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Amending Tax Returns Online

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Amending Tax Returns Online

Amending tax returns online Index A Acknowledgment, Acknowledgment. Amending tax returns online Adoption expenses, Personal Expenses Airplanes, donations of, Cars, Boats, and Airplanes Appraisal fees, Appraisal Fees Assistance (see Tax help) Athletic events, Athletic events. Amending tax returns online B Bargain sales, Bargain Sales Blood donated, Value of Time or Services Boats, donations of, Cars, Boats, and Airplanes Boats, fair market value, Cars, boats, and airplanes. Amending tax returns online C Canadian charity, Canadian charities. Amending tax returns online Capital gain property, Capital Gain Property Car expenses, Car expenses. Amending tax returns online , Car expenses. Amending tax returns online Carryovers, Carryovers Cars, donations of, Cars, Boats, and Airplanes Cash contributions, records to keep, Cash Contributions Charity benefit events, Charity benefit events. Amending tax returns online Church deacon, Church deacon. Amending tax returns online Clothing Fair market value of, Used clothing. Amending tax returns online Conservation contribution, Special 50% Limit for Qualified Conservation Contributions Contributions from which you benefit, Contributions From Which You Benefit, Contributions From Which You Benefit Contributions of property, Contributions of Property Contributions subject to special rules Car, boat, or airplane, 1098–C, Contributions Subject to Special Rules Clothing, Contributions Subject to Special Rules Fractional interest in tangible personal property, Contributions Subject to Special Rules Future interest in tangible personal property, Contributions Subject to Special Rules Household items, Contributions Subject to Special Rules Inventory from your business, Contributions Subject to Special Rules Partial interest in property, Contributions Subject to Special Rules Patent or other intellectual property, Contributions Subject to Special Rules Property subject to a debt, Contributions Subject to Special Rules Qualified conservation contribution, Contributions Subject to Special Rules Taxidermy property, Contributions Subject to Special Rules Contributions to nonqualified organizations Foreign organizations, Contributions to Nonqualified Organizations Contributions you can deduct, Contributions You Can Deduct Conventions of a qualified organization, Conventions. Amending tax returns online D Daily allowance (per diem) from a charitable organization, Daily allowance (per diem). Amending tax returns online Deduction limits, Limits on Deductions Determining fair market value, Determining Fair Market Value Disaster relief, Reminders Donor-advised funds, Contributions to Donor-Advised Funds E Easement, Building in registered historic district. Amending tax returns online F Farmer, Qualified farmer or rancher. Amending tax returns online Food inventory, Food Inventory Foreign organizations Canadian, Canadian charities. Amending tax returns online Israeli, Israeli charities. Amending tax returns online Mexican, Mexican charities. Amending tax returns online Form 8282, Form 8282. Amending tax returns online 8283, Total deduction over $500. Amending tax returns online Foster parents, Foster parents. Amending tax returns online Free tax services, Free help with your tax return. Amending tax returns online Future interests in property, Future Interest in Tangible Personal Property H Help (see Tax help) Historic building, Building in registered historic district. Amending tax returns online Household items Fair market value of, Household items. Amending tax returns online How to report, How To Report Noncash contributions, Reporting expenses for student living with you. Amending tax returns online I Introduction, Introduction Inventory, Food Inventory Israeli charity, Israeli charities. Amending tax returns online L Legislation, influencing, Contributions From Which You Benefit Limit on itemized deductions, What's New Limits on deductions, Limits on Deductions 20% limit, 20% Limit 30% limit, 30% Limit 50% limit, 50% Limit Calculation, How To Figure Your Deduction When Limits Apply Capital gain property, Special 30% Limit for Capital Gain Property Qualified conservation contributions, Special 50% Limit for Qualified Conservation Contributions M Meals, Personal Expenses Membership fees or dues, Membership fees or dues. Amending tax returns online Mexican charity, Mexican charities. Amending tax returns online Motor vehicles, donations of, Cars, Boats, and Airplanes Motor vehicles, fair market value, Cars, boats, and airplanes. Amending tax returns online N Noncash contributions, Noncash Contributions How to report, Reporting expenses for student living with you. Amending tax returns online Records to keep, Noncash Contributions Nondeductible contributions, Contributions You Cannot Deduct O Ordinary income property, Ordinary Income Property Out-of-pocket expenses, Out-of-pocket expenses. Amending tax returns online Out-of-pocket expenses in giving services, Out-of-Pocket Expenses in Giving Services P Payroll deductions, Payroll deductions. Amending tax returns online , Payroll deductions. Amending tax returns online Penalty, valuation overstatement, Penalty Personal expenses, Personal Expenses Private foundation, 50% Limit Organizations Private nonoperating foundation, Contributions to private nonoperating foundations. Amending tax returns online , 50% Limit Organizations Private operating foundation, 50% Limit Organizations Property Bargain sales, Bargain Sales Basis, Giving Property That Has Decreased in Value Capital gain, Capital Gain Property Capital gain election, Capital gain property election. Amending tax returns online Decreased in value, Giving Property That Has Decreased in Value Future interests, Future Interest in Tangible Personal Property Increased in value, Giving Property That Has Increased in Value Inventory, Food Inventory Ordinary income, Ordinary Income Property Unrelated use, Tangible personal property put to unrelated use. Amending tax returns online Publications (see Tax help) Q Qualified charitable distributions, Qualified Charitable Distributions Qualified conservation contribution, Special 50% Limit for Qualified Conservation Contributions Qualified organizations Foreign qualified organizations Canadian, Organizations That Qualify To Receive Deductible Contributions Israeli, Organizations That Qualify To Receive Deductible Contributions Mexican, Organizations That Qualify To Receive Deductible Contributions Types, Organizations That Qualify To Receive Deductible Contributions R Raffle or bingo, Contributions From Which You Benefit Recapture No exempt use, Recapture if no exempt use. Amending tax returns online Recapture of deduction of fractional interest in tangible personal property Additional tax, Recapture of deduction. Amending tax returns online Records to keep, Records To Keep Reminders Disaster relief, Reminders Reporting, How To Report Retirement home, Contributions From Which You Benefit S Services, value of, Value of Time or Services Split-dollar insurance arrangements, Contributions From Which You Benefit Student, Mutual exchange program. Amending tax returns online Exchange program, Mutual exchange program. Amending tax returns online Living with you, Student living with you. Amending tax returns online Student living with you, Expenses Paid for Student Living With You, Reporting expenses for student living with you. Amending tax returns online T Tangible personal property Future interest in, Future Interest in Tangible Personal Property Tax help, How To Get Tax Help Time, value of, Value of Time or Services Token items, Certain membership benefits can be disregarded. Amending tax returns online Travel expenses, Travel. Amending tax returns online Travel expenses for charitable services, Deductible travel expenses. Amending tax returns online Tuition, Contributions From Which You Benefit U Underprivileged youths, Underprivileged youths selected by charity. Amending tax returns online Uniforms, Uniforms. Amending tax returns online Unrelated use, Unrelated use. Amending tax returns online V Volunteers, Out-of-Pocket Expenses in Giving Services W Whaling captain, Expenses of Whaling Captains When to deduct, When To Deduct Prev  Up     Home   More Online Publications
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The Amending Tax Returns Online

Amending tax returns online 4. Amending tax returns online   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. Amending tax returns online Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. Amending tax returns online Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. Amending tax returns online Category 1. Amending tax returns online Category 2. Amending tax returns online Category 3. Amending tax returns online What's New for 2013 Standard mileage rate. Amending tax returns online  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. Amending tax returns online 5 cents. Amending tax returns online See Truck and Car Expenses , later. Amending tax returns online Simplified method for business use of home deduction. Amending tax returns online  The IRS now provides a simplified method to determine your expenses for business use of your home. Amending tax returns online For more information, see Schedule C (Form 1040), Part II, and its instructions. Amending tax returns online Introduction You can generally deduct the current costs of operating your farm. Amending tax returns online Current costs are expenses you do not have to capitalize or include in inventory costs. Amending tax returns online However, your deduction for the cost of livestock feed and certain other supplies may be limited. Amending tax returns online If you have an operating loss, you may not be able to deduct all of it. Amending tax returns online Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. Amending tax returns online Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. Amending tax returns online “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. Amending tax returns online Schedule F, Part II, lists some common farm expenses that are typically deductible. Amending tax returns online This chapter discusses many of these expenses, as well as others not listed on Schedule F. Amending tax returns online Reimbursed expenses. Amending tax returns online   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. Amending tax returns online If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. Amending tax returns online See Refund or reimbursement under Income From Other Sources in chapter 3. Amending tax returns online Personal and business expenses. Amending tax returns online   Some expenses you pay during the tax year may be part personal and part business. Amending tax returns online These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. Amending tax returns online   You must allocate these mixed expenses between their business and personal parts. Amending tax returns online Generally, the personal part of these expenses is not deductible. Amending tax returns online The business portion of the expenses is deductible on Schedule F. Amending tax returns online Example. Amending tax returns online You paid $1,500 for electricity during the tax year. Amending tax returns online You used 1/3 of the electricity for personal purposes and 2/3 for farming. Amending tax returns online Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. Amending tax returns online Reasonable allocation. Amending tax returns online   It is not always easy to determine the business and nonbusiness parts of an expense. Amending tax returns online There is no method of allocation that applies to all mixed expenses. Amending tax returns online Any reasonable allocation is acceptable. Amending tax returns online What is reasonable depends on the circumstances in each case. Amending tax returns online Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. Amending tax returns online Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. Amending tax returns online Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. Amending tax returns online However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. Amending tax returns online Poultry bought for resale and not resold during the year. Amending tax returns online Deduction limit. Amending tax returns online   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). Amending tax returns online This limit does not apply if you meet one of the exceptions described later. Amending tax returns online See Chapter 2 for a discussion of the cash method of accounting. Amending tax returns online   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. Amending tax returns online The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. Amending tax returns online The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. Amending tax returns online Example. Amending tax returns online You may not qualify for the exception described next. Amending tax returns online During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. Amending tax returns online Your total prepaid farm supplies expense for 2013 is $5,500. Amending tax returns online Your other deductible farm expenses totaled $10,000 for 2013. Amending tax returns online Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. Amending tax returns online The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. Amending tax returns online Exceptions. Amending tax returns online   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. Amending tax returns online Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. Amending tax returns online Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. Amending tax returns online   You are a farm-related taxpayer if any of the following tests apply. Amending tax returns online Your main home is on a farm. Amending tax returns online Your principal business is farming. Amending tax returns online A member of your family meets (1) or (2). Amending tax returns online For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. Amending tax returns online    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. Amending tax returns online Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. Amending tax returns online The payment is for the purchase of feed rather than a deposit. Amending tax returns online The prepayment has a business purpose and is not merely for tax avoidance. Amending tax returns online Deducting the prepayment does not result in a material distortion of your income. Amending tax returns online If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. Amending tax returns online If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. Amending tax returns online This rule does not apply to the purchase of commodity futures contracts. Amending tax returns online Payment for the purchase of feed. Amending tax returns online   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. Amending tax returns online It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. Amending tax returns online   The following are some factors that show a payment is a deposit rather than for the purchase of feed. Amending tax returns online The absence of specific quantity terms. Amending tax returns online The right to a refund of any unapplied payment credit at the end of the contract. Amending tax returns online The seller's treatment of the payment as a deposit. Amending tax returns online The right to substitute other goods or products for those specified in the contract. Amending tax returns online   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. Amending tax returns online Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. Amending tax returns online Business purpose. Amending tax returns online   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. Amending tax returns online The following are some examples of business benefits. Amending tax returns online Fixing maximum prices and securing an assured feed supply. Amending tax returns online Securing preferential treatment in anticipation of a feed shortage. Amending tax returns online   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. Amending tax returns online No material distortion of income. Amending tax returns online   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. Amending tax returns online Your customary business practice in conducting your livestock operations. Amending tax returns online The expense in relation to past purchases. Amending tax returns online The time of year you made the purchase. Amending tax returns online The expense in relation to your income for the year. Amending tax returns online Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. Amending tax returns online You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. Amending tax returns online The cost of boarding farm labor is a deductible labor cost. Amending tax returns online Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. Amending tax returns online If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. Amending tax returns online See chapter 13 for more information on employment taxes. Amending tax returns online Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. Amending tax returns online See Taxes , later. Amending tax returns online Property for services. Amending tax returns online   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. Amending tax returns online If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. Amending tax returns online   Treat the wages deducted as an amount received for the property. Amending tax returns online You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. Amending tax returns online Any gain or loss has the same character the exchanged property had in your hands. Amending tax returns online For more information, see chapter 8. Amending tax returns online Child as an employee. Amending tax returns online   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. Amending tax returns online Include these wages in the child's income. Amending tax returns online The child may have to file an income tax return. Amending tax returns online These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Amending tax returns online For more information, see Family Employees in chapter 13. Amending tax returns online    A Form W-2, Wage and Tax Statement, should be issued to the child employee. Amending tax returns online   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. Amending tax returns online The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. Amending tax returns online Spouse as an employee. Amending tax returns online   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Amending tax returns online Wages you pay to your spouse are subject to social security and Medicare taxes. Amending tax returns online For more information, see Family Employees in chapter 13. Amending tax returns online Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. Amending tax returns online However, those wages may be subject to the employment taxes discussed in chapter 13. Amending tax returns online Household workers. Amending tax returns online   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. Amending tax returns online Construction labor. Amending tax returns online   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. Amending tax returns online These wages are part of the cost of the building or other improvement. Amending tax returns online You must capitalize them. Amending tax returns online Maintaining your home. Amending tax returns online   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. Amending tax returns online For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. Amending tax returns online The employee devotes the remaining time to work on your farm. Amending tax returns online You cannot deduct 5% of the wages and employment taxes you pay for that employee. Amending tax returns online Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). Amending tax returns online Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. Amending tax returns online Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. Amending tax returns online However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. Amending tax returns online For example, if you repair the barn roof, the cost is deductible. Amending tax returns online But if you replace the roof, it is a capital expense. Amending tax returns online For more information, see Capital Expenses , later. Amending tax returns online Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. Amending tax returns online Cash method. Amending tax returns online   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. Amending tax returns online You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. Amending tax returns online You can, however, deduct the interest when you start making payments on the new loan. Amending tax returns online For more information, see Cash Method in chapter 2. Amending tax returns online Prepaid interest. Amending tax returns online   Under the cash method, you generally cannot deduct any interest paid before the year it is due. Amending tax returns online Interest paid in advance may be deducted only in the tax year in which it is due. Amending tax returns online Accrual method. Amending tax returns online   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. Amending tax returns online However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Amending tax returns online For more information, see Accrual Method in chapter 2. Amending tax returns online Allocation of interest. Amending tax returns online   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Amending tax returns online Allocate the interest to the following categories. Amending tax returns online Trade or business interest. Amending tax returns online Passive activity interest. Amending tax returns online Investment interest. Amending tax returns online Portfolio interest. Amending tax returns online Personal interest. Amending tax returns online   You generally allocate interest on a loan the same way you allocate the loan proceeds. Amending tax returns online You allocate loan proceeds by tracing disbursements to specific uses. Amending tax returns online The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Amending tax returns online Secured loan. Amending tax returns online   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. Amending tax returns online Example. Amending tax returns online You secure a loan with property used in your farming business. Amending tax returns online You use the loan proceeds to buy a car for personal use. Amending tax returns online You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. Amending tax returns online If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Amending tax returns online The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Amending tax returns online However, you can choose to treat the loan as not secured by your home. Amending tax returns online For more information, see Publication 936. Amending tax returns online Allocation period. Amending tax returns online   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Amending tax returns online The date the loan is repaid. Amending tax returns online The date the loan is reallocated to another use. Amending tax returns online More information. Amending tax returns online   For more information on interest, see chapter 4 in Publication 535. Amending tax returns online Breeding Fees You can deduct breeding fees as a farm business expense. Amending tax returns online However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. Amending tax returns online For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. Amending tax returns online Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. Amending tax returns online You can also deduct the cost of applying these materials in the year you pay or incur it. Amending tax returns online However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. Amending tax returns online If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. Amending tax returns online However, you can choose to deduct these expenses in the year paid or incurred. Amending tax returns online If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. Amending tax returns online If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. Amending tax returns online Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. Amending tax returns online It does not include land you have never used previously for producing crops or sustaining livestock. Amending tax returns online You cannot deduct initial land preparation costs. Amending tax returns online (See Capital Expenses , later. Amending tax returns online ) Include government payments you receive for lime or fertilizer in income. Amending tax returns online See Fertilizer and Lime under Agricultural Program Payments in chapter 3. Amending tax returns online Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. Amending tax returns online You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. Amending tax returns online For information on employment taxes, see chapter 13. Amending tax returns online Allocation of taxes. Amending tax returns online   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. Amending tax returns online You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). Amending tax returns online To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. Amending tax returns online The allocation can be done from the assessed valuations. Amending tax returns online If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. Amending tax returns online State and local general sales taxes. Amending tax returns online   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Amending tax returns online Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. Amending tax returns online Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. Amending tax returns online State and federal income taxes. Amending tax returns online   Individuals cannot deduct state and federal income taxes as farm business expenses. Amending tax returns online Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Amending tax returns online However, you cannot deduct federal income tax. Amending tax returns online Highway use tax. Amending tax returns online   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. Amending tax returns online For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. Amending tax returns online Self-employment tax deduction. Amending tax returns online   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. Amending tax returns online For more information, see chapter 12. Amending tax returns online Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. Amending tax returns online This includes premiums you pay for the following types of insurance. Amending tax returns online Fire, storm, crop, theft, liability, and other insurance on farm business assets. Amending tax returns online Health and accident insurance on your farm employees. Amending tax returns online Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. Amending tax returns online Business interruption insurance. Amending tax returns online State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). Amending tax returns online Insurance to secure a loan. Amending tax returns online   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. Amending tax returns online In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amending tax returns online Advance premiums. Amending tax returns online   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. Amending tax returns online Example. Amending tax returns online On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. Amending tax returns online The policy will cover a period of 3 years beginning on July 1, 2013. Amending tax returns online Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. Amending tax returns online Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. Amending tax returns online In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). Amending tax returns online Deduct the remaining $500 in 2016. Amending tax returns online Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. Amending tax returns online Business interruption insurance. Amending tax returns online   Use and occupancy and business interruption insurance premiums are deductible as a business expense. Amending tax returns online This insurance pays for lost profits if your business is shut down due to a fire or other cause. Amending tax returns online Report any proceeds in full on Schedule F, Part I. Amending tax returns online Self-employed health insurance deduction. Amending tax returns online   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. Amending tax returns online Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. Amending tax returns online Generally, this deduction cannot be more than the net profit from the business under which the plan was established. Amending tax returns online   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. Amending tax returns online   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. Amending tax returns online Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. Amending tax returns online   For more information, see Deductible Premiums in Publication 535, chapter 6. Amending tax returns online Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. Amending tax returns online However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. Amending tax returns online Advance payments. Amending tax returns online   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. Amending tax returns online Farm home. Amending tax returns online   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. Amending tax returns online Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. Amending tax returns online If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. Amending tax returns online Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. Amending tax returns online Conditional sales contract. Amending tax returns online   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amending tax returns online Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amending tax returns online No single test, or special combination of tests, always applies. Amending tax returns online However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amending tax returns online The agreement applies part of each payment toward an equity interest you will receive. Amending tax returns online You get title to the property after you make a stated amount of required payments. Amending tax returns online The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Amending tax returns online You pay much more than the current fair rental value of the property. Amending tax returns online You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Amending tax returns online Determine this value when you make the agreement. Amending tax returns online You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amending tax returns online The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. Amending tax returns online Example. Amending tax returns online You lease new farm equipment from a dealer who both sells and leases. Amending tax returns online The agreement includes an option to purchase the equipment for a specified price. Amending tax returns online The lease payments and the specified option price equal the sales price of the equipment plus interest. Amending tax returns online Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. Amending tax returns online For federal income tax purposes, the agreement is a conditional sales contract. Amending tax returns online You cannot deduct any of the lease payments as rent. Amending tax returns online You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. Amending tax returns online Motor vehicle leases. Amending tax returns online   Special rules apply to lease agreements that have a terminal rental adjustment clause. Amending tax returns online In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. Amending tax returns online If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. Amending tax returns online For more information, see Internal Revenue Code (IRC) section 7701(h). Amending tax returns online Leveraged leases. Amending tax returns online   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). Amending tax returns online For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. Amending tax returns online irs. Amending tax returns online gov/pub/irs-irbs/irb01-19. Amending tax returns online pdf. Amending tax returns online Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. Amending tax returns online You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. Amending tax returns online However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. Amending tax returns online Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. Amending tax returns online Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. Amending tax returns online Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. Amending tax returns online You use it exclusively and regularly for the administrative or management activities of your trade or business. Amending tax returns online You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Amending tax returns online If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. Amending tax returns online The IRS now provides a simplified method to determine your expenses for business use of your home. Amending tax returns online For more information, see Schedule C (Form 1040), Part II, and its instructions. Amending tax returns online Deduction limit. Amending tax returns online   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. Amending tax returns online But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. Amending tax returns online   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. Amending tax returns online The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). Amending tax returns online Farm expenses other than expenses that relate to the use of your home. Amending tax returns online If you are self-employed, do not include your deduction for half of your self-employment tax. Amending tax returns online   Deductions over the current year's limit can be carried over to your next tax year. Amending tax returns online They are subject to the deduction limit for the next tax year. Amending tax returns online More information. Amending tax returns online   See Publication 587 for more information on deducting expenses for the business use of your home. Amending tax returns online Telephone expense. Amending tax returns online   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. Amending tax returns online However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. Amending tax returns online Cell phone charges for calls relating to your farm business are deductible. Amending tax returns online If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. Amending tax returns online Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. Amending tax returns online Only expenses for business use are deductible. Amending tax returns online These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). Amending tax returns online Standard mileage rate. Amending tax returns online   Instead of using actual costs, under certain conditions you can use the standard mileage rate. Amending tax returns online The standard mileage rate for each mile of business use is 56. Amending tax returns online 5 cents in 2013. Amending tax returns online You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. Amending tax returns online   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. Amending tax returns online You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. Amending tax returns online Example. Amending tax returns online Maureen owns a car and four pickup trucks that are used in her farm business. Amending tax returns online Her farm employees use the trucks and she uses the car for business. Amending tax returns online Maureen cannot use the standard mileage rate for the car or the trucks. Amending tax returns online This is because all five vehicles are used in Maureen's farm business at the same time. Amending tax returns online She must use actual expenses for all vehicles. Amending tax returns online Business use percentage. Amending tax returns online   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. Amending tax returns online You choose this method of substantiating business use the first year the vehicle is placed in service. Amending tax returns online Once you make this choice, you may not change to another method later. Amending tax returns online The following are uses directly connected with the business of farming. Amending tax returns online Cultivating land. Amending tax returns online Raising or harvesting any agricultural or horticultural commodity. Amending tax returns online Raising, shearing, feeding, caring for, training, and managing animals. Amending tax returns online Driving to the feed or supply store. Amending tax returns online   If you keep records and they show that your business use was more than 75%, you may be able to claim more. Amending tax returns online See Recordkeeping requirements under Travel Expenses , below. Amending tax returns online More information. Amending tax returns online   For more information on deductible truck and car expenses, see Publication 463, chapter 4. Amending tax returns online If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. Amending tax returns online Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. Amending tax returns online You cannot deduct lavish or extravagant expenses. Amending tax returns online Usually, the location of your farm business is considered your home for tax purposes. Amending tax returns online You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. Amending tax returns online If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. Amending tax returns online The following are some types of deductible travel expenses. Amending tax returns online Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. Amending tax returns online Meals. Amending tax returns online   You ordinarily can deduct only 50% of your business-related meals expenses. Amending tax returns online You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. Amending tax returns online You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. Amending tax returns online For information on entertainment expenses, see Publication 463, chapter 2. Amending tax returns online   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. Amending tax returns online You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. Amending tax returns online    Recordkeeping requirements. Amending tax returns online You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. Amending tax returns online Estimates or approximations do not qualify as proof of an expense. Amending tax returns online   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. Amending tax returns online Generally, it is best to record the expense and get documentation of it at the time you pay it. Amending tax returns online   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. Amending tax returns online However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. Amending tax returns online More information. Amending tax returns online   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. Amending tax returns online Reimbursements to employees. Amending tax returns online   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Amending tax returns online Employees may be reimbursed under an accountable or nonaccountable plan. Amending tax returns online Under an accountable plan, the employee must provide evidence of expenses. Amending tax returns online Under a nonaccountable plan, no evidence of expenses is required. Amending tax returns online If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. Amending tax returns online If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. Amending tax returns online For more information, see Publication 535, chapter 11. Amending tax returns online Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. Amending tax returns online However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. Amending tax returns online Do not take a separate deduction for the penalty. Amending tax returns online Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. Amending tax returns online These costs include repairs, utilities, insurance, and depreciation. Amending tax returns online The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. Amending tax returns online Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. Amending tax returns online You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. Amending tax returns online However, see Chickens, seeds, and young plants , below. Amending tax returns online Example. Amending tax returns online You use the cash method of accounting. Amending tax returns online In 2013, you buy 50 steers you will sell in 2014. Amending tax returns online You cannot deduct the cost of the steers on your 2013 tax return. Amending tax returns online You deduct their cost on your 2014 Schedule F, Part I. Amending tax returns online Chickens, seeds, and young plants. Amending tax returns online   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. Amending tax returns online You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. Amending tax returns online However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. Amending tax returns online   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. Amending tax returns online You cannot also deduct the cost from the selling price. Amending tax returns online   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Amending tax returns online Deduct the cost of these seeds and plants through depletion allowances. Amending tax returns online For more information, see Depletion in chapter 7. Amending tax returns online   The cost of chickens and plants used as food for your family is never deductible. Amending tax returns online   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. Amending tax returns online These rules are discussed in chapter 6. Amending tax returns online Example. Amending tax returns online You use the cash method of accounting. Amending tax returns online In 2013, you buy 500 baby chicks to raise for resale in 2014. Amending tax returns online You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. Amending tax returns online Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. Amending tax returns online Election to use crop method. Amending tax returns online   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. Amending tax returns online You must get IRS approval to use the crop method. Amending tax returns online If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. Amending tax returns online For more information, see Crop method under Special Methods of Accounting in chapter 2. Amending tax returns online Choosing a method. Amending tax returns online   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. Amending tax returns online   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. Amending tax returns online Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. Amending tax returns online For more information, see Change in Accounting Method in chapter 2. Amending tax returns online Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. Amending tax returns online These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. Amending tax returns online Accounting fees. Amending tax returns online Advertising. Amending tax returns online Business travel and meals. Amending tax returns online Commissions. Amending tax returns online Consultant fees. Amending tax returns online Crop scouting expenses. Amending tax returns online Dues to cooperatives. Amending tax returns online Educational expenses (to maintain and improve farming skills). Amending tax returns online Farm-related attorney fees. Amending tax returns online Farm magazines. Amending tax returns online Ginning. Amending tax returns online Insect sprays and dusts. Amending tax returns online Litter and bedding. Amending tax returns online Livestock fees. Amending tax returns online Marketing fees. Amending tax returns online Milk assessment. Amending tax returns online Recordkeeping expenses. Amending tax returns online Service charges. Amending tax returns online Small tools expected to last one year or less. Amending tax returns online Stamps and stationery. Amending tax returns online Subscriptions to professional, technical, and trade journals that deal with farming. Amending tax returns online Tying material and containers. Amending tax returns online Loan expenses. Amending tax returns online   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. Amending tax returns online Tax preparation fees. Amending tax returns online   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. Amending tax returns online You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amending tax returns online   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. Amending tax returns online Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. Amending tax returns online You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. Amending tax returns online Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. Amending tax returns online For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. Amending tax returns online Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. Amending tax returns online Income from cooperatives. Amending tax returns online   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. Amending tax returns online This deduction amount is reported on Form 1099-PATR, box 6. Amending tax returns online In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. Amending tax returns online More information. Amending tax returns online   For more information on the domestic production activities deduction, see the Instructions for Form 8903. Amending tax returns online Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. Amending tax returns online You include the expense in the basis of the asset. Amending tax returns online Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. Amending tax returns online See chapters 2  and 6. Amending tax returns online Capital expenses are generally not deductible, but they may be depreciable. Amending tax returns online However, you can elect to deduct certain capital expenses, such as the following. Amending tax returns online The cost of fertilizer, lime, etc. Amending tax returns online (See Fertilizer and Lime under Deductible Expenses , earlier. Amending tax returns online ) Soil and water conservation expenses. Amending tax returns online (See chapter 5. Amending tax returns online ) The cost of property that qualifies for a deduction under section 179. Amending tax returns online (See chapter 7. Amending tax returns online ) Business start-up costs. Amending tax returns online (See Business start-up and organizational costs , later. Amending tax returns online ) Forestation and reforestation costs. Amending tax returns online (See Forestation and reforestation costs , later. Amending tax returns online ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. Amending tax returns online Land and buildings. Amending tax returns online Additions, alterations, and improvements to buildings, etc. Amending tax returns online Cars and trucks. Amending tax returns online Equipment and machinery. Amending tax returns online Fences. Amending tax returns online Draft, breeding, sport, and dairy livestock. Amending tax returns online Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. Amending tax returns online Water wells, including drilling and equipping costs. Amending tax returns online Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. Amending tax returns online Business start-up and organizational costs. Amending tax returns online   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Amending tax returns online The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Amending tax returns online Any remaining costs must be amortized. Amending tax returns online See chapter 7. Amending tax returns online   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Amending tax returns online 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). Amending tax returns online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amending tax returns online 9100-2” at the top of the amended return. Amending tax returns online File the amended return at the same address you filed the original return. Amending tax returns online The election applies when figuring taxable income for the current tax year and all subsequent years. Amending tax returns online   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Amending tax returns online For more information about start-up and organizational costs, see chapter 7. Amending tax returns online Crop production expenses. Amending tax returns online   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. Amending tax returns online However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. Amending tax returns online For more information, see Uniform Capitalization Rules in chapter 6. Amending tax returns online Timber. Amending tax returns online   Capitalize the cost of acquiring timber. Amending tax returns online Do not include the cost of land in the cost of the timber. Amending tax returns online You must generally capitalize direct costs incurred in reforestation. Amending tax returns online However, you can elect to deduct some forestation and reforestation costs. Amending tax returns online See Forestation and reforestation costs next. Amending tax returns online Reforestation costs include the following. Amending tax returns online Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. Amending tax returns online The cost of seed or seedlings. Amending tax returns online Labor and tool expenses. Amending tax returns online Depreciation on equipment used in planting or seeding. Amending tax returns online Costs incurred in replanting to replace lost seedlings. Amending tax returns online You can choose to capitalize certain indirect reforestation costs. Amending tax returns online   These capitalized amounts are your basis for the timber. Amending tax returns online Recover your basis when you sell the timber or take depletion allowances when you cut the timber. Amending tax returns online See Depletion in chapter 7. Amending tax returns online Forestation and reforestation costs. Amending tax returns online   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Amending tax returns online Any remaining costs can be amortized over an 84-month period. Amending tax returns online See chapter 7. Amending tax returns online If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. Amending tax returns online The accounts should include all reforestation treatments and the dates they were applied. Amending tax returns online Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. Amending tax returns online The timber account should be maintained until the timber is disposed of. Amending tax returns online For more information, see Notice 2006-47, 2006-20 I. Amending tax returns online R. Amending tax returns online B. Amending tax returns online 892, available at  www. Amending tax returns online irs. Amending tax returns online gov/irb/2006-20_IRB/ar11. Amending tax returns online html. Amending tax returns online   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. Amending tax returns online If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. Amending tax returns online If you are not filing Form T (Timber), attach a statement to your return with the following information. Amending tax returns online The unique stand identification numbers. Amending tax returns online The total number of acres reforested during the tax year. Amending tax returns online The nature of the reforestation treatments. Amending tax returns online The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. Amending tax returns online   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). Amending tax returns online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. Amending tax returns online 9100-2” at the top of the amended return. Amending tax returns online File the amended return at the same address you filed the original return. Amending tax returns online    For more information about forestation and reforestation costs, see chapter 7. Amending tax returns online    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. Amending tax returns online You can view this publication on the Internet at  www. Amending tax returns online fs. Amending tax returns online fed. Amending tax returns online us/publications. Amending tax returns online Christmas tree cultivation. Amending tax returns online   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. Amending tax returns online Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. Amending tax returns online For more information, see Timber Depletion under Depletion in chapter 7. Amending tax returns online   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. Amending tax returns online Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. Amending tax returns online   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. Amending tax returns online If the improvements do not have a determinable useful life, add their cost to the basis of the land. Amending tax returns online The cost is recovered when you sell or otherwise dispose of it. Amending tax returns online If the improvements have a determinable useful life, recover their cost through depreciation. Amending tax returns online Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. Amending tax returns online Recover these costs through depreciation. Amending tax returns online Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. Amending tax returns online Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. Amending tax returns online These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. Amending tax returns online Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. Amending tax returns online Other Nondeductible Items You cannot deduct the following items on your tax return. Amending tax returns online Loss of growing plants, produce, and crops. Amending tax returns online   Losses of plants, produce, and crops raised for sale are generally not deductible. Amending tax returns online However, you may have a deductible loss on plants with a preproductive period of more than 2 years. Amending tax returns online See chapter 11 for more information. Amending tax returns online Repayment of loans. Amending tax returns online   You cannot deduct the repayment of a loan. Amending tax returns online However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. Amending tax returns online See Interest , earlier. Amending tax returns online Estate, inheritance, legacy, succession, and gift taxes. Amending tax returns online   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. Amending tax returns online Loss of livestock. Amending tax returns online   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. Amending tax returns online Losses from sales or exchanges between related persons. Amending tax returns online   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. Amending tax returns online For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amending tax returns online Cost of raising unharvested crops. Amending tax returns online   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. Amending tax returns online Add these costs to the basis of the land to determine the gain or loss on the sale. Amending tax returns online For more information, see Section 1231 Gains and Losses in chapter 9. Amending tax returns online Cost of unharvested crops bought with land. Amending tax returns online   Capitalize the purchase price of land, including the cost allocable to unharvested crops. Amending tax returns online You cannot deduct the cost of the crops at the time of purchase. Amending tax returns online However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. Amending tax returns online Cost related to gifts. Amending tax returns online   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. Amending tax returns online The costs are not deductible in the year of the gift or any later year. Amending tax returns online For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. Amending tax returns online Club dues and membership fees. Amending tax returns online   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. Amending tax returns online This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Amending tax returns online Exception. Amending tax returns online   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. Amending tax returns online Boards of trade. Amending tax returns online Business leagues. Amending tax returns online Chambers of commerce. Amending tax returns online Civic or public service organizations. Amending tax returns online Professional associations. Amending tax returns online Trade associations. Amending tax returns online Real estate boards. Amending tax returns online Fines and penalties. Amending tax returns online   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. Amending tax returns online Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. Amending tax returns online The amount of the loss you can deduct when figuring your taxable income may be limited. Amending tax returns online To figure your deductible loss, you must apply the following limits. Amending tax returns online The at-risk limits. Amending tax returns online The passive activity limits. Amending tax returns online The following discussions explain these limits. Amending tax returns online If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. Amending tax returns online See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amending tax returns online If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. Amending tax returns online See Not-for-Profit Farming, later. Amending tax returns online At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. Amending tax returns online These rules limit the losses you can deduct when figuring your taxable income. Amending tax returns online The deductible loss from an activity is limited to the amount you have at risk in the activity. Amending tax returns online You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. Amending tax returns online You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. Amending tax returns online For more information, see Publication 925. Amending tax returns online Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. Amending tax returns online Generally, a rental activity is a passive activity. Amending tax returns online If you have a passive activity, special rules limit the loss you can deduct in the tax year. Amending tax returns online You generally can deduct losses from passive activities only up to income from passive activities. Amending tax returns online Credits are similarly limited. Amending tax returns online For more information, see Publication 925. Amending tax returns online Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. Amending tax returns online This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. Amending tax returns online Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. Amending tax returns online Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. Amending tax returns online Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. Amending tax returns online For more details, see IRC section 461(j). Amending tax returns online Excess farm loss. Amending tax returns online   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). Amending tax returns online This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. Amending tax returns online   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. Amending tax returns online Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. Amending tax returns online However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). Amending tax returns online Also, there is a limit on the deductions you can take. Amending tax returns online You cannot use a loss from that activity to offset income from other activities. Amending tax returns online Activities you do as a hobby, or mainly for sport or recreation, come under this limit. Amending tax returns online An investment activity intended only to produce tax losses for the investors also comes under this limit. Amending tax returns online The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Amending tax returns online It does not apply to corporations other than S corporations. Amending tax returns online In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. Amending tax returns online No one factor alone is decisive. Amending tax returns online Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. Amending tax returns online Presumption of profit. Amending tax returns online   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Amending tax returns online Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. Amending tax returns online The activity must be substantially the same for each year within this period. Amending tax returns online You have a profit when the gross income from an activity is more than the deductions for it. Amending tax returns online   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. Amending tax returns online   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. Amending tax returns online This means the limits discussed here do not apply. Amending tax returns online You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. Amending tax returns online You can rely on this presumption in every case, unless the IRS shows it is not valid. Amending tax returns online   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. Amending tax returns online Using the presumption later. Amending tax returns online   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. Amending tax returns online   You can choose to do this by filing Form 5213. Amending tax returns online Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. Amending tax returns online You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. Amending tax returns online   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. Amending tax returns online Accordingly, it will not limit your deductions. Amending tax returns online Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. Amending tax returns online If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Amending tax returns online If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. Amending tax returns online   Filing Form 5213 automatically extends the period of limitations on any year