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File State Tax Returns

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File State Tax Returns

File state tax returns Part Two -   Ingresos Los ocho capítulos de esta sección abordan distintos tipos de ingresos. File state tax returns Explican cuáles ingresos están y cuáles no están sujetos a impuestos. File state tax returns Vea la Parte Tres para información sobre ganancias y pérdidas que se declaran en el Formulario 8949 y el Anexo D (Formulario 1040) y para información que debe saber al vender su vivienda. File state tax returns Table of Contents 5. File state tax returns   Salarios, Sueldos y Otros IngresosRecordatorio Introduction Useful Items - You may want to see: Remuneración del EmpleadoNiñeras. File state tax returns Otras Clases de Remuneración Beneficios Marginales Aportaciones a un Plan de Jubilación Opciones de Compra de Acciones Bienes Restringidos Reglas Especiales para Algunos EmpleadosClero Miembros de Órdenes Religiosas Empleador Extranjero Fuerzas Armadas Voluntarios Beneficios por Enfermedad y LesionesPensiones por Incapacidad Contratos de Seguro de Cuidados a Largo Plazo Compensación del Seguro Obrero Otros Beneficios por Enfermedad y Lesiones 6. File state tax returns   Ingresos de PropinasIntroduction Useful Items - You may want to see: Cómo Mantener un Registro Diario de PropinasRegistro electrónico de propinas. File state tax returns Cómo Declarar las Propinas a su EmpleadorInforme electrónico de propinas. File state tax returns Declaración final. File state tax returns Cómo se Declaran las Propinas en la Declaración de Impuestos Asignación de Propinas 7. File state tax returns   Ingresos de InteresesRecordatorio Introduction Useful Items - You may want to see: Información General SSN para una cuenta conjunta. File state tax returns Cuenta de custodia para su hijo. File state tax returns Multa por no facilitar un SSN. File state tax returns Cómo se declara la retención adicional. File state tax returns Cuenta de ahorros con uno de los padres como fideicomisario. File state tax returns Intereses que no se declaran en el Formulario 1099-INT. File state tax returns Nominatarios. File state tax returns Cantidad incorrecta. File state tax returns Requisito de declarar ciertos datos. File state tax returns Intereses Sujetos a ImpuestosIntereses sujetos a la multa por retiro prematuro de fondos. File state tax returns Préstamo para invertir en un certificado de depósito. File state tax returns Bonos de Ahorro de los Estados Unidos Programa de Bonos de Ahorro para Estudios Letras, Pagarés y Bonos del Tesoro de los Estados Unidos Bonos que se Venden Entre las Fechas de Pago de los Intereses Seguros Obligaciones del Gobierno Estatal o Local Descuento de la Emisión Original (OID) Cuándo Se Deben Declarar los Ingresos de InteresesRecibo implícito. File state tax returns Cómo se Declaran los Ingresos de InteresesAnexo B (Formulario 1040A o Formulario 1040). File state tax returns Cómo declarar los intereses exentos de impuesto. File state tax returns Intereses de bonos de ahorro de los EE. File state tax returns UU. File state tax returns declarados anteriormente. File state tax returns 8. File state tax returns   Dividendos y Otras DistribucionesRecordatorio Introduction Useful Items - You may want to see: Información GeneralDividendos no declarados en el Formulario 1099-DIV. File state tax returns Cómo se le informa del impuesto retenido. File state tax returns Nominatarios. File state tax returns Dividendos OrdinariosDividendos Calificados Dividendos Utilizados para la Compra de más Acciones Fondos de Inversión del Mercado Monetario Distribuciones de Ganancias de CapitalAjuste a la base. File state tax returns Distribuciones que no son DividendosDistribuciones de Liquidación Distribuciones de Acciones y Derechos a Acciones Otras DistribucionesRequisito de declarar ciertos datos. File state tax returns Tratamiento del impuesto mínimo alternativo. File state tax returns Cómo Declarar el Ingreso de DividendosDeducción de los intereses de inversiones. File state tax returns 9. File state tax returns   Ingresos y Gastos de AlquilerIntroduction Useful Items - You may want to see: Ingresos de Alquiler Gastos de AlquilerDesocupada mientras está en venta. File state tax returns Reparaciones y Mejoras Otros Gastos Propiedad que Pasa a Ser de Alquiler Alquiler de Parte de una Propiedad Alquiler sin Fines de Lucro Uso Personal de una Unidad Habitable (Incluyendo una Casa de Vacaciones)Cómo Dividir los Gastos Unidad Habitable Usada como Vivienda Cómo Declarar Ingresos y Deducciones DepreciaciónCambio de método contable para deducir depreciación no declarada. File state tax returns Límites sobre las Pérdidas de AlquilerReglas sobre el Monto de Riesgo Límites sobre las Actividades Pasivas Cómo Declarar Ingresos y Gastos de AlquilerAnexo E (Formulario 1040) 10. File state tax returns   Planes de Jubilación, Pensiones y AnualidadesQué Hay de Nuevo Recordatorio IntroductionLa Regla General. File state tax returns Arreglos de ahorros para la jubilación (IRA, por sus siglas en inglés). File state tax returns Beneficios de la jubilación del gobierno federal. File state tax returns Useful Items - You may want to see: Información GeneralReinversiones en arreglos de ahorros para la jubilación designados Roth IRA dentro del mismo plan. File state tax returns Cómo Hacer la Declaración Costo (Inversión en el Contrato) Tributación de Pagos PeriódicosExclusión limitada al costo. File state tax returns Exclusión no limitada al costo. File state tax returns Método Simplificado Tributación de Pagos no PeriódicosDistribuciones de Suma Global ReinversionesReinversiones en arreglos de ahorros para la jubilación designados Roth IRA dentro del mismo plan. File state tax returns Impuestos Adicionales EspecialesImpuesto sobre Distribuciones Prematuras Impuestos sobre Acumulación en Exceso Sobrevivientes y Beneficiarios 11. File state tax returns   Beneficios del Seguro Social y Beneficios Equivalentes de la Jubilación para Empleados FerroviariosIntroduction Useful Items - You may want to see: ¿Está Sujeta a Impuestos Alguna Parte de los Beneficios? Cómo Declarar los Beneficios¿Cuánto Está Sujeto a Impuestos? Ejemplos Deducciones Relacionadas con los BeneficiosReintegros Superiores a los Beneficios Brutos 12. File state tax returns   Otros IngresosIntroduction Useful Items - You may want to see: Trueque Deudas CanceladasIntereses incluidos en una deuda cancelada. File state tax returns Excepciones Anfitrión o Anfitriona Ganancias de un Seguro de VidaCónyuge sobreviviente. File state tax returns Ganancias de un Contrato de Dotación Beneficios Acelerados por Fallecimiento Funcionario de Seguridad Pública Fallecido en el Cumplimiento del Deber Ingresos de Sociedades Colectivas Ingresos de Sociedad Anónima de Tipo S Recuperación de FondosRecuperaciones de Deducciones Detalladas Alquileres de Bienes Muebles ReintegrosMétodo 1. File state tax returns Método 2. File state tax returns RegalíasAgotamiento. File state tax returns Carbón y mineral de hierro. File state tax returns Venta de participación de bienes. File state tax returns Parte de una futura producción vendida. File state tax returns Beneficios por DesempleoTipos de compensación por desempleo. File state tax returns Programa gubernamental. File state tax returns Reintegro de compensación por desempleo. File state tax returns Retención de impuestos. File state tax returns Reintegro de beneficios. File state tax returns Beneficios del Bienestar Social y Otros Beneficios de Asistencia Pública Otros IngresosAngustia emocional. File state tax returns Deducción por costos relativos a una demanda por discriminación ilegal. File state tax returns Medidas de ahorro de energía. File state tax returns Unidad habitable. File state tax returns Ingreso actual que se requiere distribuir. File state tax returns Ingreso actual que no se requiere distribuir. File state tax returns Cómo hacer la declaración. File state tax returns Pérdidas. File state tax returns Fideicomiso de un cesionario. File state tax returns Remuneración para personas que no son empleados. File state tax returns Director de una sociedad anónima. File state tax returns Representante personal. File state tax returns Administrador de una ocupación o negocio de patrimonio en quiebra. File state tax returns Notario público. File state tax returns Funcionario de distrito electoral. File state tax returns Pagos por complejidad del cuidado. File state tax returns Mantenimiento del espacio en el hogar. File state tax returns Declaración de pagos sujetos a impuestos. File state tax returns Loterías y rifas. File state tax returns Formulario W-2G. File state tax returns Cómo declarar ganancias de juegos y apuestas y mantenimiento de documentación. File state tax returns Pensión o arreglo IRA heredado. File state tax returns Recompensas o bonificaciones para empleados. File state tax returns Premio Pulitzer, Premio Nobel y premios similares. File state tax returns Pago por servicios. File state tax returns Pagos del Departamento de Asuntos de Veteranos (VA). File state tax returns Premios. File state tax returns Indemnización por huelga y cierre patronal. File state tax returns Prev  Up  Next   Home   More Online Publications
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The File State Tax Returns

File state tax returns 4. File state tax returns   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. File state tax returns 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. File state tax returns 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. File state tax returns Category 1. File state tax returns Category 2. File state tax returns Category 3. File state tax returns What's New for 2013 Standard mileage rate. File state tax returns  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. File state tax returns 5 cents. File state tax returns See Truck and Car Expenses , later. File state tax returns Simplified method for business use of home deduction. File state tax returns  The IRS now provides a simplified method to determine your expenses for business use of your home. File state tax returns For more information, see Schedule C (Form 1040), Part II, and its instructions. File state tax returns Introduction You can generally deduct the current costs of operating your farm. File state tax returns Current costs are expenses you do not have to capitalize or include in inventory costs. File state tax returns However, your deduction for the cost of livestock feed and certain other supplies may be limited. File state tax returns If you have an operating loss, you may not be able to deduct all of it. File state tax returns 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. File state tax returns Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. File state tax returns “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. File state tax returns Schedule F, Part II, lists some common farm expenses that are typically deductible. File state tax returns This chapter discusses many of these expenses, as well as others not listed on Schedule F. File state tax returns Reimbursed expenses. File state tax returns   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. File state tax returns If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. File state tax returns See Refund or reimbursement under Income From Other Sources in chapter 3. File state tax returns Personal and business expenses. File state tax returns   Some expenses you pay during the tax year may be part personal and part business. File state tax returns These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. File state tax returns   You must allocate these mixed expenses between their business and personal parts. File state tax returns Generally, the personal part of these expenses is not deductible. File state tax returns The business portion of the expenses is deductible on Schedule F. File state tax returns Example. File state tax returns You paid $1,500 for electricity during the tax year. File state tax returns You used 1/3 of the electricity for personal purposes and 2/3 for farming. File state tax returns Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. File state tax returns Reasonable allocation. File state tax returns   It is not always easy to determine the business and nonbusiness parts of an expense. File state tax returns There is no method of allocation that applies to all mixed expenses. File state tax returns Any reasonable allocation is acceptable. File state tax returns What is reasonable depends on the circumstances in each case. File state tax returns Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. File state tax returns 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. File state tax returns Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. File state tax returns 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. File state tax returns Poultry bought for resale and not resold during the year. File state tax returns Deduction limit. File state tax returns   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). File state tax returns This limit does not apply if you meet one of the exceptions described later. File state tax returns See Chapter 2 for a discussion of the cash method of accounting. File state tax returns   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. File state tax returns 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. File state tax returns The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. File state tax returns Example. File state tax returns You may not qualify for the exception described next. File state tax returns During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. File state tax returns Your total prepaid farm supplies expense for 2013 is $5,500. File state tax returns Your other deductible farm expenses totaled $10,000 for 2013. File state tax returns Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. File state tax returns 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. File state tax returns Exceptions. File state tax returns   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. File state tax returns 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. File state tax returns 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. File state tax returns   You are a farm-related taxpayer if any of the following tests apply. File state tax returns Your main home is on a farm. File state tax returns Your principal business is farming. File state tax returns A member of your family meets (1) or (2). File state tax returns 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. File state tax returns    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. File state tax returns 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. File state tax returns The payment is for the purchase of feed rather than a deposit. File state tax returns The prepayment has a business purpose and is not merely for tax avoidance. File state tax returns Deducting the prepayment does not result in a material distortion of your income. File state tax returns If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. File state tax returns If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. File state tax returns This rule does not apply to the purchase of commodity futures contracts. File state tax returns Payment for the purchase of feed. File state tax returns   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. File state tax returns 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. File state tax returns   The following are some factors that show a payment is a deposit rather than for the purchase of feed. File state tax returns The absence of specific quantity terms. File state tax returns The right to a refund of any unapplied payment credit at the end of the contract. File state tax returns The seller's treatment of the payment as a deposit. File state tax returns The right to substitute other goods or products for those specified in the contract. File state tax returns   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. File state tax returns Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. File state tax returns Business purpose. File state tax returns   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. File state tax returns The following are some examples of business benefits. File state tax returns Fixing maximum prices and securing an assured feed supply. File state tax returns Securing preferential treatment in anticipation of a feed shortage. File state tax returns   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. File state tax returns No material distortion of income. File state tax returns   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. File state tax returns Your customary business practice in conducting your livestock operations. File state tax returns The expense in relation to past purchases. File state tax returns The time of year you made the purchase. File state tax returns The expense in relation to your income for the year. File state tax returns 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. File state tax returns You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. File state tax returns The cost of boarding farm labor is a deductible labor cost. File state tax returns Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. File state tax returns 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. File state tax returns See chapter 13 for more information on employment taxes. File state tax returns 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. File state tax returns See Taxes , later. File state tax returns Property for services. File state tax returns   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. File state tax returns 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. File state tax returns   Treat the wages deducted as an amount received for the property. File state tax returns 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. File state tax returns Any gain or loss has the same character the exchanged property had in your hands. File state tax returns For more information, see chapter 8. File state tax returns Child as an employee. File state tax returns   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. File state tax returns Include these wages in the child's income. File state tax returns The child may have to file an income tax return. File state tax returns These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. File state tax returns For more information, see Family Employees in chapter 13. File state tax returns    A Form W-2, Wage and Tax Statement, should be issued to the child employee. File state tax returns   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. File state tax returns The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. File state tax returns Spouse as an employee. File state tax returns   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. File state tax returns Wages you pay to your spouse are subject to social security and Medicare taxes. File state tax returns For more information, see Family Employees in chapter 13. File state tax returns Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. File state tax returns However, those wages may be subject to the employment taxes discussed in chapter 13. File state tax returns Household workers. File state tax returns   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. File state tax returns Construction labor. File state tax returns   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. File state tax returns These wages are part of the cost of the building or other improvement. File state tax returns You must capitalize them. File state tax returns Maintaining your home. File state tax returns   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. File state tax returns For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. File state tax returns The employee devotes the remaining time to work on your farm. File state tax returns You cannot deduct 5% of the wages and employment taxes you pay for that employee. File state tax returns 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). File state tax returns Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. File state tax returns 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. File state tax returns 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. File state tax returns For example, if you repair the barn roof, the cost is deductible. File state tax returns But if you replace the roof, it is a capital expense. File state tax returns For more information, see Capital Expenses , later. File state tax returns Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. File state tax returns Cash method. File state tax returns   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. File state tax returns You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. File state tax returns You can, however, deduct the interest when you start making payments on the new loan. File state tax returns For more information, see Cash Method in chapter 2. File state tax returns Prepaid interest. File state tax returns   Under the cash method, you generally cannot deduct any interest paid before the year it is due. File state tax returns Interest paid in advance may be deducted only in the tax year in which it is due. File state tax returns Accrual method. File state tax returns   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. File state tax returns 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. File state tax returns For more information, see Accrual Method in chapter 2. File state tax returns Allocation of interest. File state tax returns   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. File state tax returns Allocate the interest to the following categories. File state tax returns Trade or business interest. File state tax returns Passive activity interest. File state tax returns Investment interest. File state tax returns Portfolio interest. File state tax returns Personal interest. File state tax returns   You generally allocate interest on a loan the same way you allocate the loan proceeds. File state tax returns You allocate loan proceeds by tracing disbursements to specific uses. File state tax returns The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. File state tax returns Secured loan. File state tax returns   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. File state tax returns Example. File state tax returns You secure a loan with property used in your farming business. File state tax returns You use the loan proceeds to buy a car for personal use. File state tax returns 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. File state tax returns If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. File state tax returns The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. File state tax returns However, you can choose to treat the loan as not secured by your home. File state tax returns For more information, see Publication 936. File state tax returns Allocation period. File state tax returns   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. File state tax returns The date the loan is repaid. File state tax returns The date the loan is reallocated to another use. File state tax returns More information. File state tax returns   For more information on interest, see chapter 4 in Publication 535. File state tax returns Breeding Fees You can deduct breeding fees as a farm business expense. File state tax returns 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. File state tax returns For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. File state tax returns 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. File state tax returns You can also deduct the cost of applying these materials in the year you pay or incur it. File state tax returns However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. File state tax returns 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. File state tax returns However, you can choose to deduct these expenses in the year paid or incurred. File state tax returns If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. File state tax returns 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. File state tax returns Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. File state tax returns It does not include land you have never used previously for producing crops or sustaining livestock. File state tax returns You cannot deduct initial land preparation costs. File state tax returns (See Capital Expenses , later. File state tax returns ) Include government payments you receive for lime or fertilizer in income. File state tax returns See Fertilizer and Lime under Agricultural Program Payments in chapter 3. File state tax returns 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. File state tax returns 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. File state tax returns For information on employment taxes, see chapter 13. File state tax returns Allocation of taxes. File state tax returns   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. File state tax returns You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). File state tax returns To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. File state tax returns The allocation can be done from the assessed valuations. File state tax returns If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. File state tax returns State and local general sales taxes. File state tax returns   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. File state tax returns 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. File state tax returns Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. File state tax returns State and federal income taxes. File state tax returns   Individuals cannot deduct state and federal income taxes as farm business expenses. File state tax returns Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). File state tax returns However, you cannot deduct federal income tax. File state tax returns Highway use tax. File state tax returns   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. File state tax returns 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. File state tax returns Self-employment tax deduction. File state tax returns   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. File state tax returns For more information, see chapter 12. File state tax returns Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. File state tax returns This includes premiums you pay for the following types of insurance. File state tax returns Fire, storm, crop, theft, liability, and other insurance on farm business assets. File state tax returns Health and accident insurance on your farm employees. File state tax returns 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. File state tax returns Business interruption insurance. File state tax returns State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). File state tax returns Insurance to secure a loan. File state tax returns   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. File state tax returns In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. File state tax returns Advance premiums. File state tax returns   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. File state tax returns Example. File state tax returns On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. File state tax returns The policy will cover a period of 3 years beginning on July 1, 2013. File state tax returns Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. File state tax returns Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. File state tax returns In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). File state tax returns Deduct the remaining $500 in 2016. File state tax returns 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. File state tax returns Business interruption insurance. File state tax returns   Use and occupancy and business interruption insurance premiums are deductible as a business expense. File state tax returns This insurance pays for lost profits if your business is shut down due to a fire or other cause. File state tax returns Report any proceeds in full on Schedule F, Part I. File state tax returns Self-employed health insurance deduction. File state tax returns   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. File state tax returns 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. File state tax returns Generally, this deduction cannot be more than the net profit from the business under which the plan was established. File state tax returns   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. File state tax returns   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. File state tax returns Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. File state tax returns   For more information, see Deductible Premiums in Publication 535, chapter 6. File state tax returns Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. File state tax returns However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. File state tax returns Advance payments. File state tax returns   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. File state tax returns Farm home. File state tax returns   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. File state tax returns 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. File state tax returns 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. File state tax returns Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. File state tax returns Conditional sales contract. File state tax returns   Whether an agreement is a conditional sales contract depends on the intent of the parties. File state tax returns Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. File state tax returns No single test, or special combination of tests, always applies. File state tax returns However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. File state tax returns The agreement applies part of each payment toward an equity interest you will receive. File state tax returns You get title to the property after you make a stated amount of required payments. File state tax returns 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. File state tax returns You pay much more than the current fair rental value of the property. File state tax returns 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. File state tax returns Determine this value when you make the agreement. File state tax returns You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. File state tax returns The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. File state tax returns Example. File state tax returns You lease new farm equipment from a dealer who both sells and leases. File state tax returns The agreement includes an option to purchase the equipment for a specified price. File state tax returns The lease payments and the specified option price equal the sales price of the equipment plus interest. File state tax returns Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. File state tax returns For federal income tax purposes, the agreement is a conditional sales contract. File state tax returns You cannot deduct any of the lease payments as rent. File state tax returns You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. File state tax returns Motor vehicle leases. File state tax returns   Special rules apply to lease agreements that have a terminal rental adjustment clause. File state tax returns 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. File state tax returns If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. File state tax returns For more information, see Internal Revenue Code (IRC) section 7701(h). File state tax returns Leveraged leases. File state tax returns   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). File state tax returns 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. File state tax returns irs. File state tax returns gov/pub/irs-irbs/irb01-19. File state tax returns pdf. File state tax returns 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. File state tax returns You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. File state tax returns 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. File state tax returns Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. File state tax returns 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. File state tax returns 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. File state tax returns You use it exclusively and regularly for the administrative or management activities of your trade or business. File state tax returns You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. File state tax returns If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. File state tax returns The IRS now provides a simplified method to determine your expenses for business use of your home. File state tax returns For more information, see Schedule C (Form 1040), Part II, and its instructions. File state tax returns Deduction limit. File state tax returns   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. File state tax returns 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. File state tax returns   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. File state tax returns 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). File state tax returns Farm expenses other than expenses that relate to the use of your home. File state tax returns If you are self-employed, do not include your deduction for half of your self-employment tax. File state tax returns   Deductions over the current year's limit can be carried over to your next tax year. File state tax returns They are subject to the deduction limit for the next tax year. File state tax returns More information. File state tax returns   See Publication 587 for more information on deducting expenses for the business use of your home. File state tax returns Telephone expense. File state tax returns   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. File state tax returns 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. File state tax returns Cell phone charges for calls relating to your farm business are deductible. File state tax returns 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. File state tax returns Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. File state tax returns Only expenses for business use are deductible. File state tax returns These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). File state tax returns Standard mileage rate. File state tax returns   Instead of using actual costs, under certain conditions you can use the standard mileage rate. File state tax returns The standard mileage rate for each mile of business use is 56. File state tax returns 5 cents in 2013. File state tax returns 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. File state tax returns   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. File state tax returns 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. File state tax returns Example. File state tax returns Maureen owns a car and four pickup trucks that are used in her farm business. File state tax returns Her farm employees use the trucks and she uses the car for business. File state tax returns Maureen cannot use the standard mileage rate for the car or the trucks. File state tax returns This is because all five vehicles are used in Maureen's farm business at the same time. File state tax returns She must use actual expenses for all vehicles. File state tax returns Business use percentage. File state tax returns   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. File state tax returns You choose this method of substantiating business use the first year the vehicle is placed in service. File state tax returns Once you make this choice, you may not change to another method later. File state tax returns The following are uses directly connected with the business of farming. File state tax returns Cultivating land. File state tax returns Raising or harvesting any agricultural or horticultural commodity. File state tax returns Raising, shearing, feeding, caring for, training, and managing animals. File state tax returns Driving to the feed or supply store. File state tax returns   If you keep records and they show that your business use was more than 75%, you may be able to claim more. File state tax returns See Recordkeeping requirements under Travel Expenses , below. File state tax returns More information. File state tax returns   For more information on deductible truck and car expenses, see Publication 463, chapter 4. File state tax returns 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. File state tax returns Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. File state tax returns You cannot deduct lavish or extravagant expenses. File state tax returns Usually, the location of your farm business is considered your home for tax purposes. File state tax returns 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. File state tax returns 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. File state tax returns The following are some types of deductible travel expenses. File state tax returns 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. File state tax returns Meals. File state tax returns   You ordinarily can deduct only 50% of your business-related meals expenses. File state tax returns 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. File state tax returns 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. File state tax returns For information on entertainment expenses, see Publication 463, chapter 2. File state tax returns   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. File state tax returns You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. File state tax returns    Recordkeeping requirements. File state tax returns You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. File state tax returns Estimates or approximations do not qualify as proof of an expense. File state tax returns   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. File state tax returns Generally, it is best to record the expense and get documentation of it at the time you pay it. File state tax returns   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. File state tax returns 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. File state tax returns More information. File state tax returns   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. File state tax returns Reimbursements to employees. File state tax returns   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. File state tax returns Employees may be reimbursed under an accountable or nonaccountable plan. File state tax returns Under an accountable plan, the employee must provide evidence of expenses. File state tax returns Under a nonaccountable plan, no evidence of expenses is required. File state tax returns If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. File state tax returns If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. File state tax returns For more information, see Publication 535, chapter 11. File state tax returns Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. File state tax returns 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. File state tax returns Do not take a separate deduction for the penalty. File state tax returns Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. File state tax returns These costs include repairs, utilities, insurance, and depreciation. File state tax returns The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. File state tax returns 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. File state tax returns You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. File state tax returns However, see Chickens, seeds, and young plants , below. File state tax returns Example. File state tax returns You use the cash method of accounting. File state tax returns In 2013, you buy 50 steers you will sell in 2014. File state tax returns You cannot deduct the cost of the steers on your 2013 tax return. File state tax returns You deduct their cost on your 2014 Schedule F, Part I. File state tax returns Chickens, seeds, and young plants. File state tax returns   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. File state tax returns 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. File state tax returns However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. File state tax returns   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. File state tax returns You cannot also deduct the cost from the selling price. File state tax returns   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. File state tax returns Deduct the cost of these seeds and plants through depletion allowances. File state tax returns For more information, see Depletion in chapter 7. File state tax returns   The cost of chickens and plants used as food for your family is never deductible. File state tax returns   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. File state tax returns These rules are discussed in chapter 6. File state tax returns Example. File state tax returns You use the cash method of accounting. File state tax returns In 2013, you buy 500 baby chicks to raise for resale in 2014. File state tax returns You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. File state tax returns 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. File state tax returns Election to use crop method. File state tax returns   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. File state tax returns You must get IRS approval to use the crop method. File state tax returns If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. File state tax returns For more information, see Crop method under Special Methods of Accounting in chapter 2. File state tax returns Choosing a method. File state tax returns   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. File state tax returns   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. File state tax returns 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. File state tax returns For more information, see Change in Accounting Method in chapter 2. File state tax returns Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. File state tax returns 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. File state tax returns Accounting fees. File state tax returns Advertising. File state tax returns Business travel and meals. File state tax returns Commissions. File state tax returns Consultant fees. File state tax returns Crop scouting expenses. File state tax returns Dues to cooperatives. File state tax returns Educational expenses (to maintain and improve farming skills). File state tax returns Farm-related attorney fees. File state tax returns Farm magazines. File state tax returns Ginning. File state tax returns Insect sprays and dusts. File state tax returns Litter and bedding. File state tax returns Livestock fees. File state tax returns Marketing fees. File state tax returns Milk assessment. File state tax returns Recordkeeping expenses. File state tax returns Service charges. File state tax returns Small tools expected to last one year or less. File state tax returns Stamps and stationery. File state tax returns Subscriptions to professional, technical, and trade journals that deal with farming. File state tax returns Tying material and containers. File state tax returns Loan expenses. File state tax returns   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. File state tax returns Tax preparation fees. File state tax returns   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. File state tax returns You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. File state tax returns   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. File state tax returns Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. File state tax returns 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. File state tax returns 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. File state tax returns For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. File state tax returns Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. File state tax returns Income from cooperatives. File state tax returns   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. File state tax returns This deduction amount is reported on Form 1099-PATR, box 6. File state tax returns 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. File state tax returns More information. File state tax returns   For more information on the domestic production activities deduction, see the Instructions for Form 8903. File state tax returns 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. File state tax returns You include the expense in the basis of the asset. File state tax returns Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. File state tax returns See chapters 2  and 6. File state tax returns Capital expenses are generally not deductible, but they may be depreciable. File state tax returns However, you can elect to deduct certain capital expenses, such as the following. File state tax returns The cost of fertilizer, lime, etc. File state tax returns (See Fertilizer and Lime under Deductible Expenses , earlier. File state tax returns ) Soil and water conservation expenses. File state tax returns (See chapter 5. File state tax returns ) The cost of property that qualifies for a deduction under section 179. File state tax returns (See chapter 7. File state tax returns ) Business start-up costs. File state tax returns (See Business start-up and organizational costs , later. File state tax returns ) Forestation and reforestation costs. File state tax returns (See Forestation and reforestation costs , later. File state tax returns ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. File state tax returns Land and buildings. File state tax returns Additions, alterations, and improvements to buildings, etc. File state tax returns Cars and trucks. File state tax returns Equipment and machinery. File state tax returns Fences. File state tax returns Draft, breeding, sport, and dairy livestock. File state tax returns Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. File state tax returns Water wells, including drilling and equipping costs. File state tax returns 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. File state tax returns Business start-up and organizational costs. File state tax returns   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. File state tax returns The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. File state tax returns Any remaining costs must be amortized. File state tax returns See chapter 7. File state tax returns   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. File state tax returns 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). File state tax returns Clearly indicate the election on your amended return and write “Filed pursuant to section 301. File state tax returns 9100-2” at the top of the amended return. File state tax returns File the amended return at the same address you filed the original return. File state tax returns The election applies when figuring taxable income for the current tax year and all subsequent years. File state tax returns   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. File state tax returns For more information about start-up and organizational costs, see chapter 7. File state tax returns Crop production expenses. File state tax returns   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. File state tax returns 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. File state tax returns For more information, see Uniform Capitalization Rules in chapter 6. File state tax returns Timber. File state tax returns   Capitalize the cost of acquiring timber. File state tax returns Do not include the cost of land in the cost of the timber. File state tax returns You must generally capitalize direct costs incurred in reforestation. File state tax returns However, you can elect to deduct some forestation and reforestation costs. File state tax returns See Forestation and reforestation costs next. File state tax returns Reforestation costs include the following. File state tax returns Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. File state tax returns The cost of seed or seedlings. File state tax returns Labor and tool expenses. File state tax returns Depreciation on equipment used in planting or seeding. File state tax returns Costs incurred in replanting to replace lost seedlings. File state tax returns You can choose to capitalize certain indirect reforestation costs. File state tax returns   These capitalized amounts are your basis for the timber. File state tax returns Recover your basis when you sell the timber or take depletion allowances when you cut the timber. File state tax returns See Depletion in chapter 7. File state tax returns Forestation and reforestation costs. File state tax returns   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. File state tax returns Any remaining costs can be amortized over an 84-month period. File state tax returns See chapter 7. File state tax returns 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. File state tax returns The accounts should include all reforestation treatments and the dates they were applied. File state tax returns 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. File state tax returns The timber account should be maintained until the timber is disposed of. File state tax returns For more information, see Notice 2006-47, 2006-20 I. File state tax returns R. File state tax returns B. File state tax returns 892, available at  www. File state tax returns irs. File state tax returns gov/irb/2006-20_IRB/ar11. File state tax returns html. File state tax returns   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. File state tax returns If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. File state tax returns If you are not filing Form T (Timber), attach a statement to your return with the following information. File state tax returns The unique stand identification numbers. File state tax returns The total number of acres reforested during the tax year. File state tax returns The nature of the reforestation treatments. File state tax returns The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. File state tax returns   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). File state tax returns Clearly indicate the election on your amended return and write “Filed pursuant to section 301. File state tax returns 9100-2” at the top of the amended return. File state tax returns File the amended return at the same address you filed the original return. File state tax returns    For more information about forestation and reforestation costs, see chapter 7. File state tax returns    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. File state tax returns You can view this publication on the Internet at  www. File state tax returns fs. File state tax returns fed. File state tax returns us/publications. File state tax returns Christmas tree cultivation. File state tax returns   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. File state tax returns Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. File state tax returns For more information, see Timber Depletion under Depletion in chapter 7. File state tax returns   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. File state tax returns Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. File state tax returns   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. File state tax returns If the improvements do not have a determinable useful life, add their cost to the basis of the land. File state tax returns The cost is recovered when you sell or otherwise dispose of it. File state tax returns If the improvements have a determinable useful life, recover their cost through depreciation. File state tax returns 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. File state tax returns Recover these costs through depreciation. File state tax returns Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. File state tax returns Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. File state tax returns 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. File state tax returns Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. File state tax returns Other Nondeductible Items You cannot deduct the following items on your tax return. File state tax returns Loss of growing plants, produce, and crops. File state tax returns   Losses of plants, produce, and crops raised for sale are generally not deductible. File state tax returns However, you may have a deductible loss on plants with a preproductive period of more than 2 years. File state tax returns See chapter 11 for more information. File state tax returns Repayment of loans. File state tax returns   You cannot deduct the repayment of a loan. File state tax returns However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. File state tax returns See Interest , earlier. File state tax returns Estate, inheritance, legacy, succession, and gift taxes. File state tax returns   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. File state tax returns Loss of livestock. File state tax returns   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. File state tax returns Losses from sales or exchanges between related persons. File state tax returns   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. File state tax returns For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. File state tax returns Cost of raising unharvested crops. File state tax returns   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. File state tax returns Add these costs to the basis of the land to determine the gain or loss on the sale. File state tax returns For more information, see Section 1231 Gains and Losses in chapter 9. File state tax returns Cost of unharvested crops bought with land. File state tax returns   Capitalize the purchase price of land, including the cost allocable to unharvested crops. File state tax returns You cannot deduct the cost of the crops at the time of purchase. File state tax returns However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. File state tax returns Cost related to gifts. File state tax returns   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. File state tax returns The costs are not deductible in the year of the gift or any later year. File state tax returns 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. File state tax returns Club dues and membership fees. File state tax returns   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. File state tax returns 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. File state tax returns Exception. File state tax returns   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. File state tax returns Boards of trade. File state tax returns Business leagues. File state tax returns Chambers of commerce. File state tax returns Civic or public service organizations. File state tax returns Professional associations. File state tax returns Trade associations. File state tax returns Real estate boards. File state tax returns Fines and penalties. File state tax returns   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. File state tax returns 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. File state tax returns The amount of the loss you can deduct when figuring your taxable income may be limited. File state tax returns To figure your deductible loss, you must apply the following limits. File state tax returns The at-risk limits. File state tax returns The passive activity limits. File state tax returns The following discussions explain these limits. File state tax returns If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. File state tax returns See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. File state tax returns 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. File state tax returns See Not-for-Profit Farming, later. File state tax returns At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. File state tax returns These rules limit the losses you can deduct when figuring your taxable income. File state tax returns The deductible loss from an activity is limited to the amount you have at risk in the activity. File state tax returns 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. File state tax returns 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. File state tax returns For more information, see Publication 925. File state tax returns 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. File state tax returns Generally, a rental activity is a passive activity. File state tax returns If you have a passive activity, special rules limit the loss you can deduct in the tax year. File state tax returns You generally can deduct losses from passive activities only up to income from passive activities. File state tax returns Credits are similarly limited. File state tax returns For more information, see Publication 925. File state tax returns Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. File state tax returns 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. File state tax returns 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. File state tax returns Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. File state tax returns Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. File state tax returns For more details, see IRC section 461(j). File state tax returns Excess farm loss. File state tax returns   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). File state tax returns 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. File state tax returns   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. File state tax returns 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. File state tax returns 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). File state tax returns Also, there is a limit on the deductions you can take. File state tax returns You cannot use a loss from that activity to offset income from other activities. File state tax returns Activities you do as a hobby, or mainly for sport or recreation, come under this limit. File state tax returns An investment activity intended only to produce tax losses for the investors also comes under this limit. File state tax returns The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. File state tax returns It does not apply to corporations other than S corporations. File state tax returns In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. File state tax returns No one factor alone is decisive. File state tax returns 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. File state tax returns Presumption of profit. File state tax returns   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. File state tax returns 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. File state tax returns The activity must be substantially the same for each year within this period. File state tax returns You have a profit when the gross income from an activity is more than the deductions for it. File state tax returns   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. File state tax returns   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. File state tax returns This means the limits discussed here do not apply. File state tax returns You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. File state tax returns You can rely on this presumption in every case, unless the IRS shows it is not valid. File state tax returns   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. File state tax returns Using the presumption later. File state tax returns   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. File state tax returns   You can choose to do this by filing Form 5213. File state tax returns 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. File state tax returns 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. File state tax returns   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. File state tax returns Accordingly, it will not limit your deductions. File state tax returns 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. File state tax returns If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. File state tax returns 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. File state tax returns   Filing Form 5213 automatically extends the period of limitations on any year