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Free 2012 Federal Tax Filing

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Free 2012 Federal Tax Filing

Free 2012 federal tax filing Publication 517 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. Free 2012 federal tax filing Tax questions. Free 2012 federal tax filing Useful Items - You may want to see: What's New SE tax rate. Free 2012 federal tax filing  For 2013 and 2014, the Old Age, Survivors, and Disability Insurance (OASDI) portion of the SE tax is 12. Free 2012 federal tax filing 4%. Free 2012 federal tax filing The Medicare (HI) portion of the SE tax remains 2. Free 2012 federal tax filing 9%. Free 2012 federal tax filing As a result, the SE tax rate returns to 15. Free 2012 federal tax filing 3%. Free 2012 federal tax filing For more information, see the Instructions for Schedule SE (Form 1040). Free 2012 federal tax filing Earnings subject to social security. Free 2012 federal tax filing  For 2013, the maximum wages and self-employment income subject to social security tax increases from $110,100 to $113,700. Free 2012 federal tax filing For 2014, the maximum wages and self-employment income subject to social security tax is $117,000. Free 2012 federal tax filing Additional Medicare Tax. Free 2012 federal tax filing  Beginning in 2013, a 0. Free 2012 federal tax filing 9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Free 2012 federal tax filing For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Free 2012 federal tax filing Modified AGI limit for traditional IRA contributions increased. Free 2012 federal tax filing  For 2013, you may be able to take an IRA deduction if you were covered by a retirement plan at work and your modified AGI is: Less than $115,000 if married filing jointly or qualifying widow(er), Less than $69,000 if single or head of household, or Less than $10,000 if married filing separately. Free 2012 federal tax filing If you file a joint return and either you or your spouse was not covered by a retirement plan at work, you may be able to take an IRA deduction if your modified AGI is less than $188,000. Free 2012 federal tax filing Modified AGI limit for Roth IRA contributions increased. Free 2012 federal tax filing  For 2013, you may be able to contribute to your Roth IRA if your modified AGI is: Less than $188,000 if married filing jointly or qualifying widow(er), Less than $127,000 if single, head of household, or married filing separately and you did not live with your spouse at any time during the year, or Less than $10,000 if married filing separately and you lived with your spouse at any time during the year. Free 2012 federal tax filing Earned income credit (EIC). Free 2012 federal tax filing  For 2013, the maximum amount of income you can earn and still claim the EIC has increased. Free 2012 federal tax filing You may be able to take the EIC if you earned less than $46,227 ($51,567 for married filing jointly) and you have three or more qualifying children; $43,038 ($48,378 for married filing jointly) and you have two qualifying children; $37,870 ($43,210 for married filing jointly) and you have one qualifying child; and $14,340 ($19,680 for married filing jointly) and you do not have any qualifying children. Free 2012 federal tax filing Reminders Future developments. Free 2012 federal tax filing . Free 2012 federal tax filing   For the latest information about developments related to Publication 517, such as legislation enacted after it was published, go to www. Free 2012 federal tax filing irs. Free 2012 federal tax filing gov/pub517. Free 2012 federal tax filing Photographs of missing children. Free 2012 federal tax filing  The Internal Revenue Service is a proud partner with the National Center for Missing & Exploited Children. Free 2012 federal tax filing Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free 2012 federal tax filing You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free 2012 federal tax filing Introduction Three federal taxes are paid on wages and self-employment income—income tax, social security tax, and Medicare tax. Free 2012 federal tax filing Social security and Medicare taxes are collected under one of two systems. Free 2012 federal tax filing Under the Self-Employment Contributions Act (SECA), the self-employed person pays all the taxes. Free 2012 federal tax filing Under the Federal Insurance Contributions Act (FICA), the employee and the employer each pay half of the social security and Medicare taxes. Free 2012 federal tax filing No earnings are subject to both systems. Free 2012 federal tax filing Table 1. Free 2012 federal tax filing Are Your Ministerial Earnings* Covered Under FICA or SECA? Find the class to which you belong in the left column and read across the table to find if you are covered under FICA or SECA. Free 2012 federal tax filing Do not rely on this table alone. Free 2012 federal tax filing Also read the discussion for the class in the following pages. Free 2012 federal tax filing Class Covered under FICA? Covered under SECA? Minister NO. Free 2012 federal tax filing Your ministerial earnings are exempt. Free 2012 federal tax filing YES, if you do not have an approved exemption from the IRS. Free 2012 federal tax filing   NO, if you have an approved exemption. Free 2012 federal tax filing Member of a religious order who has not taken a vow of poverty NO. Free 2012 federal tax filing Your ministerial earnings are exempt. Free 2012 federal tax filing YES, if you do not have an approved exemption from the IRS. Free 2012 federal tax filing   NO, if you have an approved exemption. Free 2012 federal tax filing Member of a religious order who has taken a vow of poverty YES, if: Your order elected FICA coverage for its members, or You worked outside the order and the work was not required by, or done on behalf of, the order. Free 2012 federal tax filing   NO, if neither of the above applies. Free 2012 federal tax filing NO. Free 2012 federal tax filing Your ministerial earnings are exempt. Free 2012 federal tax filing Christian Science practitioner or reader NO. Free 2012 federal tax filing Your ministerial earnings are exempt. Free 2012 federal tax filing YES, if you do not have an approved exemption from the IRS. Free 2012 federal tax filing   NO, if you have an approved exemption. Free 2012 federal tax filing Religious worker (church employee) YES, if your employer did not elect to exclude you. Free 2012 federal tax filing    NO, if your employer elected to exclude you. Free 2012 federal tax filing YES, if your employer elected to exclude you from FICA. Free 2012 federal tax filing   NO, if you are covered under FICA. Free 2012 federal tax filing Member of a recognized religious sect YES, if you are an employee and do not have an approved exemption from the IRS. Free 2012 federal tax filing    NO, if you have an approved exemption. Free 2012 federal tax filing YES, if you are self-employed and do not have an approved exemption from the IRS. Free 2012 federal tax filing   NO, if you have an approved exemption. Free 2012 federal tax filing * Ministerial earnings are the self-employment earnings that result from ministerial services, defined and discussed later. Free 2012 federal tax filing In addition, all wages and self-employment income that are subject to Medicare tax are subject to a 0. Free 2012 federal tax filing 9% Additional Medicare Tax if they are paid in excess of the applicable threshold for an individual's filing status. Free 2012 federal tax filing Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than: $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status. Free 2012 federal tax filing Medicare wages and self-employment income are combined to determine if income exceeds the threshold. Free 2012 federal tax filing A self-employment loss is not considered for purposes of this tax. Free 2012 federal tax filing RRTA compensation is separately compared to the threshold. Free 2012 federal tax filing There is no employer match for Additional Medicare Tax. Free 2012 federal tax filing For more information, see Form 8959, Additional Medicare Tax, and its separate instructions. Free 2012 federal tax filing This publication contains information for the following classes of taxpayers. Free 2012 federal tax filing Ministers. Free 2012 federal tax filing Members of a religious order. Free 2012 federal tax filing Christian Science practitioners and readers. Free 2012 federal tax filing Religious workers (church employees). Free 2012 federal tax filing Members of a recognized religious sect. Free 2012 federal tax filing Note. Free 2012 federal tax filing Unless otherwise noted, in this publication references to members of the clergy include ministers, members of a religious order (but not members of a recognized religious sect), and Christian Science practitioners and readers. Free 2012 federal tax filing This publication covers the following topics about the collection of social security and Medicare taxes from members of the clergy, religious workers, and members of a recognized religious sect. Free 2012 federal tax filing Which earnings are taxed under FICA and which under SECA. Free 2012 federal tax filing See Table 1 above. Free 2012 federal tax filing How a member of the clergy can apply for an exemption from self-employment tax. Free 2012 federal tax filing How a member of a recognized religious sect can apply for an exemption from both self-employment tax and FICA taxes. Free 2012 federal tax filing How a member of the clergy or religious worker figures net earnings from self-employment. Free 2012 federal tax filing This publication also covers certain income tax rules of interest to ministers and members of a religious order. Free 2012 federal tax filing A Comprehensive Example shows filled-in forms for a minister who has income taxed under SECA, other income taxed under FICA, and income tax reporting of items specific to a minister. Free 2012 federal tax filing In the back of Publication 517 is a set of worksheets that you can use to figure the amount of your taxable ministerial income and allowable deductions. Free 2012 federal tax filing You will find these worksheets right after the Comprehensive Example . Free 2012 federal tax filing Note. Free 2012 federal tax filing In this publication, the term “church” is generally used in its generic sense and not in reference to any particular religion. Free 2012 federal tax filing Comments and suggestions. Free 2012 federal tax filing   We welcome your comments about this publication and your suggestions for future editions. Free 2012 federal tax filing   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free 2012 federal tax filing NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free 2012 federal tax filing Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free 2012 federal tax filing   You can send your comments from www. Free 2012 federal tax filing irs. Free 2012 federal tax filing gov/formspubs/. Free 2012 federal tax filing Click on “More Information” and then on “Give us feedback”. Free 2012 federal tax filing   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free 2012 federal tax filing Ordering forms and publications. Free 2012 federal tax filing   Visit www. Free 2012 federal tax filing irs. Free 2012 federal tax filing gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free 2012 federal tax filing Internal Revenue Service 1201 N. Free 2012 federal tax filing Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free 2012 federal tax filing   If you have a tax question, check the information available on IRS. Free 2012 federal tax filing gov or call 1-800-829-1040. Free 2012 federal tax filing We cannot answer tax questions sent to either of the above addresses. Free 2012 federal tax filing Useful Items - You may want to see: Publication 54 Tax Guide for U. Free 2012 federal tax filing S. Free 2012 federal tax filing Citizens and Resident Aliens Abroad 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 535 Business Expenses 590 Individual Retirement Arrangements (IRAs) 596 Earned Income Credit (EIC) Form (and Instructions) SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding SS-16 Certificate of Election of Coverage Under the Federal Insurance Contributions Act Schedule C (Form 1040) Profit or Loss From Business (Sole Proprietorship) Schedule C-EZ (Form 1040) Net Profit From Business (Sole Proprietorship) Schedule SE (Form 1040) Self-Employment Tax 1040-ES Estimated Tax for Individuals 1040X Amended U. Free 2012 federal tax filing S. Free 2012 federal tax filing Individual Income Tax Return 4029 Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits 4361 Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners 8274 Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes 8959 Additional Medicare Tax Ordering publications and forms. Free 2012 federal tax filing   See How To Get Tax Help , near the end of this publication, for information about getting these publications and forms. Free 2012 federal tax filing Prev  Up  Next   Home   More Online Publications
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Understanding Your CP103 Notice

We made changes to your railroad retirement tax return because we believe there was a miscalculation. As a result of these changes, you have a balance due.


What you need to do

  • Read the notice carefully.
  • Compare the figures on the notice with your railroad retirement tax return.
  • Contact us within 10 days of the date of your notice if you disagree with the changes we made.
  • Correct the copy of your railroad retirement return that you kept for your records if you agree with our changes.
  • Pay the amount owed by the date requested on the notice.
  • Contact us to make payment arrangements if you can’t pay the amount you owe.

You may want to

  • Download copies of the following materials (if they weren’t included with your notice).
  • Call 1-800-TAX-FORM to have forms and publications mailed to you.
  • Learn more about payment options and how to make payment arrangements.

 


Answers to Common Questions

Q. How can I find out what caused my tax return to change?

A. You can contact us at the number listed on your notice for specific information about your tax return.

Q. What should I do if I disagree with the changes you made?

A. If you disagree, contact us at the toll-free number listed on the top right corner of your notice or respond in writing within 10 days of the date of the notice. If your response provides additional information that justifies a reversal of the change, we’ll reverse the change we made to your account. If you agree with the change, please pay any additional balance due by the date specified in the notice.

Q. What happens if I can’t pay the full amount I owe?

A. You can arrange a payment plan with us if you can’t pay the full amount you owe. Please contact us to request any available payment options.

Q. Am I charged interest on the money I owe?

A. Not if you pay the full amount you owe by the date specified on the notice. However, interest accrues on the unpaid balance after that date.

Q. Will I receive a penalty if I can’t pay the full amount?

A. Yes, you will receive a late payment penalty. You can contact us at the number listed on your notice if you can’t pay the full amount you owe because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.


Tips for next year

Review your return for accuracy before mailing it to us.

Page Last Reviewed or Updated: 23-Jan-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Free 2012 Federal Tax Filing

Free 2012 federal tax filing 4. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing Category 1. Free 2012 federal tax filing Category 2. Free 2012 federal tax filing Category 3. Free 2012 federal tax filing What's New for 2013 Standard mileage rate. Free 2012 federal tax filing  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. Free 2012 federal tax filing 5 cents. Free 2012 federal tax filing See Truck and Car Expenses , later. Free 2012 federal tax filing Simplified method for business use of home deduction. Free 2012 federal tax filing  The IRS now provides a simplified method to determine your expenses for business use of your home. Free 2012 federal tax filing For more information, see Schedule C (Form 1040), Part II, and its instructions. Free 2012 federal tax filing Introduction You can generally deduct the current costs of operating your farm. Free 2012 federal tax filing Current costs are expenses you do not have to capitalize or include in inventory costs. Free 2012 federal tax filing However, your deduction for the cost of livestock feed and certain other supplies may be limited. Free 2012 federal tax filing If you have an operating loss, you may not be able to deduct all of it. Free 2012 federal tax filing 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. Free 2012 federal tax filing Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Free 2012 federal tax filing “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Free 2012 federal tax filing Schedule F, Part II, lists some common farm expenses that are typically deductible. Free 2012 federal tax filing This chapter discusses many of these expenses, as well as others not listed on Schedule F. Free 2012 federal tax filing Reimbursed expenses. Free 2012 federal tax filing   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Free 2012 federal tax filing If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Free 2012 federal tax filing See Refund or reimbursement under Income From Other Sources in chapter 3. Free 2012 federal tax filing Personal and business expenses. Free 2012 federal tax filing   Some expenses you pay during the tax year may be part personal and part business. Free 2012 federal tax filing These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Free 2012 federal tax filing   You must allocate these mixed expenses between their business and personal parts. Free 2012 federal tax filing Generally, the personal part of these expenses is not deductible. Free 2012 federal tax filing The business portion of the expenses is deductible on Schedule F. Free 2012 federal tax filing Example. Free 2012 federal tax filing You paid $1,500 for electricity during the tax year. Free 2012 federal tax filing You used 1/3 of the electricity for personal purposes and 2/3 for farming. Free 2012 federal tax filing Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Free 2012 federal tax filing Reasonable allocation. Free 2012 federal tax filing   It is not always easy to determine the business and nonbusiness parts of an expense. Free 2012 federal tax filing There is no method of allocation that applies to all mixed expenses. Free 2012 federal tax filing Any reasonable allocation is acceptable. Free 2012 federal tax filing What is reasonable depends on the circumstances in each case. Free 2012 federal tax filing Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Free 2012 federal tax filing 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. Free 2012 federal tax filing Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Free 2012 federal tax filing 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. Free 2012 federal tax filing Poultry bought for resale and not resold during the year. Free 2012 federal tax filing Deduction limit. Free 2012 federal tax filing   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). Free 2012 federal tax filing This limit does not apply if you meet one of the exceptions described later. Free 2012 federal tax filing See Chapter 2 for a discussion of the cash method of accounting. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Free 2012 federal tax filing Example. Free 2012 federal tax filing You may not qualify for the exception described next. Free 2012 federal tax filing During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Free 2012 federal tax filing Your total prepaid farm supplies expense for 2013 is $5,500. Free 2012 federal tax filing Your other deductible farm expenses totaled $10,000 for 2013. Free 2012 federal tax filing Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Free 2012 federal tax filing 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. Free 2012 federal tax filing Exceptions. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing   You are a farm-related taxpayer if any of the following tests apply. Free 2012 federal tax filing Your main home is on a farm. Free 2012 federal tax filing Your principal business is farming. Free 2012 federal tax filing A member of your family meets (1) or (2). Free 2012 federal tax filing 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. Free 2012 federal tax filing    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. Free 2012 federal tax filing 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. Free 2012 federal tax filing The payment is for the purchase of feed rather than a deposit. Free 2012 federal tax filing The prepayment has a business purpose and is not merely for tax avoidance. Free 2012 federal tax filing Deducting the prepayment does not result in a material distortion of your income. Free 2012 federal tax filing If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Free 2012 federal tax filing If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Free 2012 federal tax filing This rule does not apply to the purchase of commodity futures contracts. Free 2012 federal tax filing Payment for the purchase of feed. Free 2012 federal tax filing   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Free 2012 federal tax filing 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. Free 2012 federal tax filing   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Free 2012 federal tax filing The absence of specific quantity terms. Free 2012 federal tax filing The right to a refund of any unapplied payment credit at the end of the contract. Free 2012 federal tax filing The seller's treatment of the payment as a deposit. Free 2012 federal tax filing The right to substitute other goods or products for those specified in the contract. Free 2012 federal tax filing   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. Free 2012 federal tax filing Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Free 2012 federal tax filing Business purpose. Free 2012 federal tax filing   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. Free 2012 federal tax filing The following are some examples of business benefits. Free 2012 federal tax filing Fixing maximum prices and securing an assured feed supply. Free 2012 federal tax filing Securing preferential treatment in anticipation of a feed shortage. Free 2012 federal tax filing   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. Free 2012 federal tax filing No material distortion of income. Free 2012 federal tax filing   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Free 2012 federal tax filing Your customary business practice in conducting your livestock operations. Free 2012 federal tax filing The expense in relation to past purchases. Free 2012 federal tax filing The time of year you made the purchase. Free 2012 federal tax filing The expense in relation to your income for the year. Free 2012 federal tax filing 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. Free 2012 federal tax filing You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Free 2012 federal tax filing The cost of boarding farm labor is a deductible labor cost. Free 2012 federal tax filing Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Free 2012 federal tax filing 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. Free 2012 federal tax filing See chapter 13 for more information on employment taxes. Free 2012 federal tax filing 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. Free 2012 federal tax filing See Taxes , later. Free 2012 federal tax filing Property for services. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing   Treat the wages deducted as an amount received for the property. Free 2012 federal tax filing 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. Free 2012 federal tax filing Any gain or loss has the same character the exchanged property had in your hands. Free 2012 federal tax filing For more information, see chapter 8. Free 2012 federal tax filing Child as an employee. Free 2012 federal tax filing   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. Free 2012 federal tax filing Include these wages in the child's income. Free 2012 federal tax filing The child may have to file an income tax return. Free 2012 federal tax filing These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Free 2012 federal tax filing For more information, see Family Employees in chapter 13. Free 2012 federal tax filing    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Free 2012 federal tax filing   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. Free 2012 federal tax filing The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Free 2012 federal tax filing Spouse as an employee. Free 2012 federal tax filing   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. Free 2012 federal tax filing Wages you pay to your spouse are subject to social security and Medicare taxes. Free 2012 federal tax filing For more information, see Family Employees in chapter 13. Free 2012 federal tax filing Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Free 2012 federal tax filing However, those wages may be subject to the employment taxes discussed in chapter 13. Free 2012 federal tax filing Household workers. Free 2012 federal tax filing   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. Free 2012 federal tax filing Construction labor. Free 2012 federal tax filing   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Free 2012 federal tax filing These wages are part of the cost of the building or other improvement. Free 2012 federal tax filing You must capitalize them. Free 2012 federal tax filing Maintaining your home. Free 2012 federal tax filing   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. Free 2012 federal tax filing For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Free 2012 federal tax filing The employee devotes the remaining time to work on your farm. Free 2012 federal tax filing You cannot deduct 5% of the wages and employment taxes you pay for that employee. Free 2012 federal tax filing 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). Free 2012 federal tax filing Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For example, if you repair the barn roof, the cost is deductible. Free 2012 federal tax filing But if you replace the roof, it is a capital expense. Free 2012 federal tax filing For more information, see Capital Expenses , later. Free 2012 federal tax filing Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Free 2012 federal tax filing Cash method. Free 2012 federal tax filing   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Free 2012 federal tax filing You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Free 2012 federal tax filing You can, however, deduct the interest when you start making payments on the new loan. Free 2012 federal tax filing For more information, see Cash Method in chapter 2. Free 2012 federal tax filing Prepaid interest. Free 2012 federal tax filing   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Free 2012 federal tax filing Interest paid in advance may be deducted only in the tax year in which it is due. Free 2012 federal tax filing Accrual method. Free 2012 federal tax filing   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Free 2012 federal tax filing 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. Free 2012 federal tax filing For more information, see Accrual Method in chapter 2. Free 2012 federal tax filing Allocation of interest. Free 2012 federal tax filing   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Free 2012 federal tax filing Allocate the interest to the following categories. Free 2012 federal tax filing Trade or business interest. Free 2012 federal tax filing Passive activity interest. Free 2012 federal tax filing Investment interest. Free 2012 federal tax filing Portfolio interest. Free 2012 federal tax filing Personal interest. Free 2012 federal tax filing   You generally allocate interest on a loan the same way you allocate the loan proceeds. Free 2012 federal tax filing You allocate loan proceeds by tracing disbursements to specific uses. Free 2012 federal tax filing The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Free 2012 federal tax filing Secured loan. Free 2012 federal tax filing   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Free 2012 federal tax filing Example. Free 2012 federal tax filing You secure a loan with property used in your farming business. Free 2012 federal tax filing You use the loan proceeds to buy a car for personal use. Free 2012 federal tax filing 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. Free 2012 federal tax filing If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Free 2012 federal tax filing The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Free 2012 federal tax filing However, you can choose to treat the loan as not secured by your home. Free 2012 federal tax filing For more information, see Publication 936. Free 2012 federal tax filing Allocation period. Free 2012 federal tax filing   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. Free 2012 federal tax filing The date the loan is repaid. Free 2012 federal tax filing The date the loan is reallocated to another use. Free 2012 federal tax filing More information. Free 2012 federal tax filing   For more information on interest, see chapter 4 in Publication 535. Free 2012 federal tax filing Breeding Fees You can deduct breeding fees as a farm business expense. Free 2012 federal tax filing 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. Free 2012 federal tax filing For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Free 2012 federal tax filing 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. Free 2012 federal tax filing You can also deduct the cost of applying these materials in the year you pay or incur it. Free 2012 federal tax filing However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Free 2012 federal tax filing 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. Free 2012 federal tax filing However, you can choose to deduct these expenses in the year paid or incurred. Free 2012 federal tax filing If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Free 2012 federal tax filing 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. Free 2012 federal tax filing Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Free 2012 federal tax filing It does not include land you have never used previously for producing crops or sustaining livestock. Free 2012 federal tax filing You cannot deduct initial land preparation costs. Free 2012 federal tax filing (See Capital Expenses , later. Free 2012 federal tax filing ) Include government payments you receive for lime or fertilizer in income. Free 2012 federal tax filing See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For information on employment taxes, see chapter 13. Free 2012 federal tax filing Allocation of taxes. Free 2012 federal tax filing   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. Free 2012 federal tax filing You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Free 2012 federal tax filing To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Free 2012 federal tax filing The allocation can be done from the assessed valuations. Free 2012 federal tax filing If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Free 2012 federal tax filing State and local general sales taxes. Free 2012 federal tax filing   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Free 2012 federal tax filing 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. Free 2012 federal tax filing Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Free 2012 federal tax filing State and federal income taxes. Free 2012 federal tax filing   Individuals cannot deduct state and federal income taxes as farm business expenses. Free 2012 federal tax filing Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Free 2012 federal tax filing However, you cannot deduct federal income tax. Free 2012 federal tax filing Highway use tax. Free 2012 federal tax filing   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Free 2012 federal tax filing 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. Free 2012 federal tax filing Self-employment tax deduction. Free 2012 federal tax filing   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Free 2012 federal tax filing For more information, see chapter 12. Free 2012 federal tax filing Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Free 2012 federal tax filing This includes premiums you pay for the following types of insurance. Free 2012 federal tax filing Fire, storm, crop, theft, liability, and other insurance on farm business assets. Free 2012 federal tax filing Health and accident insurance on your farm employees. Free 2012 federal tax filing 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. Free 2012 federal tax filing Business interruption insurance. Free 2012 federal tax filing State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Free 2012 federal tax filing Insurance to secure a loan. Free 2012 federal tax filing   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. Free 2012 federal tax filing In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Free 2012 federal tax filing Advance premiums. Free 2012 federal tax filing   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Free 2012 federal tax filing Example. Free 2012 federal tax filing On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Free 2012 federal tax filing The policy will cover a period of 3 years beginning on July 1, 2013. Free 2012 federal tax filing Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Free 2012 federal tax filing Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Free 2012 federal tax filing In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Free 2012 federal tax filing Deduct the remaining $500 in 2016. Free 2012 federal tax filing 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. Free 2012 federal tax filing Business interruption insurance. Free 2012 federal tax filing   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Free 2012 federal tax filing This insurance pays for lost profits if your business is shut down due to a fire or other cause. Free 2012 federal tax filing Report any proceeds in full on Schedule F, Part I. Free 2012 federal tax filing Self-employed health insurance deduction. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Free 2012 federal tax filing   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. Free 2012 federal tax filing   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Free 2012 federal tax filing Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Free 2012 federal tax filing   For more information, see Deductible Premiums in Publication 535, chapter 6. Free 2012 federal tax filing Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Free 2012 federal tax filing However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Free 2012 federal tax filing Advance payments. Free 2012 federal tax filing   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Free 2012 federal tax filing Farm home. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Free 2012 federal tax filing Conditional sales contract. Free 2012 federal tax filing   Whether an agreement is a conditional sales contract depends on the intent of the parties. Free 2012 federal tax filing Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Free 2012 federal tax filing No single test, or special combination of tests, always applies. Free 2012 federal tax filing However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Free 2012 federal tax filing The agreement applies part of each payment toward an equity interest you will receive. Free 2012 federal tax filing You get title to the property after you make a stated amount of required payments. Free 2012 federal tax filing 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. Free 2012 federal tax filing You pay much more than the current fair rental value of the property. Free 2012 federal tax filing 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. Free 2012 federal tax filing Determine this value when you make the agreement. Free 2012 federal tax filing You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Free 2012 federal tax filing The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Free 2012 federal tax filing Example. Free 2012 federal tax filing You lease new farm equipment from a dealer who both sells and leases. Free 2012 federal tax filing The agreement includes an option to purchase the equipment for a specified price. Free 2012 federal tax filing The lease payments and the specified option price equal the sales price of the equipment plus interest. Free 2012 federal tax filing Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Free 2012 federal tax filing For federal income tax purposes, the agreement is a conditional sales contract. Free 2012 federal tax filing You cannot deduct any of the lease payments as rent. Free 2012 federal tax filing You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Free 2012 federal tax filing Motor vehicle leases. Free 2012 federal tax filing   Special rules apply to lease agreements that have a terminal rental adjustment clause. Free 2012 federal tax filing 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. Free 2012 federal tax filing If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Free 2012 federal tax filing For more information, see Internal Revenue Code (IRC) section 7701(h). Free 2012 federal tax filing Leveraged leases. Free 2012 federal tax filing   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Free 2012 federal tax filing 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. Free 2012 federal tax filing irs. Free 2012 federal tax filing gov/pub/irs-irbs/irb01-19. Free 2012 federal tax filing pdf. Free 2012 federal tax filing 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. Free 2012 federal tax filing You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Free 2012 federal tax filing 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. Free 2012 federal tax filing Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing You use it exclusively and regularly for the administrative or management activities of your trade or business. Free 2012 federal tax filing You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Free 2012 federal tax filing If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Free 2012 federal tax filing The IRS now provides a simplified method to determine your expenses for business use of your home. Free 2012 federal tax filing For more information, see Schedule C (Form 1040), Part II, and its instructions. Free 2012 federal tax filing Deduction limit. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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). Free 2012 federal tax filing Farm expenses other than expenses that relate to the use of your home. Free 2012 federal tax filing If you are self-employed, do not include your deduction for half of your self-employment tax. Free 2012 federal tax filing   Deductions over the current year's limit can be carried over to your next tax year. Free 2012 federal tax filing They are subject to the deduction limit for the next tax year. Free 2012 federal tax filing More information. Free 2012 federal tax filing   See Publication 587 for more information on deducting expenses for the business use of your home. Free 2012 federal tax filing Telephone expense. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing Cell phone charges for calls relating to your farm business are deductible. Free 2012 federal tax filing 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. Free 2012 federal tax filing Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Free 2012 federal tax filing Only expenses for business use are deductible. Free 2012 federal tax filing These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Free 2012 federal tax filing Standard mileage rate. Free 2012 federal tax filing   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Free 2012 federal tax filing The standard mileage rate for each mile of business use is 56. Free 2012 federal tax filing 5 cents in 2013. Free 2012 federal tax filing 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. Free 2012 federal tax filing   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Free 2012 federal tax filing 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. Free 2012 federal tax filing Example. Free 2012 federal tax filing Maureen owns a car and four pickup trucks that are used in her farm business. Free 2012 federal tax filing Her farm employees use the trucks and she uses the car for business. Free 2012 federal tax filing Maureen cannot use the standard mileage rate for the car or the trucks. Free 2012 federal tax filing This is because all five vehicles are used in Maureen's farm business at the same time. Free 2012 federal tax filing She must use actual expenses for all vehicles. Free 2012 federal tax filing Business use percentage. Free 2012 federal tax filing   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. Free 2012 federal tax filing You choose this method of substantiating business use the first year the vehicle is placed in service. Free 2012 federal tax filing Once you make this choice, you may not change to another method later. Free 2012 federal tax filing The following are uses directly connected with the business of farming. Free 2012 federal tax filing Cultivating land. Free 2012 federal tax filing Raising or harvesting any agricultural or horticultural commodity. Free 2012 federal tax filing Raising, shearing, feeding, caring for, training, and managing animals. Free 2012 federal tax filing Driving to the feed or supply store. Free 2012 federal tax filing   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Free 2012 federal tax filing See Recordkeeping requirements under Travel Expenses , below. Free 2012 federal tax filing More information. Free 2012 federal tax filing   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Free 2012 federal tax filing 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. Free 2012 federal tax filing Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Free 2012 federal tax filing You cannot deduct lavish or extravagant expenses. Free 2012 federal tax filing Usually, the location of your farm business is considered your home for tax purposes. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing The following are some types of deductible travel expenses. Free 2012 federal tax filing 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. Free 2012 federal tax filing Meals. Free 2012 federal tax filing   You ordinarily can deduct only 50% of your business-related meals expenses. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For information on entertainment expenses, see Publication 463, chapter 2. Free 2012 federal tax filing   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Free 2012 federal tax filing You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Free 2012 federal tax filing    Recordkeeping requirements. Free 2012 federal tax filing You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Free 2012 federal tax filing Estimates or approximations do not qualify as proof of an expense. Free 2012 federal tax filing   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. Free 2012 federal tax filing Generally, it is best to record the expense and get documentation of it at the time you pay it. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing More information. Free 2012 federal tax filing   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Free 2012 federal tax filing Reimbursements to employees. Free 2012 federal tax filing   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Free 2012 federal tax filing Employees may be reimbursed under an accountable or nonaccountable plan. Free 2012 federal tax filing Under an accountable plan, the employee must provide evidence of expenses. Free 2012 federal tax filing Under a nonaccountable plan, no evidence of expenses is required. Free 2012 federal tax filing If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Free 2012 federal tax filing If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Free 2012 federal tax filing For more information, see Publication 535, chapter 11. Free 2012 federal tax filing Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Free 2012 federal tax filing 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. Free 2012 federal tax filing Do not take a separate deduction for the penalty. Free 2012 federal tax filing Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Free 2012 federal tax filing These costs include repairs, utilities, insurance, and depreciation. Free 2012 federal tax filing The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Free 2012 federal tax filing 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. Free 2012 federal tax filing You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Free 2012 federal tax filing However, see Chickens, seeds, and young plants , below. Free 2012 federal tax filing Example. Free 2012 federal tax filing You use the cash method of accounting. Free 2012 federal tax filing In 2013, you buy 50 steers you will sell in 2014. Free 2012 federal tax filing You cannot deduct the cost of the steers on your 2013 tax return. Free 2012 federal tax filing You deduct their cost on your 2014 Schedule F, Part I. Free 2012 federal tax filing Chickens, seeds, and young plants. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Free 2012 federal tax filing   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Free 2012 federal tax filing You cannot also deduct the cost from the selling price. Free 2012 federal tax filing   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Free 2012 federal tax filing Deduct the cost of these seeds and plants through depletion allowances. Free 2012 federal tax filing For more information, see Depletion in chapter 7. Free 2012 federal tax filing   The cost of chickens and plants used as food for your family is never deductible. Free 2012 federal tax filing   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Free 2012 federal tax filing These rules are discussed in chapter 6. Free 2012 federal tax filing Example. Free 2012 federal tax filing You use the cash method of accounting. Free 2012 federal tax filing In 2013, you buy 500 baby chicks to raise for resale in 2014. Free 2012 federal tax filing You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Free 2012 federal tax filing 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. Free 2012 federal tax filing Election to use crop method. Free 2012 federal tax filing   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Free 2012 federal tax filing You must get IRS approval to use the crop method. Free 2012 federal tax filing If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Free 2012 federal tax filing For more information, see Crop method under Special Methods of Accounting in chapter 2. Free 2012 federal tax filing Choosing a method. Free 2012 federal tax filing   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. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For more information, see Change in Accounting Method in chapter 2. Free 2012 federal tax filing Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Free 2012 federal tax filing 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. Free 2012 federal tax filing Accounting fees. Free 2012 federal tax filing Advertising. Free 2012 federal tax filing Business travel and meals. Free 2012 federal tax filing Commissions. Free 2012 federal tax filing Consultant fees. Free 2012 federal tax filing Crop scouting expenses. Free 2012 federal tax filing Dues to cooperatives. Free 2012 federal tax filing Educational expenses (to maintain and improve farming skills). Free 2012 federal tax filing Farm-related attorney fees. Free 2012 federal tax filing Farm magazines. Free 2012 federal tax filing Ginning. Free 2012 federal tax filing Insect sprays and dusts. Free 2012 federal tax filing Litter and bedding. Free 2012 federal tax filing Livestock fees. Free 2012 federal tax filing Marketing fees. Free 2012 federal tax filing Milk assessment. Free 2012 federal tax filing Recordkeeping expenses. Free 2012 federal tax filing Service charges. Free 2012 federal tax filing Small tools expected to last one year or less. Free 2012 federal tax filing Stamps and stationery. Free 2012 federal tax filing Subscriptions to professional, technical, and trade journals that deal with farming. Free 2012 federal tax filing Tying material and containers. Free 2012 federal tax filing Loan expenses. Free 2012 federal tax filing   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. Free 2012 federal tax filing Tax preparation fees. Free 2012 federal tax filing   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. Free 2012 federal tax filing You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Free 2012 federal tax filing   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Free 2012 federal tax filing Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Free 2012 federal tax filing Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Free 2012 federal tax filing Income from cooperatives. Free 2012 federal tax filing   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. Free 2012 federal tax filing This deduction amount is reported on Form 1099-PATR, box 6. Free 2012 federal tax filing 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. Free 2012 federal tax filing More information. Free 2012 federal tax filing   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Free 2012 federal tax filing 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. Free 2012 federal tax filing You include the expense in the basis of the asset. Free 2012 federal tax filing Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Free 2012 federal tax filing See chapters 2  and 6. Free 2012 federal tax filing Capital expenses are generally not deductible, but they may be depreciable. Free 2012 federal tax filing However, you can elect to deduct certain capital expenses, such as the following. Free 2012 federal tax filing The cost of fertilizer, lime, etc. Free 2012 federal tax filing (See Fertilizer and Lime under Deductible Expenses , earlier. Free 2012 federal tax filing ) Soil and water conservation expenses. Free 2012 federal tax filing (See chapter 5. Free 2012 federal tax filing ) The cost of property that qualifies for a deduction under section 179. Free 2012 federal tax filing (See chapter 7. Free 2012 federal tax filing ) Business start-up costs. Free 2012 federal tax filing (See Business start-up and organizational costs , later. Free 2012 federal tax filing ) Forestation and reforestation costs. Free 2012 federal tax filing (See Forestation and reforestation costs , later. Free 2012 federal tax filing ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Free 2012 federal tax filing Land and buildings. Free 2012 federal tax filing Additions, alterations, and improvements to buildings, etc. Free 2012 federal tax filing Cars and trucks. Free 2012 federal tax filing Equipment and machinery. Free 2012 federal tax filing Fences. Free 2012 federal tax filing Draft, breeding, sport, and dairy livestock. Free 2012 federal tax filing Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Free 2012 federal tax filing Water wells, including drilling and equipping costs. Free 2012 federal tax filing 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. Free 2012 federal tax filing Business start-up and organizational costs. Free 2012 federal tax filing   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. Free 2012 federal tax filing The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Free 2012 federal tax filing Any remaining costs must be amortized. Free 2012 federal tax filing See chapter 7. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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). Free 2012 federal tax filing Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Free 2012 federal tax filing 9100-2” at the top of the amended return. Free 2012 federal tax filing File the amended return at the same address you filed the original return. Free 2012 federal tax filing The election applies when figuring taxable income for the current tax year and all subsequent years. Free 2012 federal tax filing   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. Free 2012 federal tax filing For more information about start-up and organizational costs, see chapter 7. Free 2012 federal tax filing Crop production expenses. Free 2012 federal tax filing   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Free 2012 federal tax filing 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. Free 2012 federal tax filing For more information, see Uniform Capitalization Rules in chapter 6. Free 2012 federal tax filing Timber. Free 2012 federal tax filing   Capitalize the cost of acquiring timber. Free 2012 federal tax filing Do not include the cost of land in the cost of the timber. Free 2012 federal tax filing You must generally capitalize direct costs incurred in reforestation. Free 2012 federal tax filing However, you can elect to deduct some forestation and reforestation costs. Free 2012 federal tax filing See Forestation and reforestation costs next. Free 2012 federal tax filing Reforestation costs include the following. Free 2012 federal tax filing Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Free 2012 federal tax filing The cost of seed or seedlings. Free 2012 federal tax filing Labor and tool expenses. Free 2012 federal tax filing Depreciation on equipment used in planting or seeding. Free 2012 federal tax filing Costs incurred in replanting to replace lost seedlings. Free 2012 federal tax filing You can choose to capitalize certain indirect reforestation costs. Free 2012 federal tax filing   These capitalized amounts are your basis for the timber. Free 2012 federal tax filing Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Free 2012 federal tax filing See Depletion in chapter 7. Free 2012 federal tax filing Forestation and reforestation costs. Free 2012 federal tax filing   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. Free 2012 federal tax filing Any remaining costs can be amortized over an 84-month period. Free 2012 federal tax filing See chapter 7. Free 2012 federal tax filing 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. Free 2012 federal tax filing The accounts should include all reforestation treatments and the dates they were applied. Free 2012 federal tax filing 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. Free 2012 federal tax filing The timber account should be maintained until the timber is disposed of. Free 2012 federal tax filing For more information, see Notice 2006-47, 2006-20 I. Free 2012 federal tax filing R. Free 2012 federal tax filing B. Free 2012 federal tax filing 892, available at  www. Free 2012 federal tax filing irs. Free 2012 federal tax filing gov/irb/2006-20_IRB/ar11. Free 2012 federal tax filing html. Free 2012 federal tax filing   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. Free 2012 federal tax filing If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Free 2012 federal tax filing If you are not filing Form T (Timber), attach a statement to your return with the following information. Free 2012 federal tax filing The unique stand identification numbers. Free 2012 federal tax filing The total number of acres reforested during the tax year. Free 2012 federal tax filing The nature of the reforestation treatments. Free 2012 federal tax filing The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Free 2012 federal tax filing   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). Free 2012 federal tax filing Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Free 2012 federal tax filing 9100-2” at the top of the amended return. Free 2012 federal tax filing File the amended return at the same address you filed the original return. Free 2012 federal tax filing    For more information about forestation and reforestation costs, see chapter 7. Free 2012 federal tax filing    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Free 2012 federal tax filing You can view this publication on the Internet at  www. Free 2012 federal tax filing fs. Free 2012 federal tax filing fed. Free 2012 federal tax filing us/publications. Free 2012 federal tax filing Christmas tree cultivation. Free 2012 federal tax filing   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. Free 2012 federal tax filing Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Free 2012 federal tax filing For more information, see Timber Depletion under Depletion in chapter 7. Free 2012 federal tax filing   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Free 2012 federal tax filing Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Free 2012 federal tax filing   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Free 2012 federal tax filing If the improvements do not have a determinable useful life, add their cost to the basis of the land. Free 2012 federal tax filing The cost is recovered when you sell or otherwise dispose of it. Free 2012 federal tax filing If the improvements have a determinable useful life, recover their cost through depreciation. Free 2012 federal tax filing 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. Free 2012 federal tax filing Recover these costs through depreciation. Free 2012 federal tax filing Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Free 2012 federal tax filing Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Free 2012 federal tax filing 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. Free 2012 federal tax filing Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Free 2012 federal tax filing Other Nondeductible Items You cannot deduct the following items on your tax return. Free 2012 federal tax filing Loss of growing plants, produce, and crops. Free 2012 federal tax filing   Losses of plants, produce, and crops raised for sale are generally not deductible. Free 2012 federal tax filing However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Free 2012 federal tax filing See chapter 11 for more information. Free 2012 federal tax filing Repayment of loans. Free 2012 federal tax filing   You cannot deduct the repayment of a loan. Free 2012 federal tax filing However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Free 2012 federal tax filing See Interest , earlier. Free 2012 federal tax filing Estate, inheritance, legacy, succession, and gift taxes. Free 2012 federal tax filing   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Free 2012 federal tax filing Loss of livestock. Free 2012 federal tax filing   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Free 2012 federal tax filing Losses from sales or exchanges between related persons. Free 2012 federal tax filing   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. Free 2012 federal tax filing For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Free 2012 federal tax filing Cost of raising unharvested crops. Free 2012 federal tax filing   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. Free 2012 federal tax filing Add these costs to the basis of the land to determine the gain or loss on the sale. Free 2012 federal tax filing For more information, see Section 1231 Gains and Losses in chapter 9. Free 2012 federal tax filing Cost of unharvested crops bought with land. Free 2012 federal tax filing   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Free 2012 federal tax filing You cannot deduct the cost of the crops at the time of purchase. Free 2012 federal tax filing However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Free 2012 federal tax filing Cost related to gifts. Free 2012 federal tax filing   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Free 2012 federal tax filing The costs are not deductible in the year of the gift or any later year. Free 2012 federal tax filing 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. Free 2012 federal tax filing Club dues and membership fees. Free 2012 federal tax filing   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Free 2012 federal tax filing 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. Free 2012 federal tax filing Exception. Free 2012 federal tax filing   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. Free 2012 federal tax filing Boards of trade. Free 2012 federal tax filing Business leagues. Free 2012 federal tax filing Chambers of commerce. Free 2012 federal tax filing Civic or public service organizations. Free 2012 federal tax filing Professional associations. Free 2012 federal tax filing Trade associations. Free 2012 federal tax filing Real estate boards. Free 2012 federal tax filing Fines and penalties. Free 2012 federal tax filing   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Free 2012 federal tax filing 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. Free 2012 federal tax filing The amount of the loss you can deduct when figuring your taxable income may be limited. Free 2012 federal tax filing To figure your deductible loss, you must apply the following limits. Free 2012 federal tax filing The at-risk limits. Free 2012 federal tax filing The passive activity limits. Free 2012 federal tax filing The following discussions explain these limits. Free 2012 federal tax filing If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Free 2012 federal tax filing See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Free 2012 federal tax filing 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. Free 2012 federal tax filing See Not-for-Profit Farming, later. Free 2012 federal tax filing At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Free 2012 federal tax filing These rules limit the losses you can deduct when figuring your taxable income. Free 2012 federal tax filing The deductible loss from an activity is limited to the amount you have at risk in the activity. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing For more information, see Publication 925. Free 2012 federal tax filing 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. Free 2012 federal tax filing Generally, a rental activity is a passive activity. Free 2012 federal tax filing If you have a passive activity, special rules limit the loss you can deduct in the tax year. Free 2012 federal tax filing You generally can deduct losses from passive activities only up to income from passive activities. Free 2012 federal tax filing Credits are similarly limited. Free 2012 federal tax filing For more information, see Publication 925. Free 2012 federal tax filing Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Free 2012 federal tax filing Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Free 2012 federal tax filing For more details, see IRC section 461(j). Free 2012 federal tax filing Excess farm loss. Free 2012 federal tax filing   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Free 2012 federal tax filing 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. Free 2012 federal tax filing   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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). Free 2012 federal tax filing Also, there is a limit on the deductions you can take. Free 2012 federal tax filing You cannot use a loss from that activity to offset income from other activities. Free 2012 federal tax filing Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Free 2012 federal tax filing An investment activity intended only to produce tax losses for the investors also comes under this limit. Free 2012 federal tax filing The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Free 2012 federal tax filing It does not apply to corporations other than S corporations. Free 2012 federal tax filing In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Free 2012 federal tax filing No one factor alone is decisive. Free 2012 federal tax filing 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. Free 2012 federal tax filing Presumption of profit. Free 2012 federal tax filing   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. Free 2012 federal tax filing 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. Free 2012 federal tax filing The activity must be substantially the same for each year within this period. Free 2012 federal tax filing You have a profit when the gross income from an activity is more than the deductions for it. Free 2012 federal tax filing   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. Free 2012 federal tax filing   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Free 2012 federal tax filing This means the limits discussed here do not apply. Free 2012 federal tax filing You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Free 2012 federal tax filing You can rely on this presumption in every case, unless the IRS shows it is not valid. Free 2012 federal tax filing   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. Free 2012 federal tax filing Using the presumption later. Free 2012 federal tax filing   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. Free 2012 federal tax filing   You can choose to do this by filing Form 5213. Free 2012 federal tax filing 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. Free 2012 federal tax filing 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. Free 2012 federal tax filing   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Free 2012 federal tax filing Accordingly, it will not limit your deductions. Free 2012 federal tax filing 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. Free 2012 federal tax filing If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Free 2012 federal tax filing 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. Free 2012 federal tax filing   Filing Form 5213 automatically extends the period of limitations on any year