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Federal Income Tax Amended Return

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Federal Income Tax Amended Return

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

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