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Copy 2011 Taxes

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Copy 2011 Taxes

Copy 2011 taxes Index A Abandonment, Abandonment Accounting method Accrual, Accrual Method Cash, Cash Method Change in, Changes in Methods of Accounting Crop, Crop method. Copy 2011 taxes Farm inventory, Farm Inventory Accounting periods, Introduction Accrual method of accounting, Accrual Method Additional Medicare Tax withholding, What's New for 2013, Additional Medicare Tax. Copy 2011 taxes Adjusted basis for installment sale, Adjusted basis for installment sale purposes. Copy 2011 taxes Adjusted basis of assets, Adjusted Basis Agricultural activity codes, Schedule F, Reminders Agricultural program payments, Agricultural Program Payments Agricultural structure, defined, Agricultural structure. Copy 2011 taxes Alternative Depreciation System (ADS), Required use of ADS. Copy 2011 taxes , ADS election. Copy 2011 taxes Amortization Going into business, Business Start-Up Costs Reforestation expenses, Reforestation Costs Section 197 intangibles, Section 197 Intangibles Assessments By conservation district, Assessment by Conservation District Depreciable property, Assessment for Depreciable Property Assistance (see Tax help) Automobiles, depreciation, Limits for passenger automobiles. Copy 2011 taxes B Bankruptcy, Bankruptcy. Copy 2011 taxes Barter income, Barter income. Copy 2011 taxes Basis Adjusted, Adjusted basis. Copy 2011 taxes Installment sale, Adjusted basis for installment sale purposes. Copy 2011 taxes Involuntary conversion, Basis for depreciation. Copy 2011 taxes Like-kind exchange, Basis for depreciation. Copy 2011 taxes Partner's basis, Property Distributed From a Partnership or Corporation Replacement property, Basis of replacement property. Copy 2011 taxes Shareholder's basis, Property Distributed From a Partnership or Corporation Basis of assets Adjusted basis, Adjusted Basis Allocating to several assets, Allocating the Basis Changed to business use, Property changed from personal to business or rental use. Copy 2011 taxes Constructing assets, Constructing assets. Copy 2011 taxes Cost, Cost Basis Decreases, Decreases to Basis Depreciation, What Is the Basis for Depreciation? Exchanges Like-kind, Like-Kind Exchanges Nontaxable, Nontaxable Exchanges Partially nontaxable, Partially Nontaxable Exchanges Taxable, Taxable Exchanges Gifts, Property Received as a Gift Increases, Increases to Basis Real property, Real Property Received for services, Property received for services. Copy 2011 taxes Uniform capitalization rules, Uniform Capitalization Rules Below-market loans, Below-market loans. Copy 2011 taxes Books and records, Importance of Records Breeding fees, Breeding Fees Business income limit, section 179 expense deduction, Business Income Limit Business use of home, Business Use of Your Home C Canceled debt, Cancellation of Debt Capital assets, Capital Assets Capital expenses, Capital Expenses Car expenses, Truck and Car Expenses Cash method of accounting, Cash Method Casualties and thefts Adjustments to basis, Adjustments to basis. Copy 2011 taxes Casualty, defined, Casualty. Copy 2011 taxes Disaster area losses, Disaster Area Losses Leased property, Leased property. Copy 2011 taxes Livestock, Livestock or produce bought for resale. Copy 2011 taxes , Raised draft, breeding, dairy, or sporting animals. Copy 2011 taxes Reimbursement, Insurance and other reimbursements. Copy 2011 taxes Reporting gains and losses, Reporting Gains and Losses Theft, defined, Theft. Copy 2011 taxes Change in accounting method, Changes in Methods of Accounting Chickens, purchased, Chickens, seeds, and young plants. Copy 2011 taxes Christmas trees, Christmas tree cultivation. Copy 2011 taxes , Christmas trees. Copy 2011 taxes Club dues, Club dues and membership fees. Copy 2011 taxes Comments on publication, Comments and suggestions. Copy 2011 taxes Commodity Futures, Hedging (Commodity Futures) Wages, Noncash wages. Copy 2011 taxes Commodity Credit Corporation (CCC) Loans, Commodity Credit Corporation (CCC) Loans Market gain, Market Gain Community property, Community property. Copy 2011 taxes , Community property. Copy 2011 taxes Computer, software, Computer software. Copy 2011 taxes Condemnation, Casualties, Thefts, and Condemnations, Condemnation Conservation Cost-sharing exclusion, Conservation Expenses District assessments, Assessment by Conservation District Expenses, Conservation Expenses Plans, Conservation plan. Copy 2011 taxes Conservation Reserve Program, Conservation Reserve Program (CRP) payments. Copy 2011 taxes Conservation Reserve Program (CRP), Conservation Reserve Program (CRP) Constructing assets, Constructing assets. Copy 2011 taxes Constructive receipt of income, Constructive receipt. Copy 2011 taxes Contamination, Soil or other environmental contamination. Copy 2011 taxes Contract price, Contract price. Copy 2011 taxes Converted wetland, Converted Wetland and Highly Erodible Cropland Cooperatives, income from, Income From Cooperatives Cost-sharing exclusion, Cost-Sharing Exclusion (Improvements) Counter-cyclical payments, Direct payments and counter-cyclical payments. Copy 2011 taxes , Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Credits Employment, Employment Credits Fuel tax, Fuel tax credit and refund. Copy 2011 taxes , How To Claim a Credit or Refund, Claiming a Credit Social security and Medicare, Earning credits in 2013. Copy 2011 taxes Social security coverage, How to become insured under social security. Copy 2011 taxes State unemployment tax, Tax rate and credit. Copy 2011 taxes Crew leaders, Crew Leaders Crop Destroyed, Standing crop destroyed by casualty. Copy 2011 taxes Insurance proceeds, Crop Insurance and Crop Disaster Payments Method of accounting, Crop method. Copy 2011 taxes Shares, Rents (Including Crop Shares) Unharvested, Cost of raising unharvested crops. Copy 2011 taxes , Section 1231 transactions. Copy 2011 taxes , Gain or loss. Copy 2011 taxes Cropland, highly erodible, Converted Wetland and Highly Erodible Cropland D Damage Casualties and thefts, Casualties and Thefts Crop insurance, Crop Insurance and Crop Disaster Payments Tree seedlings, Tree Seedlings Debt Bad, Nonbusiness bad debt. Copy 2011 taxes Canceled, Cancellation of Debt, Canceled debt excluded from income. Copy 2011 taxes , Cancellation of debt. Copy 2011 taxes , Canceled debt. Copy 2011 taxes Nonrecourse, Amount realized on a nonrecourse debt. Copy 2011 taxes Qualified farm, Qualified Farm Debt Qualified principal residence, Qualified Principal Residence Debt Recourse, Amount realized on a recourse debt. Copy 2011 taxes Depletion, Depletion Depreciation, Claiming the Special Depreciation Allowance ADS election, ADS election. Copy 2011 taxes Conservation assets, Depreciable conservation assets. Copy 2011 taxes Deduction, Overview of Depreciation Incorrect amount deducted, How Do You Correct Depreciation Deductions? Limit for automobiles, Limits for passenger automobiles. Copy 2011 taxes Listed property, Additional Rules for Listed Property Raised livestock, Livestock. Copy 2011 taxes Recapture, When Do You Recapture MACRS Depreciation?, Depreciation Recapture, Section 1250 Property When to file, Do You Have To File Form 4562? Depreciation allowable, Basis adjustment for depreciation allowed or allowable. Copy 2011 taxes Depreciation allowed, Basis adjustment for depreciation allowed or allowable. Copy 2011 taxes Direct payments, Direct payments and counter-cyclical payments. Copy 2011 taxes , Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Disaster area losses, Disaster Area Losses Disaster payments, Crop Insurance and Crop Disaster Payments Disaster relief grants, Federal disaster relief grants. Copy 2011 taxes Disaster relief payments, Qualified disaster relief payments. Copy 2011 taxes Dispositions, Sale or other disposal of land during 9-year period. Copy 2011 taxes , Gain on sale of farmland. Copy 2011 taxes , Introduction Domestic production activities deduction, Domestic Production Activities Deduction Dyed diesel fuel, Dyed Diesel Fuel and Dyed Kerosene Dyed kerosene, Dyed Diesel Fuel and Dyed Kerosene E e-file, Reminders Easement, Easements and rights-of-way. Copy 2011 taxes , Easements. Copy 2011 taxes Election ADS depreciation, Electing ADS. Copy 2011 taxes , ADS election. Copy 2011 taxes Amortization Business start-up costs, Business Start-Up Costs Reforestation costs, Reforestation Costs Crop method, Election to use crop method. Copy 2011 taxes Cutting of timber, Election to treat cutting as a sale or exchange. Copy 2011 taxes Deducting conservation expenses, When to Deduct or Capitalize Not excluding cost-sharing payments, Electing not to exclude payments. Copy 2011 taxes Out of installment method, Electing out of the installment method. Copy 2011 taxes Postponing casualty gain, Postponing Gain Postponing reporting crop insurance proceeds, Election to postpone reporting until the following year. Copy 2011 taxes Section 179 expense deduction, How Do You Elect the Deduction? Electronic filing, Reminders Embryo transplants, Transplanted embryo. Copy 2011 taxes Employer identification number, Reminders, Employer identification number (EIN). Copy 2011 taxes Endangered species recovery expenses, Endangered species recovery expenses. Copy 2011 taxes Environmental contamination, Soil or other environmental contamination. Copy 2011 taxes Estimated tax Farm gross income, Gross Income From Farming Gross income, Gross Income Penalties, Estimated Tax Penalty for 2013 Exchanges Basis Like-kind, Like-Kind Exchanges Nontaxable, Nontaxable Exchanges Partially nontaxable, Partially Nontaxable Exchanges Taxable, Taxable Exchanges Like-kind, Like-Kind Exchanges Nontaxable, Like-Kind Exchanges Excise taxes Credit, Claiming a Credit Diesel fuel, Dyed Diesel Fuel and Dyed Kerosene Farming purposes, Fuels Used in Farming Home use of fuels, Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines Off-highway uses, Fuels Used in Off-Highway Business Use Refund, Claiming a Refund F Fair market value defined, Fair market value (FMV). Copy 2011 taxes , Fair market value (FMV). Copy 2011 taxes Family member Business expenses, Special rule for related persons. Copy 2011 taxes Installment sale, Sale to a related person. Copy 2011 taxes Like-kind exchange, Like-kind exchanges between related persons. Copy 2011 taxes Loss on sale or exchange of property, Losses from sales or exchanges between related persons. Copy 2011 taxes Personal-use property, Personal-use property. Copy 2011 taxes Social security coverage, Family Employees Farm Business expenses, Farm Business Expenses Business, defined, Business of Farming Defined, Farm defined. Copy 2011 taxes , Farm. Copy 2011 taxes Income averaging, Income Averaging for Farmers Rental, Farm rental. Copy 2011 taxes Sale of, Sale of a Farm Farmer, Farmer. Copy 2011 taxes Federal unemployment tax (FUTA), Federal Unemployment (FUTA) Tax Fertilizer, Fertilizer and Lime, Fertilizer and Lime Foreclosure, Foreclosure or Repossession Forestation costs, Forestation and reforestation costs. Copy 2011 taxes Form 1099-A, Form 1099-A. Copy 2011 taxes , Forms 1099-A and 1099-C. Copy 2011 taxes 1099-C, Cancellation of Debt, Form 1099-C. Copy 2011 taxes , Forms 1099-A and 1099-C. Copy 2011 taxes 1099-G, Market Gain, Payment to More Than One Person 1099-MISC, Reminders, Nonemployee compensation. Copy 2011 taxes 1099-PATR, Form 1099-PATR. Copy 2011 taxes 1128, Introduction 2210-F, Estimated Tax Penalty for 2013 3115, Changes in Methods of Accounting 4136, Claiming a Credit 4562, Do You Have To File Form 4562? 4797, Form 4797. Copy 2011 taxes , Recapture. Copy 2011 taxes , Reporting the exchange. Copy 2011 taxes 4835, Rents (Including Crop Shares) 5213, Using the presumption later. Copy 2011 taxes 6252, Form 6252. Copy 2011 taxes 8822, Reminders 8824, Reporting the exchange. Copy 2011 taxes 8849, Claiming a Refund 8886, Reminders 940, Form 940. Copy 2011 taxes 943, Form 943. Copy 2011 taxes 982, Form 982 I-9, Form I-9. Copy 2011 taxes SS-4, Reminders, Employer identification number (EIN). Copy 2011 taxes SS-5, Obtaining a social security number. Copy 2011 taxes T (Timber), Form T (Timber). Copy 2011 taxes W-2, Form W-2. Copy 2011 taxes W-4, Reminders, New hire reporting. Copy 2011 taxes , Form W-4. Copy 2011 taxes W-4V, Commodity Credit Corporation (CCC) Loans, Crop Insurance and Crop Disaster Payments W-7, Obtaining an individual taxpayer identification number. Copy 2011 taxes Free tax services, How To Get Tax Help, Free help with your tax return. Copy 2011 taxes Fuel tax credit or refund, Fuel tax credit and refund. Copy 2011 taxes , How To Claim a Credit or Refund G Gains and losses Basis of assets, Cost Basis Capital assets, defined, Capital Assets Casualty, How To Figure a Loss, Figuring a Gain Installment sales, Installment Sales Livestock, Livestock Long- or short-term, Long and Short Term Ordinary or capital, Ordinary or Capital Gain or Loss Sale of farm, Sale of a Farm Section 1231, Section 1231 Gains and Losses Theft, How To Figure a Loss, Figuring a Gain Timber, Timber General asset accounts, How Do You Use General Asset Accounts? Gifts, Crop shares you give to others (gift). Copy 2011 taxes , Cost related to gifts. Copy 2011 taxes , Property Received as a Gift, Gift. Copy 2011 taxes Going into business, Business Start-Up Costs Grants, disaster relief, Federal disaster relief grants. Copy 2011 taxes Gross profit percentage, Gross profit percentage. Copy 2011 taxes Gross profit, defined, Gross profit. Copy 2011 taxes Guarantee, Debt not payable on demand. Copy 2011 taxes H Health insurance deduction, Self-employed health insurance deduction. Copy 2011 taxes Hedging, Hedging (Commodity Futures) Help (see Tax help) Highway use tax, Highway use tax. Copy 2011 taxes Holding period, Holding period. Copy 2011 taxes Horticultural structure, Horticultural structure. Copy 2011 taxes I Illegal irrigation subsidy, Illegal federal irrigation subsidy. Copy 2011 taxes Important dates, Important Dates for 2014 Improvements, Cost-Sharing Exclusion (Improvements) Income Accounting for, Accounting Methods Accrual method of accounting, Income Canceled debt excluded, Cancellation of Debt From farming, Farm Income, Gross income from farming. Copy 2011 taxes , Gross Income From Farming Gross, Gross Income Not-for-profit farming, Not-for-Profit Farming Pasture, Pasture income and rental. Copy 2011 taxes Schedule F, Farm Income Withholding of tax, Federal Income Tax Withholding Income averaging (see Farm: Income averaging) Incorrect amount of depreciation deducted, How Do You Correct Depreciation Deductions? Individual taxpayer identification number (ITIN), Obtaining an individual taxpayer identification number. Copy 2011 taxes Inherited property, Inherited Property Insolvency, Insolvency. Copy 2011 taxes Installment sales, Form 6252. Copy 2011 taxes Electing out, Electing out of the installment method. Copy 2011 taxes Farm, sale of, Installment Sale of a Farm Figuring income, Figuring Installment Sale Income Reporting income, Form 6252. Copy 2011 taxes Unstated interest, Unstated interest. Copy 2011 taxes Insurance, Insurance, Self-employed health insurance deduction. Copy 2011 taxes Intangible property, Section 197 Intangibles Interest Expense, Interest Income, Interest income. Copy 2011 taxes Unstated, Unstated interest. Copy 2011 taxes Inventory Items included, Farm Inventory Methods of valuation, Inventory valuation methods. Copy 2011 taxes Involuntary conversions, Involuntary Conversions, Property acquired in a like-kind exchange or involuntary conversion. Copy 2011 taxes , Introduction Irrigation Illegal subsidy, Illegal federal irrigation subsidy. Copy 2011 taxes Project, Irrigation Project L Labor hired, Labor Hired Landlord participation, Landlord Participation in Farming Lease or purchase, Lease or Purchase Life tenant (see Term interests) Like-kind exchanges, Like-Kind Exchanges, Like-Kind Exchanges Lime, Fertilizer and Lime Limits At-risk, At-Risk Limits Business use of home, Deduction limit. Copy 2011 taxes Capital losses, Treatment of Capital Losses Conservation expenses, Assessment for Depreciable Property, 25% Limit on Deduction Depreciation Business-use, What Is the Business-Use Requirement? Excluded farm debt, Exclusion limit. Copy 2011 taxes Farm losses, Losses From Operating a Farm Loss of personal-use property, Deduction Limits on Losses of Personal-Use Property Not-for-profit farming, Not-for-Profit Farming Passive activity, Passive Activity Limits Percentage depletion, Taxable income limit. Copy 2011 taxes Prepaid farm supplies, Deduction limit. Copy 2011 taxes Reforestation costs, Reforestation Costs Section 179 expense deduction Automobile, Limits for passenger automobiles. Copy 2011 taxes Business income, Business Income Limit Dollar, Dollar Limits Time to keep records, How Long To Keep Records Listed property Defined, What Is Listed Property? Passenger automobile, Passenger automobiles. Copy 2011 taxes Rules, Additional Rules for Listed Property Livestock, Section 1231 transactions. Copy 2011 taxes Casualty and theft losses, Livestock or produce bought for resale. Copy 2011 taxes Crop shares, Crop shares you use to feed livestock. Copy 2011 taxes Depreciation, Livestock. Copy 2011 taxes Diseased, Diseased livestock. Copy 2011 taxes Feed assistance, Feed Assistance and Payments Immature, Immature livestock. Copy 2011 taxes Losses, Loss of livestock. Copy 2011 taxes , Livestock Purchased, Purchased livestock. Copy 2011 taxes Raised, Raised livestock. Copy 2011 taxes Sale of, Sales of Farm Products, Livestock Unit-livestock-price, inventory valuation, Unit-livestock-price method. Copy 2011 taxes Used in a farm business, Livestock used in farm business. Copy 2011 taxes Weather-related sales, Sales Caused by Weather-Related Conditions, Weather-related sales of livestock. Copy 2011 taxes Loans, Commodity Credit Corporation (CCC) Loans, Loan expenses. Copy 2011 taxes Losses At-risk limits, At-Risk Limits Casualty, Casualties, Thefts, and Condemnations Disaster areas, Disaster Area Losses Farming, Farming Losses Growing crops, Loss of growing plants, produce, and crops. Copy 2011 taxes Hobby farming, Not-for-Profit Farming Livestock, Livestock, Diseased livestock. Copy 2011 taxes Nondeductible, Other Nondeductible Items Theft, Casualties, Thefts, and Condemnations Lost income payments, Lost income payments. Copy 2011 taxes Lost property, Mislaid or lost property. Copy 2011 taxes M MACRS property Involuntary conversion, Property acquired in a like-kind exchange or involuntary conversion. Copy 2011 taxes Like-kind exchange, Property acquired in a like-kind exchange or involuntary conversion. Copy 2011 taxes Nontaxable transfer, Property acquired in a nontaxable transfer. Copy 2011 taxes Market gain, reporting, Market Gain Marketing quota penalties, Marketing Quota Penalties Material participation, Landlord Participation in Farming Meals, Meals. Copy 2011 taxes Membership fees, Club dues and membership fees. Copy 2011 taxes Methods of accounting, Accounting Methods Modified ACRS (MACRS) ADS election, ADS election. Copy 2011 taxes Conventions, Which Convention Applies? Depreciation methods, Which Depreciation Method Applies? Exchange, Property acquired in a like-kind exchange or involuntary conversion. Copy 2011 taxes Figuring the deduction, How Is the Depreciation Deduction Figured? Involuntary conversion, Property acquired in a like-kind exchange or involuntary conversion. Copy 2011 taxes Nontaxable transfer, Property acquired in a nontaxable transfer. Copy 2011 taxes Percentage tables, Rules for using the tables. Copy 2011 taxes Property classes, Which Property Class Applies Under GDS? Recovery periods, Which Recovery Period Applies? N New hire reporting, New hire reporting. Copy 2011 taxes Noncapital asset, Noncapital Assets Nontaxable exchanges, Like-Kind Exchanges Nontaxable transfer of MACRS property, Property acquired in a nontaxable transfer. Copy 2011 taxes Not-for-profit farming, Not-for-Profit Farming O Organizational costs, Business start-up and organizational costs. Copy 2011 taxes P Partners, limited, Limited partner. Copy 2011 taxes Partners, retired, Retired partner. Copy 2011 taxes Partners, Spouse, Business Owned and Operated by Spouses. Copy 2011 taxes Partnership, Partnership income or loss. Copy 2011 taxes Passenger automobile, Passenger automobiles. Copy 2011 taxes Pasture income, Pasture income and rental. Copy 2011 taxes Patronage dividends, Patronage Dividends Payments considered received, Payments Received or Considered Received Payments received, Payments Received or Considered Received Penalties Estimated tax, Estimated Tax Penalty for 2013 Returns, Estimated Tax Penalty for 2013 Trust fund recovery, Trust fund recovery penalty. Copy 2011 taxes Per-unit retain certificates, Per-Unit Retain Certificates Personal expenses, Personal, Living, and Family Expenses Placed in service, Placed in Service, What Is the Placed-in-Service Date? Postponing casualty gain, Postponing Gain Prepaid expense Advance premiums, Advance premiums. Copy 2011 taxes Extends useful life, Prepayment. Copy 2011 taxes Farm supplies, Prepaid Farm Supplies Livestock feed, Prepaid Livestock Feed Prizes, Prizes. Copy 2011 taxes Produce, Sales of Farm Products Property Changed to business use, Property changed from personal to business or rental use. Copy 2011 taxes Received for services, Property received for services. Copy 2011 taxes Repairs and improvements, How Do You Treat Repairs and Improvements? Section 1231, Section 1231 transactions. Copy 2011 taxes Section 1245, Section 1245 Property Section 1250, Section 1250 Property Section 1252, Section 1252 property. Copy 2011 taxes Section 1255, Section 1255 property. Copy 2011 taxes Tangible personal, Tangible personal property. Copy 2011 taxes Publications (see Tax help) Q Qualified disaster relief payments, Qualified disaster relief payments. Copy 2011 taxes Qualified farm debt, Qualified Farm Debt Qualified joint venture, Qualified joint venture. Copy 2011 taxes Qualified principal residence debt, Qualified Principal Residence Debt R Recapture Amortization, Depreciation and amortization. Copy 2011 taxes Basis reductions, Recapture of basis reductions. Copy 2011 taxes Certain depreciation, Recapture of certain depreciation. Copy 2011 taxes Cost-sharing payments, Recapture. Copy 2011 taxes Depreciation, When Do You Recapture MACRS Depreciation?, Depreciation Recapture, Depreciation recapture. Copy 2011 taxes Section 1245 property, Section 1245 Property Section 1250 property, Section 1250 Property Section 179 expense deduction, When Must You Recapture the Deduction? Section 179 GO Zone property, Recapture for qualified section 179 GO Zone property. Copy 2011 taxes Special depreciation allowance, When Must You Recapture an Allowance Recordkeeping, Importance of Records, Meals. Copy 2011 taxes Records on depreciable property, Depreciation Recapture Reforestation costs, Forestation and reforestation costs. Copy 2011 taxes , Reforestation Costs Refund Deduction taken, Refund or reimbursement. Copy 2011 taxes Fuel tax, Fuel tax credit and refund. Copy 2011 taxes , Including the Credit or Refund in Income Reimbursements Casualties and thefts, Casualty and theft losses. Copy 2011 taxes , Casualties and Thefts, Insurance and other reimbursements. Copy 2011 taxes Deduction taken, Refund or reimbursement. Copy 2011 taxes Expenses, Reimbursed expenses. Copy 2011 taxes Feed assistance, Feed Assistance and Payments Real estate taxes, Real estate taxes. Copy 2011 taxes Reforestation expenses, Qualifying costs. Copy 2011 taxes To employees, Reimbursements to employees. Copy 2011 taxes Related persons, Special rule for related persons. Copy 2011 taxes , Losses from sales or exchanges between related persons. Copy 2011 taxes , Special rules for related persons. Copy 2011 taxes , Like-kind exchanges between related persons. Copy 2011 taxes , Sale to a related person. Copy 2011 taxes , Buying replacement property from a related person. Copy 2011 taxes , Related persons. Copy 2011 taxes Rental income, Rents (Including Crop Shares) Rented property, improvements, Improvements to rented property. Copy 2011 taxes Repairs, Repairs and Maintenance Repairs and improvements, How Do You Treat Repairs and Improvements? Repayment of income, Repayment of income. Copy 2011 taxes Replacement Period, Replacement Period Property, Replacement Property Reportable transactions. Copy 2011 taxes , Reminders Repossessions, Foreclosure or Repossession Right-of-way income, Easements and rights-of-way. Copy 2011 taxes S Sale of home, Sale of your home. Copy 2011 taxes Section 179 expense deduction, Section 179 Expense Deduction How to elect, How Do You Elect the Deduction? Listed property, Additional Rules for Listed Property Qualifying property, What Property Qualifies? Recapture, When Must You Recapture the Deduction? Self-employed health insurance, Self-employed health insurance deduction. Copy 2011 taxes Self-employed health insurance deduction, Self-employed health insurance deduction. Copy 2011 taxes Self-employment tax Community property, Community property. Copy 2011 taxes Deduction, Deduction for employer-equivalent portion of self-employment tax. Copy 2011 taxes How to pay, How To Pay Self-Employment Tax Landlord participation, Landlord Participation in Farming Material participation, Material participation for landlords. Copy 2011 taxes Maximum net earnings, What's New for 2013 Methods for figuring net earnings, Methods for Figuring Net Earnings Optional method, Farm Optional Method Regular method, Regular Method Rental income, Landlord Participation in Farming Reporting, Reporting Self-Employment Tax Self-employment tax rate, Self-employment tax rate. Copy 2011 taxes Share farming, Share farmer. Copy 2011 taxes Tax rates, What's New for 2013 Who must pay, Who Must Pay Self-Employment Tax? Selling expenses, Selling expenses. Copy 2011 taxes Selling price Defined, Selling price. Copy 2011 taxes Reduced, Selling price reduced. Copy 2011 taxes Settlement costs (fees), Settlement costs. Copy 2011 taxes Social security and Medicare Credits of coverage, Earning credits in 2013. Copy 2011 taxes Withholding of tax, Social Security and Medicare Taxes Social security number, Obtaining a social security number. Copy 2011 taxes Software, computer, Computer software. Copy 2011 taxes Soil Conservation, Conservation Expenses Contamination, Soil or other environmental contamination. Copy 2011 taxes Special depreciation allowance How to elect not to claim, How Can You Elect Not To Claim the Allowance? Recapture, When Must You Recapture an Allowance Standard mileage rate, Standard mileage rate. Copy 2011 taxes Start-up costs for businesses, Business start-up and organizational costs. Copy 2011 taxes Suggestions for publication, Comments and suggestions. Copy 2011 taxes T Tangible personal property, Tangible personal property. Copy 2011 taxes Tax help, How To Get Tax Help Tax preparation fees, Tax preparation fees. Copy 2011 taxes Tax shelter At-risk limits, At-Risk Limits Defined, Tax shelter. Copy 2011 taxes Tax-free exchanges, Like-Kind Exchanges Taxes Excise, Excise Taxes Federal use, Highway use tax. Copy 2011 taxes General, Taxes Self-employment, Self-Employment Tax State and federal, State and federal income taxes. Copy 2011 taxes State and local general sales, State and local general sales taxes. Copy 2011 taxes Withholding, Federal income tax withholding. Copy 2011 taxes , Social Security and Medicare Taxes, Federal Income Tax Withholding Telephone expense, Telephone expense. Copy 2011 taxes Tenant house expenses, Tenant House Expenses Term interests, Certain term interests in property. Copy 2011 taxes Theft losses, Casualties, Thefts, and Condemnations Timber, Timber. Copy 2011 taxes , Timber Depletion, Timber Tobacco quota buyout payments, Tobacco Quota Buyout Program Payments Tobacco settlement payments, National Tobacco Growers' Settlement Trust Fund Payments Trade-in, Sale and Purchase Travel expenses, Travel Expenses Truck expenses, Truck and Car Expenses Trust fund recovery penalty, Trust fund recovery penalty. Copy 2011 taxes TTY/TDD information, How To Get Tax Help U Uniform capitalization rules Basis of assets, Uniform Capitalization Rules Inventory, Uniform capitalization rules. Copy 2011 taxes Unstated interest, Unstated interest. Copy 2011 taxes W Wages and salaries, Wages and salaries. Copy 2011 taxes Water conservation, Conservation Expenses Water well, Water well. Copy 2011 taxes , Water wells. Copy 2011 taxes Weather-related sales, livestock, Sales Caused by Weather-Related Conditions, Weather-related sales of livestock. Copy 2011 taxes Withholding Income tax, Federal Income Tax Withholding Social security and Medicare tax, Social Security and Medicare Taxes Prev  Up     Home   More Online Publications
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Copy 2011 taxes 1. Copy 2011 taxes   Deducting Business Expenses Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: What Can I Deduct?Cost of Goods Sold Capital Expenses Capital versus Deductible Expenses Personal versus Business Expenses How Much Can I Deduct?Not-for-profit limits. Copy 2011 taxes At-risk limits. Copy 2011 taxes Passive activities. Copy 2011 taxes Net operating loss. Copy 2011 taxes When Can I Deduct an Expense?Economic performance. Copy 2011 taxes Not-for-Profit ActivitiesGross Income Limit on Deductions What's New Optional safe harbor method to determine the business use of a home deduction. Copy 2011 taxes  Beginning in 2013, you can use the optional safe harbor method to determine the deduction for the business use of your home. Copy 2011 taxes See Optional safe harbor method under Business use of your home , later. Copy 2011 taxes Introduction This chapter covers the general rules for deducting business expenses. Copy 2011 taxes Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Copy 2011 taxes Topics - This chapter discusses: What you can deduct How much you can deduct When you can deduct Not-for-profit activities Useful Items - You may want to see: Publication 334 Tax Guide for Small Business 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income 529 Miscellaneous Deductions 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 538 Accounting Periods and Methods 542 Corporations 547 Casualties, Disasters, and Thefts 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction 946 How To Depreciate Property Form (and Instructions) Sch A (Form 1040) Itemized Deductions 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit See chapter 12 for information about getting publications and forms. Copy 2011 taxes What Can I Deduct? To be deductible, a business expense must be both ordinary and necessary. Copy 2011 taxes An ordinary expense is one that is common and accepted in your industry. Copy 2011 taxes A necessary expense is one that is helpful and appropriate for your trade or business. Copy 2011 taxes An expense does not have to be indispensable to be considered necessary. Copy 2011 taxes Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. Copy 2011 taxes In some cases you may not be allowed to deduct the expense at all. Copy 2011 taxes Therefore, it is important to distinguish usual business expenses from expenses that include the following. Copy 2011 taxes The expenses used to figure cost of goods sold, Capital expenses, and Personal expenses. Copy 2011 taxes Cost of Goods Sold If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Copy 2011 taxes Some of your business expenses may be included in figuring cost of goods sold. Copy 2011 taxes Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. Copy 2011 taxes If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense. Copy 2011 taxes The following are types of expenses that go into figuring cost of goods sold. Copy 2011 taxes The cost of products or raw materials, including freight. Copy 2011 taxes Storage. Copy 2011 taxes Direct labor (including contributions to pension or annuity plans) for workers who produce the products. Copy 2011 taxes Factory overhead. Copy 2011 taxes Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Copy 2011 taxes Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs. Copy 2011 taxes This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million. Copy 2011 taxes For more information, see the following sources. Copy 2011 taxes Cost of goods sold—chapter 6 of Publication 334. Copy 2011 taxes Inventories—Publication 538. Copy 2011 taxes Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations. Copy 2011 taxes Capital Expenses You must capitalize, rather than deduct, some costs. Copy 2011 taxes These costs are a part of your investment in your business and are called “capital expenses. Copy 2011 taxes ” Capital expenses are considered assets in your business. Copy 2011 taxes In general, you capitalize three types of costs. Copy 2011 taxes Business start-up costs (See Tip below). Copy 2011 taxes Business assets. Copy 2011 taxes Improvements. Copy 2011 taxes You can elect to deduct or amortize certain business start-up costs. Copy 2011 taxes See chapters 7 and 8. Copy 2011 taxes Cost recovery. Copy 2011 taxes   Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. Copy 2011 taxes These recovery methods allow you to deduct part of your cost each year. Copy 2011 taxes In this way, you are able to recover your capital expense. Copy 2011 taxes See Amortization (chapter 8) and Depletion (chapter 9) in this publication. Copy 2011 taxes A taxpayer can elect to deduct a portion of the costs of certain depreciable property as a section 179 deduction. Copy 2011 taxes A greater portion of these costs can be deducted if the property is qualified disaster assistance property. Copy 2011 taxes See Publication 946 for details. Copy 2011 taxes Going Into Business The costs of getting started in business, before you actually begin business operations, are capital expenses. Copy 2011 taxes These costs may include expenses for advertising, travel, or wages for training employees. Copy 2011 taxes If you go into business. Copy 2011 taxes   When you go into business, treat all costs you had to get your business started as capital expenses. Copy 2011 taxes   Usually you recover costs for a particular asset through depreciation. Copy 2011 taxes Generally, you cannot recover other costs until you sell the business or otherwise go out of business. Copy 2011 taxes However, you can choose to amortize certain costs for setting up your business. Copy 2011 taxes See Starting a Business in chapter 8 for more information on business start-up costs. Copy 2011 taxes If your attempt to go into business is unsuccessful. Copy 2011 taxes   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. Copy 2011 taxes The costs you had before making a decision to acquire or begin a specific business. Copy 2011 taxes These costs are personal and nondeductible. Copy 2011 taxes They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. Copy 2011 taxes The costs you had in your attempt to acquire or begin a specific business. Copy 2011 taxes These costs are capital expenses and you can deduct them as a capital loss. Copy 2011 taxes   If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss. Copy 2011 taxes   The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. Copy 2011 taxes You cannot take a deduction for these costs. Copy 2011 taxes You will recover the costs of these assets when you dispose of them. Copy 2011 taxes Business Assets There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. Copy 2011 taxes You must fully capitalize the cost of these assets, including freight and installation charges. Copy 2011 taxes Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. Copy 2011 taxes See Regulations section 1. Copy 2011 taxes 263A-2 for information on these rules. Copy 2011 taxes Improvements Improvements are generally major expenditures. Copy 2011 taxes Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements. Copy 2011 taxes The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Copy 2011 taxes Beginning in 2014, you must capitalize as improvements costs that are for the betterment of a unit of property, restore the unit of property, or adapt the unit of property to a new or different use. Copy 2011 taxes Temporary regulations allow you to capitalize costs meeting the above criteria for tax years beginning after 2011. Copy 2011 taxes However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Copy 2011 taxes Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition. Copy 2011 taxes Restoration plan. Copy 2011 taxes   Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. Copy 2011 taxes This applies even if some of the work would by itself be classified as repairs. Copy 2011 taxes Capital versus Deductible Expenses To help you distinguish between capital and deductible expenses, different examples are given below. Copy 2011 taxes Motor vehicles. Copy 2011 taxes   You usually capitalize the cost of a motor vehicle you use in your business. Copy 2011 taxes You can recover its cost through annual deductions for depreciation. Copy 2011 taxes   There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. Copy 2011 taxes See Publication 463. Copy 2011 taxes   Generally, repairs you make to your business vehicle are currently deductible. Copy 2011 taxes However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation. Copy 2011 taxes Roads and driveways. Copy 2011 taxes    The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. Copy 2011 taxes The cost of maintaining a private road on your business property is a deductible expense. Copy 2011 taxes Tools. Copy 2011 taxes   Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor. Copy 2011 taxes Machinery parts. Copy 2011 taxes   Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense. Copy 2011 taxes Heating equipment. Copy 2011 taxes   The cost of changing from one heating system to another is a capital expense. Copy 2011 taxes Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. Copy 2011 taxes However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. Copy 2011 taxes You can deduct the business part. Copy 2011 taxes For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. Copy 2011 taxes The remaining 30% is personal interest and generally is not deductible. Copy 2011 taxes See chapter 4 for information on deducting interest and the allocation rules. Copy 2011 taxes Business use of your home. Copy 2011 taxes   If you use part of your home for business, you may be able to deduct expenses for the business use of your home. Copy 2011 taxes These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Copy 2011 taxes   To qualify to claim expenses for the business use of your home, you must meet both of the following tests. Copy 2011 taxes The business part of your home must be used exclusively and regularly for your trade or business. Copy 2011 taxes The business part of your home must be: Your principal place of business, or A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) used in connection with your trade or business. Copy 2011 taxes   You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility. Copy 2011 taxes   Your home office qualifies as your principal place of business if you meet the following requirements. Copy 2011 taxes You use the office exclusively and regularly for administrative or management activities of your trade or business. Copy 2011 taxes You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Copy 2011 taxes   If you have more than one business location, determine your principal place of business based on the following factors. Copy 2011 taxes The relative importance of the activities performed at each location. Copy 2011 taxes If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Copy 2011 taxes Optional safe harbor method. Copy 2011 taxes   Beginning in 2013, individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. Copy 2011 taxes This method is an alternative to the calculation, allocation, and substantiation of actual expenses. Copy 2011 taxes   The deduction under the optional method is limited to $1,500 per year based on $5 a square foot for up to 300 square feet. Copy 2011 taxes Under this method, you claim your allowable mortgage interest, real estate taxes, and casualty losses on the home as itemized deductions on Schedule A (Form 1040). Copy 2011 taxes You are not required to allocate these deductions between personal and business use, as is required under the regular method. Copy 2011 taxes If you use the optional method, you cannot depreciate the portion of your home used in a trade or business. Copy 2011 taxes   Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees, are still fully deductible. Copy 2011 taxes All of the requirements discussed earlier under Business use of your home still apply. Copy 2011 taxes   For more information on the deduction for business use of your home, including the optional safe harbor method, see Publication 587. Copy 2011 taxes    If you were entitled to deduct depreciation on the part of your home used for business, you cannot exclude the part of the gain from the sale of your home that equals any depreciation you deducted (or could have deducted) for periods after May 6, 1997. Copy 2011 taxes Business use of your car. Copy 2011 taxes   If you use your car exclusively in your business, you can deduct car expenses. Copy 2011 taxes If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Copy 2011 taxes Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. Copy 2011 taxes   You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Copy 2011 taxes Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. Copy 2011 taxes Beginning in 2013, the standard mileage rate is 56. Copy 2011 taxes 5 cents per mile. Copy 2011 taxes   If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate. Copy 2011 taxes   For more information on car expenses and the rules for using the standard mileage rate, see Publication 463. Copy 2011 taxes How Much Can I Deduct? Generally, you can deduct the full amount of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense. Copy 2011 taxes Recovery of amount deducted (tax benefit rule). Copy 2011 taxes   If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. Copy 2011 taxes If you have a recovery in a later year, include the recovered amount in income in that year. Copy 2011 taxes However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income. Copy 2011 taxes   For more information on recoveries and the tax benefit rule, see Publication 525. Copy 2011 taxes Payments in kind. Copy 2011 taxes   If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. Copy 2011 taxes You cannot deduct the cost of your own labor. Copy 2011 taxes   Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. Copy 2011 taxes If these costs are included in the cost of goods sold, do not deduct them again as a business expense. Copy 2011 taxes Limits on losses. Copy 2011 taxes   If your deductions for an investment or business activity are more than the income it brings in, you have a loss. Copy 2011 taxes There may be limits on how much of the loss you can deduct. Copy 2011 taxes Not-for-profit limits. Copy 2011 taxes   If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. Copy 2011 taxes See Not-for-Profit Activities , later. Copy 2011 taxes At-risk limits. Copy 2011 taxes   Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. Copy 2011 taxes You are at risk in any activity for the following. Copy 2011 taxes The money and adjusted basis of property you contribute to the activity. Copy 2011 taxes 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. Copy 2011 taxes For more information, see Publication 925. Copy 2011 taxes Passive activities. Copy 2011 taxes   Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. Copy 2011 taxes In general, deductions for losses from passive activities only offset income from passive activities. Copy 2011 taxes You cannot use any excess deductions to offset other income. Copy 2011 taxes In addition, passive activity credits can only offset the tax on net passive income. Copy 2011 taxes Any excess loss or credits are carried over to later years. Copy 2011 taxes Suspended passive losses are fully deductible in the year you completely dispose of the activity. Copy 2011 taxes For more information, see Publication 925. Copy 2011 taxes Net operating loss. Copy 2011 taxes   If your deductions are more than your income for the year, you may have a “net operating loss. Copy 2011 taxes ” You can use a net operating loss to lower your taxes in other years. Copy 2011 taxes See Publication 536 for more information. Copy 2011 taxes   See Publication 542 for information about net operating losses of corporations. Copy 2011 taxes When Can I Deduct an Expense? When you can deduct an expense depends on your accounting method. Copy 2011 taxes An accounting method is a set of rules used to determine when and how income and expenses are reported. Copy 2011 taxes The two basic methods are the cash method and the accrual method. Copy 2011 taxes Whichever method you choose must clearly reflect income. Copy 2011 taxes For more information on accounting methods, see Publication 538. Copy 2011 taxes Cash method. Copy 2011 taxes   Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them. Copy 2011 taxes Accrual method. Copy 2011 taxes   Under an accrual method of accounting, you generally deduct business expenses when both of the following apply. Copy 2011 taxes The all-events test has been met. Copy 2011 taxes The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. Copy 2011 taxes Economic performance has occurred. Copy 2011 taxes Economic performance. Copy 2011 taxes   You generally cannot deduct or capitalize a business expense until economic performance occurs. Copy 2011 taxes If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. Copy 2011 taxes If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Copy 2011 taxes Example. Copy 2011 taxes Your tax year is the calendar year. Copy 2011 taxes In December 2013, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. Copy 2011 taxes You paid it by check in January 2014. Copy 2011 taxes If you use the accrual method of accounting, deduct the $600 on your tax return for 2013 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year. Copy 2011 taxes If you use the cash method of accounting, deduct the expense on your 2014 return. Copy 2011 taxes Prepayment. Copy 2011 taxes   You generally cannot deduct expenses in advance, even if you pay them in advance. Copy 2011 taxes This rule applies to both the cash and accrual methods. Copy 2011 taxes It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Copy 2011 taxes Example. Copy 2011 taxes In 2013, you sign a 10-year lease and immediately pay your rent for the first 3 years. Copy 2011 taxes Even though you paid the rent for 2013, 2014, and 2015, you can only deduct the rent for 2013 on your 2013 tax return. Copy 2011 taxes You can deduct the rent for 2014 and 2015 on your tax returns for those years. Copy 2011 taxes Contested liability. Copy 2011 taxes   Under the cash method, you can deduct a contested liability only in the year you pay the liability. Copy 2011 taxes Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U. Copy 2011 taxes S. Copy 2011 taxes possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. Copy 2011 taxes However, to take the deduction in the year of payment or transfer, you must meet certain conditions. Copy 2011 taxes See Regulations section 1. Copy 2011 taxes 461-2. Copy 2011 taxes Related person. Copy 2011 taxes   Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. Copy 2011 taxes However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Copy 2011 taxes Your deduction is allowed when the amount is includible in income by the related cash method payee. Copy 2011 taxes See Related Persons in Publication 538. Copy 2011 taxes Not-for-Profit Activities If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Copy 2011 taxes Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. Copy 2011 taxes The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. Copy 2011 taxes It does not apply to corporations other than S corporations. Copy 2011 taxes In determining whether you are carrying on an activity for profit, several factors are taken into account. Copy 2011 taxes No one factor alone is decisive. Copy 2011 taxes Among the factors to consider are whether: You carry on the activity in a businesslike manner, The time and effort you put into the activity indicate you intend to make it profitable, You depend on the income for your livelihood, Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business), You change your methods of operation in an attempt to improve profitability, You (or your advisors) have the knowledge needed to carry on the activity as a successful business, You were successful in making a profit in similar activities in the past, The activity makes a profit in some years, and You can expect to make a future profit from the appreciation of the assets used in the activity. Copy 2011 taxes Presumption of profit. Copy 2011 taxes   An 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. Copy 2011 taxes 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. Copy 2011 taxes The activity must be substantially the same for each year within this period. Copy 2011 taxes You have a profit when the gross income from an activity exceeds the deductions. Copy 2011 taxes   If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer's death. Copy 2011 taxes   If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. Copy 2011 taxes This means the limits discussed here will not apply. Copy 2011 taxes You can take all your business deductions from the activity, even for the years that you have a loss. Copy 2011 taxes You can rely on this presumption unless the IRS later shows it to be invalid. Copy 2011 taxes Using the presumption later. Copy 2011 taxes   If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test. Copy 2011 taxes   You can elect to do this by filing Form 5213. Copy 2011 taxes Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity. Copy 2011 taxes   The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Copy 2011 taxes Accordingly, it will not restrict your deductions. Copy 2011 taxes Rather, you will gain time to earn a profit in the required number of years. Copy 2011 taxes If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. Copy 2011 taxes If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period. Copy 2011 taxes   Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. Copy 2011 taxes The period is extended only for deductions of the activity and any related deductions that might be affected. Copy 2011 taxes    You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Copy 2011 taxes Gross Income Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Copy 2011 taxes Gross income from the activity also includes capital gains and rents received for the use of property which is held in connection with the activity. Copy 2011 taxes You can determine gross income from any not-for-profit activity by subtracting the cost of goods sold from your gross receipts. Copy 2011 taxes However, if you determine gross income by subtracting cost of goods sold from gross receipts, you must do so consistently, and in a manner that follows generally accepted methods of accounting. Copy 2011 taxes Limit on Deductions If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. Copy 2011 taxes If you are an individual, these deductions may be taken only if you itemize. Copy 2011 taxes These deductions may be taken on Schedule A (Form 1040). Copy 2011 taxes Category 1. Copy 2011 taxes   Deductions you can take for personal as well as for business activities are allowed in full. Copy 2011 taxes For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Copy 2011 taxes Deduct them on the appropriate lines of Schedule A (Form 1040). Copy 2011 taxes For tax years beginning after December 31, 2008, you can deduct a casualty loss on property you own for personal use only to the extent it is more than $500 and exceeds 10% of your adjusted gross income (AGI). Copy 2011 taxes The 10% AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009, and individuals are allowed to claim the net disaster losses even if they do not itemize their deductions. Copy 2011 taxes The reduction amount returns to $100 for tax years beginning after December 31, 2009. Copy 2011 taxes See Publication 547 for more information on casualty losses. Copy 2011 taxes For the limits that apply to home mortgage interest, see Publication 936. Copy 2011 taxes Category 2. Copy 2011 taxes   Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Copy 2011 taxes Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category. Copy 2011 taxes Category 3. Copy 2011 taxes   Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Copy 2011 taxes Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Copy 2011 taxes Where more than one asset is involved, allocate depreciation and these other deductions proportionally. Copy 2011 taxes    Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). Copy 2011 taxes They are subject to the 2%-of-adjusted-gross-income limit. Copy 2011 taxes See Publication 529 for information on this limit. Copy 2011 taxes Example. Copy 2011 taxes Adriana is engaged in a not-for-profit activity. Copy 2011 taxes The income and expenses of the activity are as follows. Copy 2011 taxes Gross income $3,200 Subtract:     Real estate taxes $700   Home mortgage interest 900   Insurance 400   Utilities 700   Maintenance 200   Depreciation on an automobile 600   Depreciation on a machine 200 3,700 Loss $(500)   Adriana must limit her deductions to $3,200, the gross income she earned from the activity. Copy 2011 taxes The limit is reached in category (3), as follows. Copy 2011 taxes Limit on deduction $3,200 Category 1: Taxes and interest $1,600   Category 2: Insurance, utilities, and maintenance 1,300 2,900 Available for Category 3 $ 300   The $800 of depreciation is allocated between the automobile and machine as follows. Copy 2011 taxes $600 $800 x $300 = $225 depreciation for the automobile             $200 $800 x $300 = $75 depreciation for the machine The basis of each asset is reduced accordingly. Copy 2011 taxes Adriana includes the $3,200 of gross income on line 21 (other income) of Form 1040. Copy 2011 taxes The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Copy 2011 taxes Adriana deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted-gross-income limit. Copy 2011 taxes Partnerships and S corporations. Copy 2011 taxes   If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. Copy 2011 taxes They are reflected in the individual shareholder's or partner's distributive shares. Copy 2011 taxes More than one activity. Copy 2011 taxes   If you have several undertakings, each may be a separate activity or several undertakings may be combined. Copy 2011 taxes The following are the most significant facts and circumstances in making this determination. Copy 2011 taxes The degree of organizational and economic interrelationship of various undertakings. Copy 2011 taxes The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting. Copy 2011 taxes The similarity of the undertakings. Copy 2011 taxes   The IRS will generally accept your characterization if it is supported by facts and circumstances. Copy 2011 taxes    If you are carrying on two or more different activities, keep the deductions and income from each one separate. Copy 2011 taxes Figure separately whether each is a not-for-profit activity. Copy 2011 taxes Then figure the limit on deductions and losses separately for each activity that is not for profit. Copy 2011 taxes Prev  Up  Next   Home   More Online Publications