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2012 1040

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2012 1040

2012 1040 Publication 530 - Introductory Material Table of Contents What's New Reminders IntroductionOrdering forms and publications. 2012 1040 Tax questions. 2012 1040 Useful Items - You may want to see: What's New Simplified method for business use of home deduction. 2012 1040  The IRS now provides a simplified method to determine your expenses for business use of your home. 2012 1040 For more information, see the Instructions for Schedule C (Form 1040). 2012 1040 Reminders Future developments. 2012 1040  For the latest information about developments related to Publication 530, such as legislation enacted after it was published, go to www. 2012 1040 irs. 2012 1040 gov/pub530. 2012 1040 Residential energy credits. 2012 1040  You may be able to take a credit if you made energy saving improvements to your home located in the United States in 2013. 2012 1040 See Form 5695, Residential Energy Credits, for more information. 2012 1040 Home Affordable Modification Program (HAMP). 2012 1040  If you benefit from Pay-for-Performance Success Payments, the payments are not taxable under HAMP. 2012 1040 Hardest Hit Fund and Emergency Homeowners' Loan Programs. 2012 1040  If you are a homeowner who received assistance under a State Housing Finance Agency Hardest Hit Fund program or an Emergency Homeowners' Loan Program, you may be able to deduct all of the payments you made on your mortgage during the year. 2012 1040 For details, see Hardest Hit Fund and Emergency Homeowners' Loan Programs under What You Can and Cannot Deduct, later. 2012 1040 Mortgage debt forgiveness. 2012 1040  You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. 2012 1040 You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. 2012 1040 See Discharges of qualified principal residence indebtedness , later, and Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), for more information. 2012 1040 Repayment of first-time homebuyer credit. 2012 1040  Generally, you must repay any credit you claimed for a home you bought if you disposed of the home or it ceased to be your main home in 2013. 2012 1040 If you bought the home in 2008 and you owned and used it as your main home for all of 2013, you generally must continue repaying the credit with your 2013 tax return, but you do not have to attach Form 5405, Repayment of the First-Time Homebuyer Credit. 2012 1040 See Form 5405 and its instructions for details and for exceptions to the repayment rule. 2012 1040 Photographs of missing children. 2012 1040  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 1040 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 1040 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. 2012 1040 Introduction This publication provides tax information for homeowners. 2012 1040 Your home may be a house, condominium, cooperative apartment, mobile home, houseboat, or house trailer that contains sleeping space and toilet and cooking facilities. 2012 1040 The following topics are explained. 2012 1040 How you treat items such as settlement and closing costs, real estate taxes, sales taxes, home mortgage interest, and repairs. 2012 1040 What you can and cannot deduct on your tax return. 2012 1040 The tax credit you can claim if you received a mortgage credit certificate when you bought your home. 2012 1040 Why you should keep track of adjustments to the basis of your home. 2012 1040 (Your home's basis generally is what it cost; adjustments include the cost of any improvements you might make. 2012 1040 ) What records you should keep as proof of the basis and adjusted basis. 2012 1040 Comments and suggestions. 2012 1040   We welcome your comments about this publication and your suggestions for future editions. 2012 1040   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 1040 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 1040 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 1040   You can send your comments from www. 2012 1040 irs. 2012 1040 gov/formspubs/. 2012 1040 Click on “More Information” and then on “Comment on Tax Forms and Publications”. 2012 1040   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. 2012 1040 Ordering forms and publications. 2012 1040   Visit www. 2012 1040 irs. 2012 1040 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. 2012 1040 Internal Revenue Service 1201 N. 2012 1040 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 1040   If you have a tax question, check the information available on IRS. 2012 1040 gov or call 1-800-829-1040. 2012 1040 We cannot answer tax questions sent to either of the above addresses. 2012 1040 Useful Items - You may want to see: Publication 523 Selling Your Home 527 Residential Rental Property 547 Casualties, Disasters, and Thefts 551 Basis of Assets 555 Community Property 587 Business Use of Your Home 936 Home Mortgage Interest Deduction Form (and Instructions) 5405 Repayment of the First-Time Homebuyer Credit 5695 Residential Energy Credits 8396 Mortgage Interest Credit See How To Get Tax Help , near the end of this publication, for information about getting publications and forms. 2012 1040 Prev  Up  Next   Home   More Online Publications
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Consumer Federation of America (CFA)

CFA is a consumer advocacy and education organization. It represents consumer interests on issues such as, telephone service, insurance and financial services, product safety, health care, product liability and utilities. It develops and distributes studies of various consumer issues, as well as printed consumer guides.

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The 2012 1040

2012 1040 6. 2012 1040   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. 2012 1040  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). 2012 1040 For more information, see the retiree drug subsidy frequently asked questions on IRS. 2012 1040 gov. 2012 1040 Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. 2012 1040 However, you may have to capitalize certain insurance costs under the uniform capitalization rules. 2012 1040 For more information, see Capitalized Premiums , later. 2012 1040 Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. 2012 1040 S. 2012 1040 Individual Income Tax Return See chapter 12 for information about getting publications and forms. 2012 1040 Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. 2012 1040 Insurance that covers fire, storm, theft, accident, or similar losses. 2012 1040 Credit insurance that covers losses from business bad debts. 2012 1040 Group hospitalization and medical insurance for employees, including long-term care insurance. 2012 1040 If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. 2012 1040 If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. 2012 1040 See Publication 15-B. 2012 1040 Liability insurance. 2012 1040 Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. 2012 1040 Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. 2012 1040 If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. 2012 1040 If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. 2012 1040 Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. 2012 1040 Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. 2012 1040 Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. 2012 1040 If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. 2012 1040 If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. 2012 1040 Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. 2012 1040 Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. 2012 1040 Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. 2012 1040 The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. 2012 1040 A child includes your son, daughter, stepchild, adopted child, or foster child. 2012 1040 A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 2012 1040 One of the following statements must be true. 2012 1040 You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. 2012 1040 You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 2012 1040 , box 14, code A. 2012 1040 You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. 2012 1040 You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. 2012 1040 Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. 2012 1040 The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. 2012 1040 For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. 2012 1040 For partners, a policy can be either in the name of the partnership or in the name of the partner. 2012 1040 You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 2012 1040 However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. 2012 1040 Otherwise, the insurance plan will not be considered to be established under your business. 2012 1040 For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. 2012 1040 You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. 2012 1040 However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. 2012 1040 Otherwise, the insurance plan will not be considered to be established under your business. 2012 1040 Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. 2012 1040 If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. 2012 1040 For more information, see Form 1040X, Amended U. 2012 1040 S. 2012 1040 Individual Income Tax Return. 2012 1040 Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. 2012 1040 Take the deduction on Form 1040, line 29. 2012 1040 Qualified long-term care insurance. 2012 1040   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. 2012 1040 But, for each person covered, you can include only the smaller of the following amounts. 2012 1040 The amount paid for that person. 2012 1040 The amount shown below. 2012 1040 Use the person's age at the end of the tax year. 2012 1040 Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. 2012 1040   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. 2012 1040 The contract must meet all the following requirements. 2012 1040 It must be guaranteed renewable. 2012 1040 It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. 2012 1040 It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. 2012 1040 It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. 2012 1040 Qualified long-term care services. 2012 1040   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. 2012 1040 The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. 2012 1040 Worksheet 6-A. 2012 1040 Self-Employed Health Insurance Deduction Worksheet Note. 2012 1040 Use a separate worksheet for each trade or business under which an insurance plan is established. 2012 1040 1. 2012 1040 Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. 2012 1040 Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. 2012 1040 But do not include the following. 2012 1040   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. 2012 1040 Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. 2012 1040 Any amounts you included on Form 8885, line 4. 2012 1040 Any qualified health insurance premiums you paid to “U. 2012 1040 S. 2012 1040 Treasury-HCTC. 2012 1040 ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. 2012 1040 Any payments for qualified long-term care insurance (see line 2) 1. 2012 1040   2. 2012 1040 For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. 2012 1040       a) Total payments made for that person during the year. 2012 1040       b) The amount shown below. 2012 1040 Use the person's age at the end of the tax year. 2012 1040         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. 2012 1040 If more than one person is covered, figure separately the amount to enter for each person. 2012 1040 Then enter the total of those amounts 2. 2012 1040   3. 2012 1040 Add lines 1 and 2 3. 2012 1040   4. 2012 1040 Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. 2012 1040 Do not include Conservation Reserve Program payments exempt from self-employment tax. 2012 1040 If the business is an S corporation, skip to line 11 4. 2012 1040   5. 2012 1040 Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. 2012 1040 Do not include Conservation Reserve Program payments exempt from self-employment tax. 2012 1040 See the Instructions for Schedule SE (Form 1040). 2012 1040 Do not include any net losses shown on these schedules. 2012 1040 5. 2012 1040   6. 2012 1040 Divide line 4 by line 5 6. 2012 1040   7. 2012 1040 Multiply Form 1040, line 27, by the percentage on line 6 7. 2012 1040   8. 2012 1040 Subtract line 7 from line 4 8. 2012 1040   9. 2012 1040 Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. 2012 1040   10. 2012 1040 Subtract line 9 from line 8 10. 2012 1040   11. 2012 1040 Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. 2012 1040   12. 2012 1040 Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. 2012 1040   13. 2012 1040 Subtract line 12 from line 10 or 11, whichever applies 13. 2012 1040   14. 2012 1040 Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. 2012 1040 Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). 2012 1040 14. 2012 1040   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. 2012 1040 Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. 2012 1040 * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. 2012 1040 However, it does not include capital gain income. 2012 1040 Chronically ill individual. 2012 1040   A chronically ill individual is a person who has been certified as one of the following. 2012 1040 An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. 2012 1040 Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. 2012 1040 An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. 2012 1040 The certification must have been made by a licensed health care practitioner within the previous 12 months. 2012 1040 Benefits received. 2012 1040   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. 2012 1040 Other coverage. 2012 1040   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. 2012 1040 In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. 2012 1040   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. 2012 1040 However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. 2012 1040 Effect on itemized deductions. 2012 1040   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. 2012 1040 Effect on self-employment tax. 2012 1040   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. 2012 1040 For more information, see Schedule SE (Form 1040). 2012 1040 How to figure the deduction. 2012 1040   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. 2012 1040 However, if any of the following apply, you must use Worksheet 6-A in this chapter. 2012 1040 You had more than one source of income subject to self-employment tax. 2012 1040 You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. 2012 1040 You are using amounts paid for qualified long-term care insurance to figure the deduction. 2012 1040 If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. 2012 1040 Health coverage tax credit. 2012 1040   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. 2012 1040 Use Form 8885 to figure the amount, if any, of this credit. 2012 1040   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. 2012 1040 Any amounts you included on Form 8885, line 4. 2012 1040 Any qualified health insurance premiums you paid to “U. 2012 1040 S. 2012 1040 Treasury-HCTC. 2012 1040 ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. 2012 1040 More than one health plan and business. 2012 1040   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. 2012 1040 Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). 2012 1040 For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. 2012 1040 Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. 2012 1040 Self-insurance reserve funds. 2012 1040 You cannot deduct amounts credited to a reserve set up for self-insurance. 2012 1040 This applies even if you cannot get business insurance coverage for certain business risks. 2012 1040 However, your actual losses may be deductible. 2012 1040 See Publication 547. 2012 1040 Loss of earnings. 2012 1040 You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. 2012 1040 However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. 2012 1040 Certain life insurance and annuities. 2012 1040 For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. 2012 1040 You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. 2012 1040 A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. 2012 1040 For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. 2012 1040 The disallowance applies without regard to whom the policy covers. 2012 1040 Partners. 2012 1040 If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. 2012 1040 You cannot deduct the insurance premiums. 2012 1040 Insurance to secure a loan. 2012 1040 If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. 2012 1040 Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. 2012 1040 In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. 2012 1040 Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 2012 1040 Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 2012 1040 You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 2012 1040 Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. 2012 1040 Uniform capitalization rules. 2012 1040   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 2012 1040 Produce real property or tangible personal property. 2012 1040 For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 2012 1040 Acquire property for resale. 2012 1040 However, these rules do not apply to the following property. 2012 1040 Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. 2012 1040 Property you produce if you meet either of the following conditions. 2012 1040 Your indirect costs of producing the property are $200,000 or less. 2012 1040 You use the cash method of accounting and do not account for inventories. 2012 1040 More information. 2012 1040   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. 2012 1040 When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. 2012 1040 Cash method. 2012 1040   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. 2012 1040 However, see Prepayment , later. 2012 1040 Accrual method. 2012 1040   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. 2012 1040 In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). 2012 1040 For more information about the accrual method of accounting, see chapter 1. 2012 1040 For information about the exception for recurring items, see Publication 538. 2012 1040 Prepayment. 2012 1040   You cannot deduct expenses in advance, even if you pay them in advance. 2012 1040 This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. 2012 1040   Expenses such as insurance are generally allocable to a period of time. 2012 1040 You can deduct insurance expenses for the year to which they are allocable. 2012 1040 Example. 2012 1040 In 2013, you signed a 3-year insurance contract. 2012 1040 Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. 2012 1040 You can deduct in 2014 and 2015 the premium allocable to those years. 2012 1040 Dividends received. 2012 1040   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. 2012 1040 For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. 2012 1040 Prev  Up  Next   Home   More Online Publications