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Taxes And Unemployment

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Taxes And Unemployment

Taxes and unemployment 1. Taxes and unemployment   Importance of Records Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Benefits of Recordkeeping Kinds of Records To Keep How Long To Keep Records Introduction A farmer, like other taxpayers, must keep records to prepare an accurate income tax return and determine the correct amount of tax. Taxes and unemployment This chapter explains the benefits of keeping records, what kinds of records you must keep, and how long you must keep them for federal tax purposes. Taxes and unemployment Tax records are not the only type of records you need to keep for your farming business. Taxes and unemployment You should also keep records that measure your farm's financial performance. Taxes and unemployment This publication only discusses tax records. Taxes and unemployment The Farm Financial Standards Council has produced a publication that provides a detailed explanation of the recommendations of the Council for financial reporting and analysis. Taxes and unemployment For information on recordkeeping, you can purchase and download Financial Guidelines for Agricultural Producers at www. Taxes and unemployment ffsc. Taxes and unemployment org. Taxes and unemployment For more information, contact Countryside Marketing, Inc. Taxes and unemployment in the following manner. Taxes and unemployment Call 262-253-6902. Taxes and unemployment Send a fax to 262-253-6903. Taxes and unemployment Write to: Farm Financial Standards Council N78 W14573 Appleton Ave. Taxes and unemployment , #287 Menomonee Falls, WI 53051. Taxes and unemployment Topics - This chapter discusses: Benefits of recordkeeping Kinds of records to keep How long to keep records Useful Items - You may want to see: Publication 51 (Circular A), Agricultural Employer's Tax Guide 463 Travel, Entertainment, Gift, and Car Expenses See chapter 16 for information about getting publications. Taxes and unemployment Benefits of Recordkeeping Everyone in business, including farmers, must keep appropriate records. Taxes and unemployment Recordkeeping will help you do the following. Taxes and unemployment Monitor the progress of your farming business. Taxes and unemployment   You need records to monitor the progress of your farming business. Taxes and unemployment Records can show whether your business is improving, which items are selling, or what changes you need to make. Taxes and unemployment Records can help you make better decisions that may increase the likelihood of business success. Taxes and unemployment Prepare your financial statements. Taxes and unemployment   You need records to prepare accurate financial statements. Taxes and unemployment These include income (profit and loss) statements and balance sheets. Taxes and unemployment These statements can help you in dealing with your bank or creditors and help you to manage your farm business. Taxes and unemployment Identify source of receipts. Taxes and unemployment   You will receive money or property from many sources. Taxes and unemployment Your records can identify the source of your receipts. Taxes and unemployment You need this information to separate farm from nonfarm receipts and taxable from nontaxable income. Taxes and unemployment Keep track of deductible expenses. Taxes and unemployment   You may forget expenses when you prepare your tax return unless you record them when they occur. Taxes and unemployment Prepare your tax returns. Taxes and unemployment   You need records to prepare your tax return. Taxes and unemployment For example, your records must support the income, expenses, and credits you report. Taxes and unemployment Generally, these are the same records you use to monitor your farming business and prepare your financial statements. Taxes and unemployment Support items reported on tax returns. Taxes and unemployment   You must keep your business records available at all times for inspection by the IRS. Taxes and unemployment If the IRS examines any of your tax returns, you may be asked to explain the items reported. Taxes and unemployment A complete set of records will speed up the examination. Taxes and unemployment Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Taxes and unemployment You can choose any recordkeeping system suited to your farming business that clearly shows, for example, your income and expenses. Taxes and unemployment You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Taxes and unemployment See  chapter 2. Taxes and unemployment If you are in more than one business, you should keep a complete and separate set of records for each business. Taxes and unemployment A corporation should keep minutes of board of directors' meetings. Taxes and unemployment Your recordkeeping system should include a summary of your business transactions. Taxes and unemployment This summary is ordinarily made in accounting journals and ledgers. Taxes and unemployment For example, they must show your gross income, as well as your deductions and credits. Taxes and unemployment In addition, you must keep supporting documents. Taxes and unemployment Purchases, sales, payroll, and other transactions you have in your business generate supporting documents such as invoices and receipts. Taxes and unemployment These documents contain the information you need to record in your journals and ledgers. Taxes and unemployment It is important to keep these documents because they support the entries in your journals and ledgers and on your tax return. Taxes and unemployment Keep them in an orderly fashion and in a safe place. Taxes and unemployment For instance, organize them by year and type of income or expense. Taxes and unemployment Electronic records. Taxes and unemployment   All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Taxes and unemployment When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Taxes and unemployment An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Taxes and unemployment The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Taxes and unemployment All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Taxes and unemployment Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Taxes and unemployment The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Taxes and unemployment You still have the responsibility of retaining any other books and records that are required to be retained. Taxes and unemployment The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Taxes and unemployment This test is not considered an examination and the results must be shared with you. Taxes and unemployment If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Taxes and unemployment If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copybooks and records in a manner that allows you and the IRS to determine your correct tax. Taxes and unemployment For details on electronic storage system requirements, see Rev. Taxes and unemployment Proc. Taxes and unemployment 97-22. Taxes and unemployment You can find Rev. Taxes and unemployment Proc. Taxes and unemployment 97-22 on page 9 of Internal Revenue Bulletin 1997-13 at  www. Taxes and unemployment irs. Taxes and unemployment gov/pub/irs-irbs/irb97-13. Taxes and unemployment pdf. Taxes and unemployment Travel, transportation, entertainment, and gift expenses. Taxes and unemployment   Specific recordkeeping rules apply to these expenses. Taxes and unemployment For more information, see Publication 463. Taxes and unemployment Employment taxes. Taxes and unemployment   There are specific employment tax records you must keep. Taxes and unemployment For a list, see Publication 51 (Circular A). Taxes and unemployment Excise taxes. Taxes and unemployment   See How To Claim a Credit or Refund in chapter 14 for the specific records you must keep to verify your claim for credit or refund of excise taxes on certain fuels. Taxes and unemployment Assets. Taxes and unemployment   Assets are the property, such as machinery and equipment, you own and use in your business. Taxes and unemployment You must keep records to verify certain information about your business assets. Taxes and unemployment You need records to figure your annual depreciation deduction and the gain or (loss) when you sell the assets. Taxes and unemployment Your records should show all the following. Taxes and unemployment When and how you acquired the asset. Taxes and unemployment Purchase price. Taxes and unemployment Cost of any improvements. Taxes and unemployment Section 179 deduction taken. Taxes and unemployment Deductions taken for depreciation. Taxes and unemployment Deductions taken for casualty losses, such as losses resulting from fires or storms. Taxes and unemployment How you used the asset. Taxes and unemployment When and how you disposed of the asset. Taxes and unemployment Selling price. Taxes and unemployment Expenses of sale. Taxes and unemployment   The following are examples of records that may show this information. Taxes and unemployment Purchase and sales invoices. Taxes and unemployment Real estate closing statements. Taxes and unemployment Canceled checks. Taxes and unemployment Bank statements. Taxes and unemployment Financial account statements as proof of payment. Taxes and unemployment   If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Taxes and unemployment These include account statements prepared for the financial institution by a third party. Taxes and unemployment These account statements must be legible. Taxes and unemployment The following table lists acceptable account statements. Taxes and unemployment IF payment is by. Taxes and unemployment . Taxes and unemployment . Taxes and unemployment THEN the statement must show the. Taxes and unemployment . Taxes and unemployment . Taxes and unemployment Check Check number. Taxes and unemployment Amount. Taxes and unemployment Payee's name. Taxes and unemployment Date the check amount was posted to the account by the financial institution. Taxes and unemployment Electronic funds  transfer Amount transferred. Taxes and unemployment Payee's name. Taxes and unemployment Date the transfer was posted to the account by the financial institution. Taxes and unemployment Credit card Amount charged. Taxes and unemployment Payee's name. Taxes and unemployment Transaction date. Taxes and unemployment    Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Taxes and unemployment You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Taxes and unemployment Tax returns. Taxes and unemployment   Keep copies of your filed tax returns. Taxes and unemployment They help in preparing future tax returns and making computations if you file an amended return. Taxes and unemployment Keep copies of your information returns such as Form 1099, Schedule K-1, and Form W-2. Taxes and unemployment How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Taxes and unemployment Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. Taxes and unemployment A period of limitations is the period of time after which no legal action can be brought. Taxes and unemployment Generally, that means you must keep your records for at least 3 years from when your tax return was due or filed or within 2 years of the date the tax was paid, whichever is later. Taxes and unemployment However, certain records must be kept for a longer period of time, as discussed below. Taxes and unemployment Employment taxes. Taxes and unemployment   If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Taxes and unemployment Assets. Taxes and unemployment   Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Taxes and unemployment You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure your basis for computing gain or (loss) when you sell or otherwise dispose of the property. Taxes and unemployment   You may need to keep records relating to the basis of property longer than the period of limitation. Taxes and unemployment Keep those records as long as they are important in figuring the basis of the original or replacement property. Taxes and unemployment Generally, this means as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. Taxes and unemployment For example, if you received property in a nontaxable exchange, you must keep the records for the old property, as well as for the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Taxes and unemployment For more information on basis, see chapter 6. Taxes and unemployment Records for nontax purposes. Taxes and unemployment   When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Taxes and unemployment For example, your insurance company or creditors may require you to keep them longer than the IRS does. Taxes and unemployment Prev  Up  Next   Home   More Online Publications
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The Taxes And Unemployment

Taxes and unemployment 8. Taxes and unemployment   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Taxes and unemployment Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Taxes and unemployment It is similar to the straight line method of depreciation. Taxes and unemployment The various amortizable costs covered in this chapter are included in the list below. Taxes and unemployment However, this chapter does not discuss amortization of bond premium. Taxes and unemployment For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Taxes and unemployment Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Taxes and unemployment How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Taxes and unemployment To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Taxes and unemployment For example, in 2012, you began to amortize a lease. Taxes and unemployment In 2013, you began to amortize a second lease. Taxes and unemployment Report amortization from the new lease on line 42 of your 2013 Form 4562. Taxes and unemployment Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Taxes and unemployment If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Taxes and unemployment Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Taxes and unemployment Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Taxes and unemployment Generally, you recover costs for particular assets through depreciation deductions. Taxes and unemployment However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Taxes and unemployment For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Taxes and unemployment For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Taxes and unemployment The costs that are not deducted currently can be amortized ratably over a 180-month period. Taxes and unemployment The amortization period starts with the month you begin operating your active trade or business. Taxes and unemployment You are not required to attach a statement to make this election. Taxes and unemployment You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Taxes and unemployment Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Taxes and unemployment See Regulations sections 1. Taxes and unemployment 195-1, 1. Taxes and unemployment 248-1, and 1. Taxes and unemployment 709-1. Taxes and unemployment For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Taxes and unemployment Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Taxes and unemployment If the election is made, you must attach any statement required by Regulations sections 1. Taxes and unemployment 195-1(b), 1. Taxes and unemployment 248-1(c), and 1. Taxes and unemployment 709-1(c), as in effect before September 9, 2008. Taxes and unemployment Note. Taxes and unemployment You can apply the provisions of Regulations sections 1. Taxes and unemployment 195-1, 1. Taxes and unemployment 248-1, and 1. Taxes and unemployment 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Taxes and unemployment Otherwise, the provisions under Regulations sections 1. Taxes and unemployment 195-1(b), 1. Taxes and unemployment 248-1(c), and 1. Taxes and unemployment 709-1(c), as in effect before September 9, 2008, will apply. Taxes and unemployment For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Taxes and unemployment See How To Make the Election , later. Taxes and unemployment The cost must qualify as one of the following. Taxes and unemployment A business start-up cost. Taxes and unemployment An organizational cost for a corporation. Taxes and unemployment An organizational cost for a partnership. Taxes and unemployment Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Taxes and unemployment Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Taxes and unemployment Qualifying costs. Taxes and unemployment   A start-up cost is amortizable if it meets both of the following tests. Taxes and unemployment It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Taxes and unemployment It is a cost you pay or incur before the day your active trade or business begins. Taxes and unemployment   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Taxes and unemployment Advertisements for the opening of the business. Taxes and unemployment Salaries and wages for employees who are being trained and their instructors. Taxes and unemployment Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Taxes and unemployment Salaries and fees for executives and consultants, or for similar professional services. Taxes and unemployment Nonqualifying costs. Taxes and unemployment   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Taxes and unemployment See Research and Experimental Costs , later. Taxes and unemployment Purchasing an active trade or business. Taxes and unemployment   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Taxes and unemployment These are costs that help you decide whether to purchase a business. Taxes and unemployment Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Taxes and unemployment Example. Taxes and unemployment On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Taxes and unemployment They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Taxes and unemployment In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Taxes and unemployment The letter stated that a binding commitment would result only after a purchase agreement was signed. Taxes and unemployment The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Taxes and unemployment On October 22nd, you signed a purchase agreement with XYZ, Inc. Taxes and unemployment All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Taxes and unemployment Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Taxes and unemployment Disposition of business. Taxes and unemployment   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Taxes and unemployment However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Taxes and unemployment Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Taxes and unemployment Qualifying costs. Taxes and unemployment   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Taxes and unemployment   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Taxes and unemployment   Examples of organizational costs include: The cost of temporary directors. Taxes and unemployment The cost of organizational meetings. Taxes and unemployment State incorporation fees. Taxes and unemployment The cost of legal services. Taxes and unemployment Nonqualifying costs. Taxes and unemployment   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Taxes and unemployment Costs associated with the transfer of assets to the corporation. Taxes and unemployment Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Taxes and unemployment Qualifying costs. Taxes and unemployment   A partnership can amortize an organizational cost only if it meets all the following tests. Taxes and unemployment It is for the creation of the partnership and not for starting or operating the partnership trade or business. Taxes and unemployment It is chargeable to a capital account (see chapter 1). Taxes and unemployment It could be amortized over the life of the partnership if the partnership had a fixed life. Taxes and unemployment It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Taxes and unemployment However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Taxes and unemployment It is for a type of item normally expected to benefit the partnership throughout its entire life. Taxes and unemployment   Organizational costs include the following fees. Taxes and unemployment Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Taxes and unemployment Accounting fees for services incident to the organization of the partnership. Taxes and unemployment Filing fees. Taxes and unemployment Nonqualifying costs. Taxes and unemployment   The following costs cannot be amortized. Taxes and unemployment The cost of acquiring assets for the partnership or transferring assets to the partnership. Taxes and unemployment The cost of admitting or removing partners, other than at the time the partnership is first organized. Taxes and unemployment The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Taxes and unemployment The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Taxes and unemployment These “syndication fees” are capital expenses that cannot be depreciated or amortized. Taxes and unemployment Liquidation of partnership. Taxes and unemployment   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Taxes and unemployment However, these costs can be deducted only to the extent they qualify as a loss from a business. Taxes and unemployment How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Taxes and unemployment You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Taxes and unemployment Once you choose an amortization period, you cannot change it. Taxes and unemployment To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Taxes and unemployment The result is the amount you can deduct for each month. Taxes and unemployment Cash method partnership. Taxes and unemployment   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Taxes and unemployment However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Taxes and unemployment How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Taxes and unemployment You may also be required to attach an accompanying statement (described later) to your return. Taxes and unemployment For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Taxes and unemployment Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Taxes and unemployment 195-1, 1. Taxes and unemployment 248-1, and 1. Taxes and unemployment 709-1, you must also attach an accompanying statement to elect to amortize the costs. Taxes and unemployment If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Taxes and unemployment See Starting a Business , earlier, for more information. Taxes and unemployment Generally, you must file the return by the due date (including any extensions). Taxes and unemployment 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). Taxes and unemployment For more information, see the instructions for Part VI of Form 4562. Taxes and unemployment You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Taxes and unemployment Note. Taxes and unemployment The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Taxes and unemployment If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Taxes and unemployment A shareholder or partner cannot make this election. Taxes and unemployment You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Taxes and unemployment Only the corporation or partnership can amortize these costs. Taxes and unemployment However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Taxes and unemployment These costs qualify as business start-up costs if you acquire the partnership interest. Taxes and unemployment Start-up costs election statement. Taxes and unemployment   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Taxes and unemployment A description of the business to which the start-up costs relate. Taxes and unemployment A description of each start-up cost incurred. Taxes and unemployment The month your active business began (or was acquired). Taxes and unemployment The number of months in your amortization period (which is generally 180 months). Taxes and unemployment Filing the statement early. Taxes and unemployment   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Taxes and unemployment If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Taxes and unemployment Revised statement. Taxes and unemployment   You can file a revised statement to include any start-up costs not included in your original statement. Taxes and unemployment However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Taxes and unemployment You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Taxes and unemployment Organizational costs election statement. Taxes and unemployment   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Taxes and unemployment A description of each cost. Taxes and unemployment The amount of each cost. Taxes and unemployment The date each cost was incurred. Taxes and unemployment The month your corporation or partnership began active business (or acquired the business). Taxes and unemployment The number of months in your amortization period (which is generally 180 months). Taxes and unemployment Partnerships. Taxes and unemployment   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Taxes and unemployment   You do not need to separately list any partnership organizational cost that is less than $10. Taxes and unemployment Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Taxes and unemployment   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Taxes and unemployment Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Taxes and unemployment The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Taxes and unemployment However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Taxes and unemployment For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Taxes and unemployment How to amortize. Taxes and unemployment   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Taxes and unemployment Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Taxes and unemployment You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Taxes and unemployment You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Taxes and unemployment See Anti-Churning Rules, later. Taxes and unemployment Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Taxes and unemployment The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Taxes and unemployment You cannot deduct amortization for the month you dispose of the intangible. Taxes and unemployment If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Taxes and unemployment You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Taxes and unemployment Tax-exempt use property subject to a lease. Taxes and unemployment   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Taxes and unemployment Cost attributable to other property. Taxes and unemployment   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Taxes and unemployment For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Taxes and unemployment Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Taxes and unemployment Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Taxes and unemployment You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Taxes and unemployment Goodwill. Taxes and unemployment   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Taxes and unemployment Going concern value. Taxes and unemployment   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Taxes and unemployment It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Taxes and unemployment It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Taxes and unemployment Workforce in place, etc. Taxes and unemployment   This includes the composition of a workforce (for example, its experience, education, or training). Taxes and unemployment It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Taxes and unemployment   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Taxes and unemployment Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Taxes and unemployment Business books and records, etc. Taxes and unemployment   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Taxes and unemployment It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Taxes and unemployment Patents, copyrights, etc. Taxes and unemployment   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Taxes and unemployment Customer-based intangible. Taxes and unemployment   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Taxes and unemployment For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Taxes and unemployment A customer base. Taxes and unemployment A circulation base. Taxes and unemployment An undeveloped market or market growth. Taxes and unemployment Insurance in force. Taxes and unemployment A mortgage servicing contract. Taxes and unemployment An investment management contract. Taxes and unemployment Any other relationship with customers involving the future provision of goods or services. Taxes and unemployment   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Taxes and unemployment Supplier-based intangible. Taxes and unemployment   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Taxes and unemployment The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Taxes and unemployment Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Taxes and unemployment Also, see Assets That Are Not Section 197 Intangibles below. Taxes and unemployment Government-granted license, permit, etc. Taxes and unemployment   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Taxes and unemployment For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Taxes and unemployment Covenant not to compete. Taxes and unemployment   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Taxes and unemployment An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Taxes and unemployment   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Taxes and unemployment Franchise, trademark, or trade name. Taxes and unemployment   A franchise, trademark, or trade name is a section 197 intangible. Taxes and unemployment You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Taxes and unemployment For information on currently deductible contingent payments, see chapter 11. Taxes and unemployment Professional sports franchise. Taxes and unemployment   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Taxes and unemployment Contract for the use of, or a term interest in, a section 197 intangible. Taxes and unemployment   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Taxes and unemployment It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Taxes and unemployment Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Taxes and unemployment Any interest in a corporation, partnership, trust, or estate. Taxes and unemployment Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Taxes and unemployment Any interest in land. Taxes and unemployment Most computer software. Taxes and unemployment (See Computer software , later. Taxes and unemployment ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Taxes and unemployment An interest in a film, sound recording, video tape, book, or similar property. Taxes and unemployment A right to receive tangible property or services under a contract or from a governmental agency. Taxes and unemployment An interest in a patent or copyright. Taxes and unemployment Certain rights that have a fixed duration or amount. Taxes and unemployment (See Rights of fixed duration or amount , later. Taxes and unemployment ) An interest under either of the following. Taxes and unemployment An existing lease or sublease of tangible property. Taxes and unemployment A debt that was in existence when the interest was acquired. Taxes and unemployment A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Taxes and unemployment Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Taxes and unemployment Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Taxes and unemployment You generally must use the straight line method over its useful life. Taxes and unemployment For certain intangibles, the depreciation period is specified in the law and regulations. Taxes and unemployment For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Taxes and unemployment For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Taxes and unemployment Computer software. Taxes and unemployment   Section 197 intangibles do not include the following types of computer software. Taxes and unemployment Software that meets all the following requirements. Taxes and unemployment It is, or has been, readily available for purchase by the general public. Taxes and unemployment It is subject to a nonexclusive license. Taxes and unemployment It has not been substantially modified. Taxes and unemployment This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Taxes and unemployment Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Taxes and unemployment Computer software defined. Taxes and unemployment   Computer software includes all programs designed to cause a computer to perform a desired function. Taxes and unemployment It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Taxes and unemployment Rights of fixed duration or amount. Taxes and unemployment   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Taxes and unemployment However, this does not apply to the following intangibles. Taxes and unemployment Goodwill. Taxes and unemployment Going concern value. Taxes and unemployment A covenant not to compete. Taxes and unemployment A franchise, trademark, or trade name. Taxes and unemployment A customer-related information base, customer-based intangible, or similar item. Taxes and unemployment Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Taxes and unemployment You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Taxes and unemployment If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Taxes and unemployment Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Taxes and unemployment Amortize these costs using the rules of Revenue Procedure 2004-36. Taxes and unemployment For more information, see Revenue Procedure 2004-36, 2004-24 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 1063, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2004-24_IRB/ar16. Taxes and unemployment html. Taxes and unemployment A change in the treatment of creative property costs is a change in method of accounting. Taxes and unemployment Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Taxes and unemployment These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Taxes and unemployment Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Taxes and unemployment You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Taxes and unemployment You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Taxes and unemployment You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Taxes and unemployment This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Taxes and unemployment See Related person , later, for more information. Taxes and unemployment Exceptions. Taxes and unemployment   The anti-churning rules do not apply in the following situations. Taxes and unemployment You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Taxes and unemployment The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Taxes and unemployment This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Taxes and unemployment The gain-recognition exception, discussed later, applies. Taxes and unemployment Related person. Taxes and unemployment   For purposes of the anti-churning rules, the following are related persons. Taxes and unemployment An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Taxes and unemployment ), and lineal descendants (children, grandchildren, etc. Taxes and unemployment ). Taxes and unemployment A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Taxes and unemployment Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Taxes and unemployment (For an exception, see section 1. Taxes and unemployment 197-2(h)(6)(iv) of the regulations. Taxes and unemployment ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Taxes and unemployment The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Taxes and unemployment The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Taxes and unemployment The executor and beneficiary of an estate. Taxes and unemployment A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Taxes and unemployment A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Taxes and unemployment Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Taxes and unemployment Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Taxes and unemployment A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Taxes and unemployment Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Taxes and unemployment When to determine relationship. Taxes and unemployment   Persons are treated as related if the relationship existed at the following time. Taxes and unemployment In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Taxes and unemployment In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Taxes and unemployment Ownership of stock. Taxes and unemployment   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Taxes and unemployment Rule 1. Taxes and unemployment   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Taxes and unemployment Rule 2. Taxes and unemployment   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Taxes and unemployment Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Taxes and unemployment Rule 3. Taxes and unemployment   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Taxes and unemployment Rule 4. Taxes and unemployment   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Taxes and unemployment Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Taxes and unemployment Gain-recognition exception. Taxes and unemployment   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Taxes and unemployment That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Taxes and unemployment That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Taxes and unemployment See chapter 2 in Publication 544 for information on making this choice. Taxes and unemployment   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Taxes and unemployment Notification. Taxes and unemployment   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Taxes and unemployment Anti-abuse rule. Taxes and unemployment   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Taxes and unemployment To avoid the requirement that the intangible be acquired after August 10, 1993. Taxes and unemployment To avoid any of the anti-churning rules. Taxes and unemployment More information. Taxes and unemployment   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Taxes and unemployment 197-2(h). Taxes and unemployment Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Taxes and unemployment See Amended Return , next. Taxes and unemployment If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Taxes and unemployment See Changing Your Accounting Method , later. Taxes and unemployment Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Taxes and unemployment A mathematical error made in any year. Taxes and unemployment A posting error made in any year. Taxes and unemployment An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Taxes and unemployment When to file. Taxes and unemployment   If an amended return is allowed, you must file it by the later of the following dates. Taxes and unemployment 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Taxes and unemployment (A return filed early is considered filed on the due date. Taxes and unemployment ) 2 years from the time you paid your tax for that year. Taxes and unemployment Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Taxes and unemployment File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Taxes and unemployment The following are examples of a change in method of accounting for amortization. Taxes and unemployment A change in the amortization method, period of recovery, or convention of an amortizable asset. Taxes and unemployment A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Taxes and unemployment A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Taxes and unemployment Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Taxes and unemployment An adjustment in the useful life of an amortizable asset. Taxes and unemployment Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Taxes and unemployment Any change in the placed-in-service date of an amortizable asset. Taxes and unemployment See Regulations section 1. Taxes and unemployment 446-1(e)(2)(ii)(a) for more information and examples. Taxes and unemployment Automatic approval. Taxes and unemployment   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Taxes and unemployment For a list of automatic accounting method changes, see the Instructions for Form 3115. Taxes and unemployment Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Taxes and unemployment For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Taxes and unemployment See Revenue Procedure 2006-12, 2006-3 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 310, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2006-03_IRB/ar14. Taxes and unemployment html. Taxes and unemployment  See Revenue Procedure 2006-37, 2006-38 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 499, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2006-38_IRB/ar10. Taxes and unemployment html. Taxes and unemployment  See Revenue Procedure 2008-52, 2008-36 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 587, available at www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2008-36_IRB/ar09. Taxes and unemployment html. Taxes and unemployment  See Revenue Procedure 2009-39, 2009-38 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 371, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2009-38_IRB/ar08. Taxes and unemployment html. Taxes and unemployment  See Revenue Procedure 2011-14, 2011-4 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 330, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2011-04_IRB/ar08. Taxes and unemployment html. Taxes and unemployment  See Revenue Procedure 2011-22, 2011-18 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 737, available at  www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2011-18_IRB/ar08. Taxes and unemployment html. Taxes and unemployment Also, see Revenue Procedure 2012-39, 2012-41 I. Taxes and unemployment R. Taxes and unemployment B. Taxes and unemployment 470 available at www. Taxes and unemployment irs. Taxes and unemployment gov/irb/2012-41_IRB/index. Taxes and unemployment html. Taxes and unemployment Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Taxes and unemployment If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Taxes and unemployment If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Taxes and unemployment Any remaining gain, or any loss, is a section 1231 gain or loss. Taxes and unemployment If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Taxes and unemployment For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Taxes and unemployment Nondeductible loss. Taxes and unemployment   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Taxes and unemployment Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Taxes and unemployment Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Taxes and unemployment The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Taxes and unemployment The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Taxes and unemployment Covenant not to compete. Taxes and unemployment   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Taxes and unemployment Nonrecognition transfers. Taxes and unemployment   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Taxes and unemployment You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Taxes and unemployment Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Taxes and unemployment   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Taxes and unemployment Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Taxes and unemployment Example. Taxes and unemployment You own a section 197 intangible you have amortized for 4 full years. Taxes and unemployment It has a remaining unamortized basis of $30,000. Taxes and unemployment You exchange the asset plus $10,000 for a like-kind section 197 intangible. Taxes and unemployment The nonrecognition provisions of like-kind exchanges apply. Taxes and unemployment You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Taxes and unemployment You amortize the other $10,000 of adjusted basis over a new 15-year period. Taxes and unemployment For more information, see Regulations section 1. Taxes and unemployment 197-2(g). Taxes and unemployment Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Taxes and unemployment See Reforestation Costs in chapter 7. Taxes and unemployment You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Taxes and unemployment There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Taxes and unemployment The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Taxes and unemployment A partner, shareholder, or beneficiary cannot make that election. Taxes and unemployment A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Taxes and unemployment , of a partnership or S corporation. Taxes and unemployment The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Taxes and unemployment Qualifying costs. Taxes and unemployment   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Taxes and unemployment Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Taxes and unemployment They include costs for the following items. Taxes and unemployment Site preparation. Taxes and unemployment Seeds or seedlings. Taxes and unemployment Labor. Taxes and unemployment Tools. Taxes and unemployment Depreciation on equipment used in planting and seeding. Taxes and unemployment Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Taxes and unemployment Qualified timber property. Taxes and unemployment   Qualified timber property is property that contains trees in significant commercial quantities. Taxes and unemployment It can be a woodlot or other site that you own or lease. Taxes and unemployment The property qualifies only if it meets all of the following requirements. Taxes and unemployment It is located in the United States. Taxes and unemployment It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Taxes and unemployment It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Taxes and unemployment Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Taxes and unemployment Amortization period. Taxes and unemployment   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Taxes and unemployment You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Taxes and unemployment Life tenant and remainderman. Taxes and unemployment   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Taxes and unemployment Any remainder interest in the property is ignored for amortization purposes. Taxes and unemployment Recapture. Taxes and unemployment   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Taxes and unemployment See chapter 3 of Publication 544 for more information. Taxes and unemployment How to make the election. Taxes and unemployment   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Taxes and unemployment A description of the costs and the dates you incurred them. Taxes and unemployment A description of the type of timber being grown and the purpose for which it is grown. Taxes and unemployment Attach a separate statement for each property for which you amortize reforestation costs. Taxes and unemployment   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Taxes and unemployment 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). Taxes and unemployment Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Taxes and unemployment 9100-2” on Form 4562. Taxes and unemployment File the amended return at the same address you filed the original return. Taxes and unemployment Revoking the election. Taxes and unemployment   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Taxes and unemployment Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Taxes and unemployment Please provide your daytime telephone number (optional), in case we need to contact you. Taxes and unemployment You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Taxes and unemployment    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Taxes and unemployment NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Taxes and unemployment These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Taxes and unemployment For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Taxes and unemployment If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Taxes and unemployment Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Taxes and unemployment However, see Atmospheric pollution control facilities for an exception. Taxes and unemployment The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Taxes and unemployment Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Taxes and unemployment You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Taxes and unemployment See chapter 3 of Publication 946. Taxes and unemployment A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Taxes and unemployment The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Taxes and unemployment The facility must be certified by state and federal certifying authorities. Taxes and unemployment The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Taxes and unemployment Also, it must not significantly change the nature of the manufacturing or production process or facility. Taxes and unemployment The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Taxes and unemployment The federal certifying authority will describe the nature of the potential cost recovery. Taxes and unemployment You must then reduce the amortizable basis of the facility by this potential recovery. Taxes and unemployment New identifiable treatment facility. Taxes and unemployment   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Taxes and unemployment It does not include a building and its structural components unless the building is exclusively a treatment facility. Taxes and unemployment Atmospheric pollution control facilities. Taxes and unemployment   Certain atmospheric pollution control facilities can be amortized over 84 months. Taxes and unemployment To qualify, the following must apply. Taxes and unemployment The facility must be acquired and placed in service after April 11, 2005. Taxes and unemployment If acquired, the original use must begin with you after April 11, 2005. Taxes and unemployment The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Taxes and unemployment If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Taxes and unemployment Basis reduction for corporations. Taxes and unemployment   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Taxes and unemployment More information. Taxes and unemployment   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Taxes and unemployment Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Taxes and unemployment If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Taxes and unemployment The amortization period begins the month you first receive an economic benefit from the costs. Taxes and unemployment For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Taxes and unemployment Optional write-off method. Taxes and unemployment   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Taxes and unemployment For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Taxes and unemployment Costs you can amortize. Taxes and unemployment   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Taxes and unemployment You paid or incurred the costs in your trade or business. Taxes and unemployment You are not deducting the costs currently. Taxes and unemployment How to make the election. Taxes and unemployment   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Taxes and unemployment Generally, you must file the return by the due date (including extensions). Taxes and unemployment 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). Taxes and unemployment Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Taxes and unemployment 9100-2” on Form 4562. Taxes and unemployment File the amended return at the same address you filed the original return. Taxes and unemployment   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Taxes and unemployment Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Taxes and unemployment If you make this election, there is no AMT adjustment. Taxes and unemployment The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Taxes and unemployment How to make the election. Taxes and unemployment   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Taxes and unemployment   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Taxes and unemployment 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). Taxes and unemployment Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Taxes and unemployment 9100-2” on Form 4562. Taxes and unemployment File the amended return at the same address you filed the original return. Taxes and unemployment Revoking the election. Taxes and unemployment   You must obtain consent from the IRS to revoke your election. Taxes and unemployment Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Taxes and unemployment The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Taxes and unemployment If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Taxes and unemployment Prev  Up  Next   Home   More Online Publications