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File 2011 Tax Return

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File 2011 Tax Return

File 2011 tax return Publication 557 - Introductory Material Table of Contents What's New Reminders Introduction What's New Proposed regulations on “good faith determinations”. File 2011 tax return  Proposed regulations modify standards for making a good faith determination that a foreign organization is a charitable organization, grants to which may be qualifying distributions and not taxable expenditures. File 2011 tax return The proposed regulations identify a broader class of tax practitioners upon whose written advice a private foundation may base a “good faith determination. File 2011 tax return ” See, Proposed Regulations: Reliance Standards for Making Good Faith Determinations, REG-134974-12, 2012-47 I. File 2011 tax return R. File 2011 tax return B. File 2011 tax return 553. File 2011 tax return Prop. File 2011 tax return Regs. File 2011 tax return on Good Faith Determinations. File 2011 tax return New Requirements for section 501(c)(3) Hospitals Under the Affordable Care Act. File 2011 tax return  The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting requirements and excise taxes. File 2011 tax return On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to section 501(c)(3) hospital organizations. File 2011 tax return See, Proposed Regulations: Additional Requirements for Charitable Hospitals, REG-13026-11, 77 Fed. File 2011 tax return Reg. File 2011 tax return 38148. File 2011 tax return On April 3, 2013, the Service issued proposed regulations on the ACA's community health needs assessment (CHNA) requirements. File 2011 tax return The proposed regulations also discuss the related reporting and excise tax requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. File 2011 tax return See, Proposed Regulations: Community Health Needs Assessments for Charitable Hospitals, REG-106499-12, 78 Fed. File 2011 tax return Reg. File 2011 tax return 20,523. File 2011 tax return Timing of when an Organization is exempt for Federal Tax Purposes. File 2011 tax return  As noted in section 2. File 2011 tax return 03(4) of Revenue Procedure 2013-9, 2013-2 I. File 2011 tax return R. File 2011 tax return B. File 2011 tax return 267, the provisions in section 11. File 2011 tax return 01 regarding the effect of determination letters or rulings recognizing exempt status of organizations described in section 501(c), other than sections 501(c)(3), (9), (17), and (29), have been revised. File 2011 tax return Prior to this year, and back to 1962, when such organizations applied for recognition, the IRS would usually recognize the organizations as tax exempt from the date of formation, no matter how long the interval between the date of formation and the date of application. File 2011 tax return In addition to the practical difficulties of ascertaining an organization's purposes and activities for this period, such recognition is now potentially inconsistent with the provisions of section 6033(j), which automatically revokes the exempt status of an organization that fails to file required Form 990 series returns or notices for three consecutive years. File 2011 tax return The new procedure adopts a practice similar to the rule for section 501(c)(3) organizations for these organizations, generally permitting recognition from the date of formation if the organization has: always met the requirements for exemption, has applied within 27 months from the end of the month in which it was organized, and has not failed to file required Form 990 series returns or notices for three consecutive years. File 2011 tax return Section 11. File 2011 tax return 01(3) notes: an organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter or ruling that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application. File 2011 tax return Exempt Organizations Select Check. File 2011 tax return  The IRS has developed an on-line search tool, Exempt Organizations Select Check, that allows users to select an exempt organization and check certain information about its federal tax status and filings. File 2011 tax return It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data). File 2011 tax return Users may rely on this list in determining deductibility of contributions, just as they did when Publication 78 was a separate electronic publication rather than part of Select Check. File 2011 tax return Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List). File 2011 tax return Have filed a Form 990-N (e-Postcard) annual electronic notice. File 2011 tax return  In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check. File 2011 tax return See also Revenue Procedure 2011-33, 2011-25 I. File 2011 tax return R. File 2011 tax return B. File 2011 tax return 887. File 2011 tax return Future developments. File 2011 tax return . File 2011 tax return  The IRS has created a page on IRS. File 2011 tax return gov for information about Publication 557, at www. File 2011 tax return irs. File 2011 tax return gov/pub557. File 2011 tax return Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page. File 2011 tax return Reminders The Patient Protection and Affordable Care Act (ACA). File 2011 tax return   The ACA added several new laws. File 2011 tax return This includes a new excise tax on indoor tanning services, a small business health care tax credit, additional requirements for tax-exempt hospitals, and the section 501(c)(29) CO-OP program. File 2011 tax return For more information, go to IRS. File 2011 tax return gov and select Affordable Care Act Tax Provisions. File 2011 tax return Electronic filing requirement for large organizations. File 2011 tax return  For tax years ending on or after December 31, 2006, only organizations that file 250 returns during the calendar year and that have total assets of $10 million or more are required to file Form 990 electronically. File 2011 tax return For more information, go to e-file for Charities and Non-Profits. File 2011 tax return Section 501(c)(15) gross receipts. File 2011 tax return   The definition of gross receipts for purposes of determining whether small insurance companies qualify as tax-exempt under section 501(c)(15) has changed. File 2011 tax return See Notice 2006-42, 2006-19 I. File 2011 tax return R. File 2011 tax return B. File 2011 tax return 878, Notice 2006-42. File 2011 tax return Prohibited tax shelter transactions. File 2011 tax return  New excise taxes are imposed under section 4965 on certain tax-exempt organizations entering into prohibited tax shelter transactions. File 2011 tax return See T. File 2011 tax return D. File 2011 tax return 9492, Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirements, 2010-33 I. File 2011 tax return R. File 2011 tax return B. File 2011 tax return 242. File 2011 tax return See IRS Issues Final Regulations Regarding Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirement. File 2011 tax return Pension Protection Act of 2006 tax changes. File 2011 tax return  The Pension Protection Act of 2006 made numerous changes to the tax law provisions affecting tax-exempt organizations. File 2011 tax return Unless otherwise noted, most of the changes became effective on August 17, 2006. File 2011 tax return For key provisions, go to The Pension Protection Act of 2006. File 2011 tax return Section 501(c)(3) organizations must make their Form 990-T, Exempt Organization Business Tax Return (and proxy tax under section 6033(e)), open for public inspection for a period of 3 years from the date the Form 990-T is required to be filed (determined with regard to any extension of time for filing) or is actually filed, whichever is later. File 2011 tax return There is an increase in excise taxes relating to public charities, social welfare organizations, and private foundations. File 2011 tax return There are additional standards for credit counseling organizations. File 2011 tax return The definition of convention or association of churches has been modified. File 2011 tax return Entities that are not required to file Form 990 or 990-EZ must file new Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. File 2011 tax return The requirements of disclosure to state officials relating to exempt organizations has been modified. File 2011 tax return There are excise taxes imposed on excess benefit transactions involving donor advised funds and sponsoring organizations. File 2011 tax return There are new excise taxes on prohibited tax shelter transactions. File 2011 tax return There is a modification of recordkeeping requirements for certain charitable contributions. File 2011 tax return Introduction This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). File 2011 tax return It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. File 2011 tax return To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. File 2011 tax return Organizations that are exempt under section 501(a) include those organizations described in section 501(c). File 2011 tax return Section 501(c) organizations are covered in this publication. File 2011 tax return Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status. File 2011 tax return Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status. File 2011 tax return Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status. File 2011 tax return Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c). File 2011 tax return Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed. File 2011 tax return Organizations not discussed in this publication. File 2011 tax return   Certain organizations that may qualify for exemption are not discussed in this publication, although they are included in the Organization Reference Chart. File 2011 tax return These organizations (and the Code sections that apply to them) are as follows. File 2011 tax return Corporations organized under Acts of Congress 501(c)(1) Teachers' retirement fund associations 501(c)(11) Mutual insurance companies 501(c)(15) Corporations organized to finance crop operations 501(c)(16) Employee funded pension trusts (created before June 25, 1959) 501(c)(18) Withdrawal liability payment fund 501(c)(22) Veterans' organizations (created before 1880) 501(c)(23) National Railroad Retirement Investment Trust 501(c)(28) Religious and apostolic associations 501(d) Cooperative hospital service organizations 501(e) Cooperative service organizations of operating educational organizations 501(f)   Section 501(c)(24) organizations (section 4049 ERISA trusts) are neither discussed in the text nor listed in the Organization Reference Chart. File 2011 tax return   Similarly, farmers' cooperative associations that qualify for exemption under section 521, qualified state tuition programs described in section 529, and pension, profit-sharing, and stock bonus plans described in section 401(a) are not discussed in this publication. File 2011 tax return If you think your organization falls within one of these categories, contact the IRS for any additional information you need. File 2011 tax return For telephone assistance, call 1-877-829-5500. File 2011 tax return   Check the Table of Contents at the beginning of this publication to determine whether your organization is described in this publication. File 2011 tax return If it is, read the chapter (or section) that applies to your type of organization for the specific information you must give when applying for recognition of exemption. File 2011 tax return Organization Reference Chart. File 2011 tax return   The Organization Reference Chart enables you to locate at a glance the section of the Code under which your organization might qualify for exemption. File 2011 tax return It also shows the required application form and, if your organization meets the exemption requirements, the annual return to be filed (if any), and whether or not a contribution to your organization will be deductible by a donor. File 2011 tax return It also describes each type of qualifying organization and the general nature of its activities. File 2011 tax return   You may use the Organization Reference Chart to determine the Code section that you think applies to your organization. File 2011 tax return Any correspondence with the IRS (in requesting forms or otherwise) will be expedited if you indicate in your correspondence the appropriate Code section. File 2011 tax return Check the IRS website, IRS. File 2011 tax return gov, for the latest updates, Tax Information for Charities & Other Non-Profits, www. File 2011 tax return irs. File 2011 tax return gov/charities/index. File 2011 tax return html. File 2011 tax return Comments and suggestions. File 2011 tax return   We welcome your comments about this publication and your suggestions for future editions. File 2011 tax return   You can e-mail us while visiting our website at IRS. File 2011 tax return gov. File 2011 tax return   You can send your comments to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. File 2011 tax return NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. File 2011 tax return Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. File 2011 tax return   If you wish telephone assistance, please call 1-877-829-5500. File 2011 tax return This toll-free telephone service is available Monday through Friday. File 2011 tax return Prev  Up  Next   Home   More Online Publications
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Projections of Federal Tax Return Filings - IRS Office of Research

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Here you will find forecasts of the number of returns to be filed for tax forms within the individual, tax-exempt, and business areas. These statistical projections are developed by the IRS Office of Research.

Projections Publications

The following publications are available as an Adobe Acrobat PDF file. A free Adobe® reader is available for download, if needed. Also, the following tables are available as Microsoft Excel spreadsheets. A free Excel® reader is available for download, if needed.

Calendar Year Projections of Information and Withholding Documents for the United States and IRS Campuses (PDF)
Publication 6961 (Revised 12/12) by IRS; Research, Analysis, and Statistics; Office of Research
This IRS Publication contains multi-year projections of the number of information and withholding documents to be filed with the IRS. The publication includes detailed projections by approximately 30 information document types such as Form W-2, Form 1099INT, etc., by medium of filing (paper versus electronic) and by IRS processing campus location.
Fiscal Year Return Projections for the United States (PDF)
Publication 6292 (Revised 07/12) by IRS; Research, Analysis, and Statistics; Office of Research
IRS Publication 6292 contains multi-year projections of the number of tax returns to be filed with the IRS by fiscal year of filing. The publication includes detailed projections by approximately 50 different individual, business and tax-exempt return types such as Form 1040, Form 1120, Form 941 and Form 990. There is also additional detail by medium of filing (paper versus electronic) and by IRS business operating division categorizations.
Calendar Year Projections of Individual Returns by Major Processing Categories, Selected Years and Areas (PDF)
Publication 6187 (Revised 11/12) by IRS; Research, Analysis, and Statistics; Office of Research
IRS Publication 6187 contains multi-year projections of the number of individual Form 1040 series returns to be filed with the IRS by major processing categories important to IRS planning operations. This includes detail by form type (Forms 1040, 1040A, and 1040EZ), by medium of filing (paper versus electronic), and by other characteristics such as refund returns. Selected portions of the forecasts are also shown by IRS processing campus location, and by state.
Calendar Year Return Projections for the United States and IRS Campuses (PDF)
Publication 6186 (Revised 10/13) by IRS; Research, Analysis, and Statistics; Office of Research
IRS Publication 6186 contains multi-year projections of the number of tax returns to be filed with the IRS by the calendar year of filing. The publication includes detailed projections by approximately 50 different individual, business and tax-exempt return types such as Form 1040, Form 1120, Form 941 and Form 990. There is also additional detail by medium of filing (paper versus electronic) and by IRS processing campus location.
Calendar Year Return Projections by State (PDF)
Publication 6149 (Revised 12/12) by IRS; Research, Analysis, and Statistics; Office of Research.
IRS Publication 6149 contains multi-year projections of the number of tax returns to be filed with the IRS by state—as determined by the addresses on the tax returns. The publication includes detailed projections by approximately 50 different individual, business and tax-exempt return types such as Form 1040, Form 1120, Form 941 and Form 990. There is also additional detail by medium of filing (paper versus electronic).

Articles

Projections of Federal Tax Return Filings: Calendar Years 2009–2016
Winter Bulletin, 2010

A grand total of 238 million tax returns are projected to be filed with the IRS during Calendar Year (CY) 2010. This number represents a decrease of 1 percent from the estimated CY 2009 filings of 240.4 million returns.

Related
Statistical Table: 1
Projections of Federal Tax Return Filings: Calendar Years 2005–2012
SOI Bulletin, Winter 2005–2006
Taxpayers are expected to file a grand total of 229.3 million tax returns with the Internal Revenue Service (IRS) during Calendar Year (CY) 2006. That projected level reflects a modest increase of only 0.1 percent over the estimated CY 2005 filings of 229.0 million. Related
Statistical Table: 1

Historical Projections Table


Data Presented

Selected Returns and Forms Filed or To Be Filed by Type During Specified Calendar Years
Tax Years
1990–2007
Published as:
SOI Bulletin, Historical Table 22

 

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Page Last Reviewed or Updated: 15-Nov-2013

The File 2011 Tax Return

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