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2012 Tax Forms 1040a

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2012 Tax Forms 1040a

2012 tax forms 1040a Part Four -   Adjustments to Income The three chapters in this part discuss some of the adjustments to income that you can deduct in figuring your adjusted gross income. 2012 tax forms 1040a These chapters cover: Contributions you make to traditional individual retirement arrangements (IRAs) — chapter 17, Alimony you pay — chapter 18, and Student loan interest you pay — chapter 19. 2012 tax forms 1040a Other adjustments to income are discussed elsewhere. 2012 tax forms 1040a See Table V below. 2012 tax forms 1040a Table V. 2012 tax forms 1040a Other Adjustments to Income  Use this table to find information about other adjustments to income not covered in this part of the publication. 2012 tax forms 1040a IF you are looking for more information about the deduction for. 2012 tax forms 1040a . 2012 tax forms 1040a . 2012 tax forms 1040a THEN see. 2012 tax forms 1040a . 2012 tax forms 1040a . 2012 tax forms 1040a Certain business expenses of reservists, performing artists, and fee-basis officials Chapter 26. 2012 tax forms 1040a Contributions to a health savings account Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. 2012 tax forms 1040a Moving expenses Publication 521, Moving Expenses. 2012 tax forms 1040a Part of your self-employment tax Chapter 22. 2012 tax forms 1040a Self-employed health insurance Chapter 21. 2012 tax forms 1040a Payments to self-employed SEP, SIMPLE, and qualified plans Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). 2012 tax forms 1040a Penalty on the early withdrawal of savings Chapter 7. 2012 tax forms 1040a Contributions to an Archer MSA Publication 969. 2012 tax forms 1040a Reforestation amortization or expense Chapters 7 and 8 of Publication 535, Business Expenses. 2012 tax forms 1040a Contributions to Internal Revenue Code section 501(c)(18)(D) pension plans Publication 525, Taxable and Nontaxable Income. 2012 tax forms 1040a Expenses from the rental of personal property Chapter 12. 2012 tax forms 1040a Certain required repayments of supplemental unemployment benefits (sub-pay) Chapter 12. 2012 tax forms 1040a Foreign housing costs Chapter 4 of Publication 54, Tax Guide for U. 2012 tax forms 1040a S. 2012 tax forms 1040a Citizens and Resident Aliens Abroad. 2012 tax forms 1040a Jury duty pay given to your employer Chapter 12. 2012 tax forms 1040a Contributions by certain chaplains to Internal Revenue Code section 403(b) plans Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. 2012 tax forms 1040a Attorney fees and certain costs for actions involving certain unlawful discrimination claims or awards to whistleblowers Publication 525. 2012 tax forms 1040a Domestic production activities deduction Form 8903, Domestic Production Activities Deduction. 2012 tax forms 1040a Table of Contents 17. 2012 tax forms 1040a   Individual Retirement Arrangements (IRAs)What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? 18. 2012 tax forms 1040a   AlimonyIntroductionSpouse or former spouse. 2012 tax forms 1040a Divorce or separation instrument. 2012 tax forms 1040a Useful Items - You may want to see: General RulesMortgage payments. 2012 tax forms 1040a Taxes and insurance. 2012 tax forms 1040a Other payments to a third party. 2012 tax forms 1040a Instruments Executed After 1984Payments to a third party. 2012 tax forms 1040a Exception. 2012 tax forms 1040a Substitute payments. 2012 tax forms 1040a Specifically designated as child support. 2012 tax forms 1040a Contingency relating to your child. 2012 tax forms 1040a Clearly associated with a contingency. 2012 tax forms 1040a How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule 19. 2012 tax forms 1040a   Education- Related AdjustmentsIntroduction Useful Items - You may want to see: Student Loan Interest DeductionStudent Loan Interest Defined Can You Claim the Deduction How Much Can You Deduct How Do You Figure the Deduction Tuition and Fees DeductionCan You Claim the Deduction What Expenses Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses How Much Can You Deduct Educator Expenses Prev  Up  Next   Home   More Online Publications
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The 2012 Tax Forms 1040a

2012 tax forms 1040a 2. 2012 tax forms 1040a   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. 2012 tax forms 1040a You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. 2012 tax forms 1040a This chapter discusses accounting methods. 2012 tax forms 1040a For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. 2012 tax forms 1040a Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. 2012 tax forms 1040a Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. 2012 tax forms 1040a Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. 2012 tax forms 1040a A material item is one that affects the proper time for inclusion of income or allowance of a deduction. 2012 tax forms 1040a An item considered material for financial statement purposes is generally also considered material for income tax purposes. 2012 tax forms 1040a See Publication 538 for more information. 2012 tax forms 1040a You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. 2012 tax forms 1040a If you later want to change your accounting method, you generally must get IRS approval. 2012 tax forms 1040a How to obtain IRS approval is discussed later under Changes in Methods of Accounting . 2012 tax forms 1040a Types of accounting methods. 2012 tax forms 1040a   Generally, you can use any of the following accounting methods. 2012 tax forms 1040a Each method is discussed in detail below. 2012 tax forms 1040a Cash method. 2012 tax forms 1040a Accrual method. 2012 tax forms 1040a Special methods of accounting for certain items of income and expenses. 2012 tax forms 1040a Combination (hybrid) method using elements of two or more of the above. 2012 tax forms 1040a Business and other items. 2012 tax forms 1040a   You can account for business and personal items using different accounting methods. 2012 tax forms 1040a For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. 2012 tax forms 1040a Two or more businesses. 2012 tax forms 1040a   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. 2012 tax forms 1040a Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. 2012 tax forms 1040a Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. 2012 tax forms 1040a However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. 2012 tax forms 1040a See Accrual Method Required , later. 2012 tax forms 1040a Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. 2012 tax forms 1040a Items of income include money received as well as property or services received. 2012 tax forms 1040a If you receive property or services, you must include the fair market value (FMV) of the property or services in income. 2012 tax forms 1040a See chapter 3 for information on how to report farm income on your income tax return. 2012 tax forms 1040a Constructive receipt. 2012 tax forms 1040a   Income is constructively received when an amount is credited to your account or made available to you without restriction. 2012 tax forms 1040a You do not need to have possession of the income for it to be treated as income for the tax year. 2012 tax forms 1040a If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. 2012 tax forms 1040a Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. 2012 tax forms 1040a Direct payments and counter-cyclical payments. 2012 tax forms 1040a   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. 2012 tax forms 1040a Delaying receipt of income. 2012 tax forms 1040a   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. 2012 tax forms 1040a You must report the income in the year the money or property is received or made available to you without restriction. 2012 tax forms 1040a Example. 2012 tax forms 1040a Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. 2012 tax forms 1040a She was told in December that her payment was available. 2012 tax forms 1040a She requested not to be paid until January 2014. 2012 tax forms 1040a However, she must still include this payment in her 2013 income because it was made available to her in 2013. 2012 tax forms 1040a Debts paid by another person or canceled. 2012 tax forms 1040a   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. 2012 tax forms 1040a If you receive income in this way, you constructively receive the income when the debt is canceled or paid. 2012 tax forms 1040a See Cancellation of Debt in chapter 3. 2012 tax forms 1040a Deferred payment contract. 2012 tax forms 1040a   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. 2012 tax forms 1040a However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. 2012 tax forms 1040a Example. 2012 tax forms 1040a You are a farmer who uses the cash method and a calendar tax year. 2012 tax forms 1040a You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. 2012 tax forms 1040a You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. 2012 tax forms 1040a However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. 2012 tax forms 1040a Repayment of income. 2012 tax forms 1040a   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. 2012 tax forms 1040a If the repayment is more than $3,000, a special rule applies. 2012 tax forms 1040a For details, see Repayments in chapter 11 of Publication 535, Business Expenses. 2012 tax forms 1040a Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. 2012 tax forms 1040a This includes business expenses for which you contest liability. 2012 tax forms 1040a However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. 2012 tax forms 1040a See chapter 4 for information on how to deduct farm business expenses on your income tax return. 2012 tax forms 1040a Prepayment. 2012 tax forms 1040a   Generally, you cannot deduct expenses paid in advance. 2012 tax forms 1040a 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 tax forms 1040a Example. 2012 tax forms 1040a On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. 2012 tax forms 1040a In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. 2012 tax forms 1040a In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. 2012 tax forms 1040a An exception applies if the expense qualifies for the 12-month rule. 2012 tax forms 1040a See Publication 538 for more information and examples. 2012 tax forms 1040a See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. 2012 tax forms 1040a Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. 2012 tax forms 1040a The purpose of an accrual method of accounting is to correctly match income and expenses. 2012 tax forms 1040a Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. 2012 tax forms 1040a See Accrual Method Required and Farm Inventory , later. 2012 tax forms 1040a Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. 2012 tax forms 1040a Under this rule, include an amount in income on the earliest of the following dates. 2012 tax forms 1040a When you receive payment. 2012 tax forms 1040a When the income amount is due to you. 2012 tax forms 1040a When you earn the income. 2012 tax forms 1040a When title passes. 2012 tax forms 1040a If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. 2012 tax forms 1040a Inventory. 2012 tax forms 1040a   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. 2012 tax forms 1040a An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. 2012 tax forms 1040a See Publication 538 for more information. 2012 tax forms 1040a Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. 2012 tax forms 1040a Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. 2012 tax forms 1040a The all-events test has been met. 2012 tax forms 1040a This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. 2012 tax forms 1040a Economic performance has occurred. 2012 tax forms 1040a Economic performance. 2012 tax forms 1040a   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. 2012 tax forms 1040a If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. 2012 tax forms 1040a If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. 2012 tax forms 1040a Example. 2012 tax forms 1040a Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. 2012 tax forms 1040a She entered into a contract with ABC Farm Consulting in 2012. 2012 tax forms 1040a The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. 2012 tax forms 1040a It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. 2012 tax forms 1040a Jane paid ABC Farm Consulting $2,000 in December 2012. 2012 tax forms 1040a Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. 2012 tax forms 1040a Economic performance for Jane's liability in the contract occurs as the services are provided. 2012 tax forms 1040a Jane incurs the $2,000 cost in 2013. 2012 tax forms 1040a An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. 2012 tax forms 1040a For more information, see Economic Performance in Publication 538. 2012 tax forms 1040a Special rule for related persons. 2012 tax forms 1040a   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. 2012 tax forms 1040a Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. 2012 tax forms 1040a For more information, see Internal Revenue Code section 267. 2012 tax forms 1040a Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. 2012 tax forms 1040a A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. 2012 tax forms 1040a A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. 2012 tax forms 1040a A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. 2012 tax forms 1040a A tax shelter. 2012 tax forms 1040a Note. 2012 tax forms 1040a Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). 2012 tax forms 1040a Family corporation. 2012 tax forms 1040a   A family corporation is generally a corporation that meets one of the following ownership requirements. 2012 tax forms 1040a Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. 2012 tax forms 1040a Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. 2012 tax forms 1040a Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. 2012 tax forms 1040a For more information on family corporations, see Internal Revenue Code section 447. 2012 tax forms 1040a Tax shelter. 2012 tax forms 1040a   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. 2012 tax forms 1040a Its principal purpose is the avoidance or evasion of federal income tax. 2012 tax forms 1040a It is a farming syndicate. 2012 tax forms 1040a A farming syndicate is an entity that meets either of the following tests. 2012 tax forms 1040a Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. 2012 tax forms 1040a More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. 2012 tax forms 1040a   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. 2012 tax forms 1040a   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. 2012 tax forms 1040a Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. 2012 tax forms 1040a This record should show the actual count or measurement of the inventory. 2012 tax forms 1040a It should also show all factors that enter into its valuation, including quality and weight, if applicable. 2012 tax forms 1040a Hatchery business. 2012 tax forms 1040a   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. 2012 tax forms 1040a Products held for sale. 2012 tax forms 1040a   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. 2012 tax forms 1040a , must be included in inventory. 2012 tax forms 1040a Supplies. 2012 tax forms 1040a   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. 2012 tax forms 1040a Deduct the cost of supplies in the year used or consumed in operations. 2012 tax forms 1040a Do not include incidental supplies in inventory as these are deductible in the year of purchase. 2012 tax forms 1040a Livestock. 2012 tax forms 1040a   Livestock held primarily for sale must be included in inventory. 2012 tax forms 1040a Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. 2012 tax forms 1040a See also Unit-livestock-price method , later. 2012 tax forms 1040a If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. 2012 tax forms 1040a Growing crops. 2012 tax forms 1040a   Generally, growing crops are not required to be included in inventory. 2012 tax forms 1040a However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. 2012 tax forms 1040a See Uniform capitalization rules below. 2012 tax forms 1040a Also see Uniform Capitalization Rules in  chapter 6. 2012 tax forms 1040a Items to include in inventory. 2012 tax forms 1040a   Your inventory should include all items held for sale, or for use as feed, seed, etc. 2012 tax forms 1040a , whether raised or purchased, that are unsold at the end of the year. 2012 tax forms 1040a Uniform capitalization rules. 2012 tax forms 1040a   The following applies if you are required to use an accrual method of accounting. 2012 tax forms 1040a The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. 2012 tax forms 1040a The costs of animals are subject to the uniform capitalization rules. 2012 tax forms 1040a Inventory valuation methods. 2012 tax forms 1040a   The following methods, described below, are those generally available for valuing inventory. 2012 tax forms 1040a The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. 2012 tax forms 1040a Cost. 2012 tax forms 1040a Lower of cost or market. 2012 tax forms 1040a Farm-price method. 2012 tax forms 1040a Unit-livestock-price method. 2012 tax forms 1040a Cost and lower of cost or market methods. 2012 tax forms 1040a   See Publication 538 for information on these valuation methods. 2012 tax forms 1040a If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. 2012 tax forms 1040a However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. 2012 tax forms 1040a Farm-price method. 2012 tax forms 1040a   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. 2012 tax forms 1040a Market price is the current price at the nearest market in the quantities you usually sell. 2012 tax forms 1040a Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. 2012 tax forms 1040a If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. 2012 tax forms 1040a Unit-livestock-price method. 2012 tax forms 1040a   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. 2012 tax forms 1040a You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. 2012 tax forms 1040a The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. 2012 tax forms 1040a Unit prices and classifications are subject to approval by the IRS on examination of your return. 2012 tax forms 1040a You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. 2012 tax forms 1040a IRS approval is not required for these adjustments. 2012 tax forms 1040a Any other changes in unit prices or classifications do require IRS approval. 2012 tax forms 1040a   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. 2012 tax forms 1040a This method accounts only for the increase in cost of raising an animal to maturity. 2012 tax forms 1040a It does not provide for any decrease in the animal's market value after it reaches maturity. 2012 tax forms 1040a Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. 2012 tax forms 1040a   Do not include sold or lost animals in the year-end inventory. 2012 tax forms 1040a If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. 2012 tax forms 1040a The animals on hand at the end of the year are considered those most recently acquired. 2012 tax forms 1040a   You must include in inventory all livestock purchased primarily for sale. 2012 tax forms 1040a You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. 2012 tax forms 1040a However, you must be consistent from year to year, regardless of the method you have chosen. 2012 tax forms 1040a You cannot change your method without obtaining approval from the IRS. 2012 tax forms 1040a   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. 2012 tax forms 1040a If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. 2012 tax forms 1040a However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. 2012 tax forms 1040a This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. 2012 tax forms 1040a It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. 2012 tax forms 1040a Uniform capitalization rules. 2012 tax forms 1040a   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. 2012 tax forms 1040a This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. 2012 tax forms 1040a Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. 2012 tax forms 1040a Example 1. 2012 tax forms 1040a You are a farmer who uses an accrual method of accounting. 2012 tax forms 1040a You keep your books on the calendar year basis. 2012 tax forms 1040a You sell grain in December 2013 but you are not paid until January 2014. 2012 tax forms 1040a Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. 2012 tax forms 1040a Example 2. 2012 tax forms 1040a Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. 2012 tax forms 1040a Under this method, you include the sales proceeds in income for 2014, the year you receive payment. 2012 tax forms 1040a Deduct the costs of producing the grain in the year you pay for them. 2012 tax forms 1040a Special Methods of Accounting There are special methods of accounting for certain items of income and expense. 2012 tax forms 1040a Crop method. 2012 tax forms 1040a   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. 2012 tax forms 1040a You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. 2012 tax forms 1040a Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. 2012 tax forms 1040a    See chapter 4 for details on deducting the costs of operating a farm. 2012 tax forms 1040a Also see Regulations section 1. 2012 tax forms 1040a 162-12. 2012 tax forms 1040a Other special methods. 2012 tax forms 1040a   Other special methods of accounting apply to the following items. 2012 tax forms 1040a Amortization, see chapter 7. 2012 tax forms 1040a Casualties, see chapter 11. 2012 tax forms 1040a Condemnations, see chapter 11. 2012 tax forms 1040a Depletion, see chapter 7. 2012 tax forms 1040a Depreciation, see chapter 7. 2012 tax forms 1040a Farm business expenses, see chapter 4. 2012 tax forms 1040a Farm income, see chapter 3. 2012 tax forms 1040a Installment sales, see chapter 10. 2012 tax forms 1040a Soil and water conservation expenses, see chapter 5. 2012 tax forms 1040a Thefts, see chapter 11. 2012 tax forms 1040a Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. 2012 tax forms 1040a However, the following restrictions apply. 2012 tax forms 1040a If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. 2012 tax forms 1040a If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. 2012 tax forms 1040a Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). 2012 tax forms 1040a Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. 2012 tax forms 1040a You may also have to pay a fee. 2012 tax forms 1040a To obtain approval, you must generally file Form 3115. 2012 tax forms 1040a There are instances when you can obtain automatic consent to change certain methods of accounting. 2012 tax forms 1040a See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. 2012 tax forms 1040a For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. 2012 tax forms 1040a Also see Publication 538. 2012 tax forms 1040a Prev  Up  Next   Home   More Online Publications