 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. Amend 2010 tax Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Amend 2010 tax Other Nondeductible Items You cannot deduct the following items on your tax return. Amend 2010 tax Loss of growing plants, produce, and crops. Amend 2010 tax   Losses of plants, produce, and crops raised for sale are generally not deductible. Amend 2010 tax However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Amend 2010 tax See chapter 11 for more information. Amend 2010 tax Repayment of loans. Amend 2010 tax   You cannot deduct the repayment of a loan. Amend 2010 tax However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Amend 2010 tax See Interest , earlier. Amend 2010 tax Estate, inheritance, legacy, succession, and gift taxes. Amend 2010 tax   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Amend 2010 tax Loss of livestock. Amend 2010 tax   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Amend 2010 tax Losses from sales or exchanges between related persons. Amend 2010 tax   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. Amend 2010 tax For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amend 2010 tax Cost of raising unharvested crops. Amend 2010 tax   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. Amend 2010 tax Add these costs to the basis of the land to determine the gain or loss on the sale. Amend 2010 tax For more information, see Section 1231 Gains and Losses in chapter 9. Amend 2010 tax Cost of unharvested crops bought with land. Amend 2010 tax   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Amend 2010 tax You cannot deduct the cost of the crops at the time of purchase. Amend 2010 tax However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Amend 2010 tax Cost related to gifts. Amend 2010 tax   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Amend 2010 tax The costs are not deductible in the year of the gift or any later year. Amend 2010 tax 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. Amend 2010 tax Club dues and membership fees. Amend 2010 tax   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Amend 2010 tax 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. Amend 2010 tax Exception. Amend 2010 tax   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. Amend 2010 tax Boards of trade. Amend 2010 tax Business leagues. Amend 2010 tax Chambers of commerce. Amend 2010 tax Civic or public service organizations. Amend 2010 tax Professional associations. Amend 2010 tax Trade associations. Amend 2010 tax Real estate boards. Amend 2010 tax Fines and penalties. Amend 2010 tax   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Amend 2010 tax 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. Amend 2010 tax The amount of the loss you can deduct when figuring your taxable income may be limited. Amend 2010 tax To figure your deductible loss, you must apply the following limits. Amend 2010 tax The at-risk limits. Amend 2010 tax The passive activity limits. Amend 2010 tax The following discussions explain these limits. Amend 2010 tax If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Amend 2010 tax See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amend 2010 tax 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. Amend 2010 tax See Not-for-Profit Farming, later. Amend 2010 tax At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Amend 2010 tax These rules limit the losses you can deduct when figuring your taxable income. Amend 2010 tax The deductible loss from an activity is limited to the amount you have at risk in the activity. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax For more information, see Publication 925. Amend 2010 tax 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. Amend 2010 tax Generally, a rental activity is a passive activity. Amend 2010 tax If you have a passive activity, special rules limit the loss you can deduct in the tax year. Amend 2010 tax You generally can deduct losses from passive activities only up to income from passive activities. Amend 2010 tax Credits are similarly limited. Amend 2010 tax For more information, see Publication 925. Amend 2010 tax Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Amend 2010 tax Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Amend 2010 tax For more details, see IRC section 461(j). Amend 2010 tax Excess farm loss. Amend 2010 tax   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Amend 2010 tax 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. Amend 2010 tax   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Amend 2010 tax 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. Amend 2010 tax 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). Amend 2010 tax Also, there is a limit on the deductions you can take. Amend 2010 tax You cannot use a loss from that activity to offset income from other activities. Amend 2010 tax Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Amend 2010 tax An investment activity intended only to produce tax losses for the investors also comes under this limit. Amend 2010 tax The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amend 2010 tax It does not apply to corporations other than S corporations. Amend 2010 tax In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Amend 2010 tax No one factor alone is decisive. Amend 2010 tax 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. Amend 2010 tax Presumption of profit. Amend 2010 tax   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. Amend 2010 tax 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. Amend 2010 tax The activity must be substantially the same for each year within this period. Amend 2010 tax You have a profit when the gross income from an activity is more than the deductions for it. Amend 2010 tax   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. Amend 2010 tax   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Amend 2010 tax This means the limits discussed here do not apply. Amend 2010 tax You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Amend 2010 tax You can rely on this presumption in every case, unless the IRS shows it is not valid. Amend 2010 tax   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. Amend 2010 tax Using the presumption later. Amend 2010 tax   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. Amend 2010 tax   You can choose to do this by filing Form 5213. Amend 2010 tax 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. Amend 2010 tax 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. Amend 2010 tax   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Amend 2010 tax Accordingly, it will not limit your deductions. Amend 2010 tax 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. Amend 2010 tax If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amend 2010 tax 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. Amend 2010 tax   Filing Form 5213 automatically extends the period of limitations on any year