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Form 1040x 2013

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Form 1040x 2013

Form 1040x 2013 Publication 555 - Main Content Table of Contents Domicile Community or Separate Property and Income Identifying Income, Deductions, and CreditsIncome Exemptions Deductions Credits, Taxes, and Payments Community Property Laws DisregardedRequesting relief. Form 1040x 2013 Equitable relief. Form 1040x 2013 Earned income. Form 1040x 2013 Trade or business income. Form 1040x 2013 Partnership income or loss. Form 1040x 2013 Separate property income. Form 1040x 2013 Social security benefits. Form 1040x 2013 Other income. Form 1040x 2013 End of the Community Preparing a Federal Income Tax ReturnJoint Return Versus Separate Returns Separate Return Preparation How To Get Tax HelpLow Income Taxpayer Clinics Domicile Whether you have community property and community income depends on the state where you are domiciled. Form 1040x 2013 If you and your spouse (or your registered domestic partner) have different domiciles, check the laws of each to see whether you have community property or community income. Form 1040x 2013 You have only one domicile even if you have more than one home. Form 1040x 2013 Your domicile is a permanent legal home that you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. Form 1040x 2013 The question of your domicile is mainly a matter of your intention as indicated by your actions. Form 1040x 2013 You must be able to show that you intend a given place or state to be your permanent home. Form 1040x 2013 If you move into or out of a community property state during the year, you may or may not have community income. Form 1040x 2013 Factors considered in determining domicile include: Where you pay state income tax, Where you vote, Location of property you own, Your citizenship, Length of residence, and Business and social ties to the community. Form 1040x 2013 Amount of time spent. Form 1040x 2013    The amount of time spent in one place does not always explain the difference between home and domicile. Form 1040x 2013 A temporary home or residence may continue for months or years while a domicile may be established the first moment you occupy the property. Form 1040x 2013 Your intent is the determining factor in proving where you have your domicile. Form 1040x 2013    Note. Form 1040x 2013 When this publication refers to where you live, it means your domicile. Form 1040x 2013 Community or Separate Property and Income If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income. Form 1040x 2013 Likewise, a registered domestic partner must report half of all community income and all of his or her separate income on his or her federal tax return. Form 1040x 2013 You each must attach your Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Form 1040x 2013 Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes. Form 1040x 2013 The following is a summary of the general rules. Form 1040x 2013 These rules are also shown in Table 1. Form 1040x 2013 Community property. Form 1040x 2013    Generally, community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Form 1040x 2013 That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Form 1040x 2013 That cannot be identified as separate property. Form 1040x 2013 Community income. Form 1040x 2013    Generally, community income is income from: Community property. Form 1040x 2013 Salaries, wages, and other pay received for the services performed by you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Form 1040x 2013 Real estate that is treated as community property under the laws of the state where the property is located. Form 1040x 2013 Note Separate property. Form 1040x 2013    Generally, separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Form 1040x 2013 Money earned while domiciled in a noncommunity property state. Form 1040x 2013 Property that you or your spouse (or your registered domestic partner) received separately as a gift or inheritance during your marriage (or registered domestic partnership). Form 1040x 2013 Property that you or your spouse (or your registered domestic partner) bought with separate funds, or acquired in exchange for separate property, during your marriage (or registered domestic partnership). Form 1040x 2013 Property that you and your spouse (or your registered domestic partner) converted from community property to separate property through an agreement valid under state law. Form 1040x 2013 The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Form 1040x 2013 Separate income. Form 1040x 2013    Generally, income from separate property is the separate income of the spouse (or the registered domestic partner) who owns the property. Form 1040x 2013    In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Form 1040x 2013 Table 1. Form 1040x 2013 General Rules — Property and Income: Community or Separate? Community property is property: That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state. Form 1040x 2013 (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds. Form 1040x 2013 ) That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property. Form 1040x 2013 That cannot be identified as separate property. Form 1040x 2013 Separate property is: Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership). Form 1040x 2013 Money earned while domiciled in a noncommunity property state. Form 1040x 2013 Property either of you received as a gift or inherited separately during your marriage (or registered domestic partnership). Form 1040x 2013 Property bought with separate funds, or exchanged for separate property, during your marriage (or registered domestic partnership). Form 1040x 2013 Property that you and your spouse (or your registered domestic partner) agreed to convert from community to separate property through an agreement valid under state law. Form 1040x 2013 The part of property bought with separate funds, if part was bought with community funds and part with separate funds. Form 1040x 2013 Community income 1,2,3 is income from: Community property. Form 1040x 2013 Salaries, wages, or pay for services of you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state. Form 1040x 2013 Real estate that is treated as community property under the laws of the state where the property is located. Form 1040x 2013 Separate income 1,2 is income from: Separate property which belongs to the spouse (or registered domestic partner) who owns the property. Form 1040x 2013 1In Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is community income. Form 1040x 2013 2Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year , later. Form 1040x 2013 In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Form 1040x 2013 In other states, it is separate income. Form 1040x 2013 3Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Form 1040x 2013 See Community Property Laws Disregarded , later. Form 1040x 2013 Identifying Income, Deductions, and Credits If you file separate returns, you and your spouse (or your registered domestic partner) each must attach your Form 8958 to your Form 1040 to identify your community and separate income, deductions, credits, and other return amounts according to the laws of your state. Form 1040x 2013 Under special rules, income that can otherwise be characterized as community income may not be treated as community income for federal income tax purposes in certain situations. Form 1040x 2013 See Community Property Laws Disregarded, later. Form 1040x 2013 Check your state law if you are separated but do not meet the conditions discussed in Spouses living apart all year, later. Form 1040x 2013 In some states, the income you earn after you are separated and before a divorce decree is issued continues to be community income. Form 1040x 2013 In other states, it is separate income. Form 1040x 2013 Income The following is a discussion of the general effect of community property laws on the federal income tax treatment of certain items of income. Form 1040x 2013 Wages, earnings, and profits. Form 1040x 2013    A spouse's (or your registered domestic partner's) wages, earnings, and net profits from a sole proprietorship are community income and must be evenly split. Form 1040x 2013 Dividends, interest, and rents. Form 1040x 2013    Dividends, interest, and rents from community property are community income and must be evenly split. Form 1040x 2013 Dividends, interest, and rents from separate property are characterized in accordance with the discussion under Income from separate property , later. Form 1040x 2013 Example. Form 1040x 2013 If you and your spouse (or your registered domestic partner) buy a bond that is considered community property under your state laws, half the bond interest belongs to you and half belongs to your spouse. Form 1040x 2013 You each must show the bond interest and the split of that interest on your Form 8958, and report half the interest on your Form 1040. Form 1040x 2013 Attach your Form 8958 to your Form 1040. Form 1040x 2013 Alimony received. Form 1040x 2013    Alimony or separate maintenance payments made prior to divorce are taxable to the payee spouse only to the extent they exceed 50% (his or her share) of the reportable community income. Form 1040x 2013 This is so because the payee spouse is already required to report half of the community income. Form 1040x 2013 See also Alimony paid , later. Form 1040x 2013 Gains and losses. Form 1040x 2013    Gains and losses are classified as separate or community depending on how the property is held. Form 1040x 2013 For example, a loss on separate property, such as stock held separately, is a separate loss. Form 1040x 2013 On the other hand, a loss on community property, such as a casualty loss to your home held as community property, is a community loss. Form 1040x 2013 See Publication 544, Sales and Other Dispositions of Assets, for information on gains and losses. Form 1040x 2013 See Publication 547, Casualties, Disasters, and Thefts, for information on losses due to a casualty or theft. Form 1040x 2013 Withdrawals from individual retirement arrangements (IRAs) and Coverdell Education Savings Accounts (ESAs). Form 1040x 2013    There are several kinds of individual retirement arrangements (IRAs). Form 1040x 2013 They are traditional IRAs (including SEP-IRAs), SIMPLE IRAs, and Roth IRAs. Form 1040x 2013 IRAs and ESAs by law are deemed to be separate property. Form 1040x 2013 Therefore, taxable IRA and ESA distributions are separate property, even if the funds in the account would otherwise be community property. Form 1040x 2013 These distributions are wholly taxable to the spouse (or registered domestic partner) whose name is on the account. Form 1040x 2013 That spouse (or registered domestic partner) is also liable for any penalties and additional taxes on the distributions. Form 1040x 2013 Pensions. Form 1040x 2013    Generally, distributions from pensions will be characterized as community or separate income depending on the respective periods of participation in the pension while married (or during the registered domestic partnership) and domiciled in a community property state or in a noncommunity property state during the total period of participation in the pension. Form 1040x 2013 See the example under Civil service retirement , later. Form 1040x 2013 These rules may vary between states. Form 1040x 2013 Check your state law. Form 1040x 2013 Lump-sum distributions. Form 1040x 2013    If you were born before January 2, 1936, and receive a lump-sum distribution from a qualified retirement plan, you may be able to choose an optional method of figuring the tax on the distribution. Form 1040x 2013 For the 10-year tax option, you must disregard community property laws. Form 1040x 2013 For more information, see Publication 575, Pension and Annuity Income, and Form 4972, Tax on Lump-Sum Distributions. Form 1040x 2013 Civil service retirement. Form 1040x 2013    For income tax purposes, community property laws apply to annuities payable under the Civil Service Retirement Act (CSRS) or Federal Employee Retirement System (FERS). Form 1040x 2013   Whether a civil service annuity is separate or community income depends on your marital status (or your status as a registered domestic partner) and domicile of the employee when the services were performed for which the annuity is paid. Form 1040x 2013 Even if you now live in a noncommunity property state and you receive a civil service annuity, it may be community income if it is based on services you performed while married (or during the registered domestic partnership) and domiciled in a community property state. Form 1040x 2013   If a civil service annuity is a mixture of community income and separate income, it must be divided between the two kinds of income. Form 1040x 2013 The division is based on the employee's domicile and marital status (or registered domestic partnership) in community and noncommunity property states during his or her periods of service. Form 1040x 2013 Example. Form 1040x 2013 Henry Wright retired this year after 30 years of civil service. Form 1040x 2013 He and his wife were domiciled in a community property state during the past 15 years. Form 1040x 2013 Since half the service was performed while the Wrights were married and domiciled in a community property state, half the civil service retirement pay is considered to be community income. Form 1040x 2013 If Mr. Form 1040x 2013 Wright receives $1,000 a month in retirement pay, $500 is considered community income—half ($250) is his income and half ($250) is his wife's. Form 1040x 2013 Military retirement pay. Form 1040x 2013    State community property laws apply to military retirement pay. Form 1040x 2013 Generally, the pay is either separate or community income based on the marital status and domicile of the couple while the member of the Armed Forces was in active military service. Form 1040x 2013 For example, military retirement pay for services performed during marriage and domicile in a community property state is community income. Form 1040x 2013   Active military pay earned while married and domiciled in a community property state is also community income. Form 1040x 2013 This income is considered to be received half by the member of the Armed Forces and half by the spouse. Form 1040x 2013 Partnership income. Form 1040x 2013    If an interest is held in a partnership, and income from the partnership is attributable to the efforts of either spouse (or registered domestic partner), the partnership income is community property. Form 1040x 2013 If it is merely a passive investment in a separate property partnership, the partnership income will be characterized in accordance with the discussion under Income from separate property , later. Form 1040x 2013 Tax-exempt income. Form 1040x 2013    For spouses, community income exempt from federal tax generally keeps its exempt status for both spouses. Form 1040x 2013 For example, under certain circumstances, income earned outside the United States is tax exempt. Form 1040x 2013 If you earned income and met the conditions that made it exempt, the income is also exempt for your spouse even though he or she may not have met the conditions. Form 1040x 2013 Registered domestic partners should consult the particular exclusion provision to see if the exempt status applies to both. Form 1040x 2013 Income from separate property. Form 1040x 2013    In some states, income from separate property is separate income. Form 1040x 2013 These states include Arizona, California, Nevada, New Mexico, and Washington. Form 1040x 2013 Other states characterize income from separate property as community income. Form 1040x 2013 These states include Idaho, Louisiana, Texas, and Wisconsin. Form 1040x 2013 Exemptions When you file separate returns, you must claim your own exemption amount for that year. Form 1040x 2013 (See your tax return instructions. Form 1040x 2013 ) You cannot divide the amount allowed as an exemption for a dependent between you and your spouse (or your registered domestic partner). Form 1040x 2013 When community funds provide support for more than one person, each of whom otherwise qualifies as a dependent, you and your spouse (or your registered domestic partner) may divide the number of dependency exemptions as explained in the following example. Form 1040x 2013 Example. Form 1040x 2013 Ron and Diane White have three dependent children and live in Nevada. Form 1040x 2013 If Ron and Diane file separately, only Ron can claim his own exemption, and only Diane can claim her own exemption. Form 1040x 2013 Ron and Diane can agree that one of them will claim the exemption for one, two, or all of their children and the other will claim any remaining exemptions. Form 1040x 2013 They cannot each claim half of the total exemption amount for their three children. Form 1040x 2013 Deductions If you file separate returns, your deductions generally depend on whether the expenses involve community or separate income. Form 1040x 2013 Business and investment expenses. Form 1040x 2013    If you file separate returns, expenses incurred to earn or produce community business or investment income are generally divided equally between you and your spouse (or your registered domestic partner). Form 1040x 2013 Each of you is entitled to deduct one-half of the expenses on your separate returns. Form 1040x 2013 Expenses incurred by a spouse (or registered domestic partner) to produce separate business or investment income is deductible by the spouse (or the registered domestic partner) who earns the corresponding separate business or investment income. Form 1040x 2013    Other limits may also apply to business and investment expenses. Form 1040x 2013 For more information, see Publication 535, Business Expenses, and Publication 550, Investment Income and Expenses. Form 1040x 2013 Alimony paid. Form 1040x 2013    Payments that may otherwise qualify as alimony are not deductible by the payer if they are the recipient spouse's part of community income. Form 1040x 2013 They are deductible as alimony only to the extent they are more than that spouse's part of community income. Form 1040x 2013 Example. Form 1040x 2013 You live in a community property state. Form 1040x 2013 You are separated but the special rules explained later under Spouses living apart all year do not apply. Form 1040x 2013 Under a written agreement, you pay your spouse $12,000 of your $20,000 total yearly community income. Form 1040x 2013 Your spouse receives no other community income. Form 1040x 2013 Under your state law, earnings of a spouse living separately and apart from the other spouse continue as community property. Form 1040x 2013 On your separate returns, each of you must report $10,000 of the total community income. Form 1040x 2013 In addition, your spouse must report $2,000 as alimony received. Form 1040x 2013 You can deduct $2,000 as alimony paid. Form 1040x 2013 IRA deduction. Form 1040x 2013    Deductions for IRA contributions cannot be split between spouses (or registered domestic partners). Form 1040x 2013 The deduction for each spouse (or each registered domestic partner) is figured separately and without regard to community property laws. Form 1040x 2013 Personal expenses. Form 1040x 2013   Expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. Form 1040x 2013 If these expenses are paid from community funds, divide the deduction equally between you and your spouse. Form 1040x 2013 Credits, Taxes, and Payments The following is a discussion of the general effect of community property laws on the treatment of certain credits, taxes, and payments on your separate return. Form 1040x 2013 Child tax credit. Form 1040x 2013    You may be entitled to a child tax credit for each of your qualifying children. Form 1040x 2013 You must provide the name and identification number (usually the social security number) of each qualifying child on your return. Form 1040x 2013 See your tax return instructions for the maximum amount of the credit you can claim for each qualifying child. Form 1040x 2013 Limit on credit. Form 1040x 2013    The credit is limited if your modified adjusted gross income (modified AGI) is above a certain amount. Form 1040x 2013 The amount at which the limitation (phaseout) begins depends on your filing status. Form 1040x 2013 Generally, your credit is limited to your tax liability unless you have three or more qualifying children. Form 1040x 2013 See your tax return instructions for more information. Form 1040x 2013 Self-employment tax. Form 1040x 2013    For the effect of community property laws on the income tax treatment of income from a sole proprietorship and partnerships, see Wages, earnings, and profits and Partnership income , earlier. Form 1040x 2013 The following rules only apply to persons married for federal tax purposes. Form 1040x 2013 Registered domestic partners report community income for self-employment tax purposes the same way they do for income tax purposes. Form 1040x 2013 Sole proprietorship. Form 1040x 2013    With regard to net income from a trade or business (other than a partnership) that is community income, self-employment tax is imposed on the spouse carrying on the trade or business. Form 1040x 2013 Partnerships. Form 1040x 2013    All of the distributive share of a married partner's income or loss from a partnership trade or business is attributable to the partner for computing any self-employment tax, even if a portion of the partner's distributive share of income or loss is community income or loss that is otherwise attributable to the partner's spouse for income tax purposes. Form 1040x 2013 If both spouses are partners, any self-employment tax is allocated based on their distributive shares. Form 1040x 2013 Federal income tax withheld. Form 1040x 2013    Report the credit for federal income tax withheld on community wages in the same manner as your wages. Form 1040x 2013 If you and your spouse file separate returns on which each of you reports half the community wages, each of you is entitled to credit for half the income tax withheld on those wages. Form 1040x 2013 Likewise, each registered domestic partner is entitled to credit for half the income tax withheld on those wages. Form 1040x 2013 Estimated tax payments. Form 1040x 2013    In determining whether you must pay estimated tax, apply the estimated tax rules to your estimated income. Form 1040x 2013 These rules are explained in Publication 505. Form 1040x 2013   If you think you may owe estimated tax and want to pay the tax separately (registered domestic partners must pay the tax separately), determine whether you must pay it by taking into account: Half the community income and deductions, All of your separate income and deductions, and Your own exemption and any exemptions for dependents that you may claim. Form 1040x 2013   Whether you and your spouse pay estimated tax jointly or separately will not affect your choice of filing joint or separate income tax returns. Form 1040x 2013   If you and your spouse paid estimated tax jointly but file separate income tax returns, either of you can claim all of the estimated tax paid, or you may divide it between you in any way that you agree upon. Form 1040x 2013   If you cannot agree on how to divide it, the estimated tax you can claim equals the total estimated tax paid times the tax shown on your separate return, divided by the total of the tax shown on your return and your spouse's return. Form 1040x 2013   If you paid your estimated taxes separately, you get credit for only the estimated taxes you paid. Form 1040x 2013 Earned income credit. Form 1040x 2013    You may be entitled to an earned income credit (EIC). Form 1040x 2013 You cannot claim this credit if your filing status is married filing separately. Form 1040x 2013   If you are married, but qualify to file as head of household under rules for married taxpayers living apart (see Publication 501, Exemptions, Standard Deduction, and Filing Information), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under community property laws. Form 1040x 2013 That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Form 1040x 2013 Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Form 1040x 2013 The same rule applies to registered domestic partners. Form 1040x 2013    This rule does not apply when determining your adjusted gross income (AGI) for the EIC. Form 1040x 2013 Your AGI includes that part of both your and your spouse's (or your registered domestic partner's) wages that you are required to include in gross income shown on your tax return. Form 1040x 2013   For more information about the EIC, see Publication 596, Earned Income Credit (EIC). Form 1040x 2013 Overpayments. Form 1040x 2013    The amount of an overpayment on a joint return is allocated under the community property laws of the state in which you are domiciled. Form 1040x 2013 If, under the laws of your state, community property is subject to premarital or other separate debts of either spouse, the full joint overpayment may be used to offset the obligation. Form 1040x 2013 If, under the laws of your state, community property is not subject to premarital or other separate debts of either spouse, only the portion of the joint overpayment allocated to the spouse liable for the obligation can be used to offset that liability. Form 1040x 2013 The portion allocated to the other spouse can be refunded. Form 1040x 2013 Community Property Laws Disregarded The following discussions are situations where special rules apply to community property and community income for spouses. Form 1040x 2013 These rules do not apply to registered domestic partners. Form 1040x 2013 Certain community income not treated as community income by one spouse. Form 1040x 2013    Community property laws may not apply to an item of community income that you received but did not treat as community income. Form 1040x 2013 You are responsible for reporting all of that income item if: You treat the item as if only you are entitled to the income, and You do not notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions). Form 1040x 2013 Relief from liability arising from community property law. Form 1040x 2013    You are not responsible for the tax relating to an item of community income if all the following conditions are met. Form 1040x 2013 You did not file a joint return for the tax year. Form 1040x 2013 You did not include an item of community income in gross income. Form 1040x 2013 The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Form 1040x 2013 Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Form 1040x 2013 Your spouse's (or former spouse's) distributive share of partnership income. Form 1040x 2013 Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Form 1040x 2013 Use the appropriate community property law to determine what is separate property. Form 1040x 2013 Any other income that belongs to your spouse (or former spouse) under community property law. Form 1040x 2013 You establish that you did not know of, and had no reason to know of, that community income. Form 1040x 2013 Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Form 1040x 2013 Requesting relief. Form 1040x 2013    For information on how and when to request relief from liabilities arising from community property laws, see Community Property Laws in Publication 971, Innocent Spouse Relief. Form 1040x 2013 Equitable relief. Form 1040x 2013    If you do not qualify for the relief discussed earlier under Relief from liability arising from community property law and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief. Form 1040x 2013 To request equitable relief, you must file Form 8857, Request for Innocent Spouse Relief. Form 1040x 2013 Also see Publication 971. Form 1040x 2013 Spousal agreements. Form 1040x 2013    In some states a married couple may enter into an agreement that affects the status of property or income as community or separate property. Form 1040x 2013 Check your state law to determine how it affects you. Form 1040x 2013 Nonresident alien spouse. Form 1040x 2013    If you are a U. Form 1040x 2013 S. Form 1040x 2013 citizen or resident alien and you choose to treat your nonresident alien spouse as a U. Form 1040x 2013 S. Form 1040x 2013 resident for tax purposes and you are domiciled in a community property state or country, use the community property rules. Form 1040x 2013 You must file a joint return for the year you make the choice. Form 1040x 2013 You can file separate returns in later years. Form 1040x 2013 For details on making this choice, see Publication 519, U. Form 1040x 2013 S. Form 1040x 2013 Tax Guide for Aliens. Form 1040x 2013   If you are a U. Form 1040x 2013 S. Form 1040x 2013 citizen or resident alien and do not choose to treat your nonresident alien spouse as a U. Form 1040x 2013 S. Form 1040x 2013 resident for tax purposes, treat your community income as explained next under Spouses living apart all year. Form 1040x 2013 However, you do not have to meet the four conditions discussed there. Form 1040x 2013 Spouses living apart all year. Form 1040x 2013    If you are married at any time during the calendar year, special rules apply for reporting certain community income. Form 1040x 2013 You must meet all the following conditions for these special rules to apply. Form 1040x 2013 You and your spouse lived apart all year. Form 1040x 2013 You and your spouse did not file a joint return for a tax year beginning or ending in the calendar year. Form 1040x 2013 You and/or your spouse had earned income for the calendar year that is community income. Form 1040x 2013 You and your spouse have not transferred, directly or indirectly, any of the earned income in condition (3) above between yourselves before the end of the year. Form 1040x 2013 Do not take into account transfers satisfying child support obligations or transfers of very small amounts or value. Form 1040x 2013 If all these conditions are met, you and your spouse must report your community income as discussed next. Form 1040x 2013 See also Certain community income not treated as community income by one spouse , earlier. Form 1040x 2013 Earned income. Form 1040x 2013    Treat earned income that is not trade or business or partnership income as the income of the spouse who performed the services to earn the income. Form 1040x 2013 Earned income is wages, salaries, professional fees, and other pay for personal services. Form 1040x 2013   Earned income does not include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered. Form 1040x 2013 Trade or business income. Form 1040x 2013    Treat income and related deductions from a trade or business that is not a partnership as those of the spouse carrying on the trade or business. Form 1040x 2013 Partnership income or loss. Form 1040x 2013    Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner. Form 1040x 2013 Separate property income. Form 1040x 2013    Treat income from the separate property of one spouse as the income of that spouse. Form 1040x 2013 Social security benefits. Form 1040x 2013    Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits. Form 1040x 2013 Other income. Form 1040x 2013    Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law. Form 1040x 2013 Example. Form 1040x 2013 George and Sharon were married throughout the year but did not live together at any time during the year. Form 1040x 2013 Both domiciles were in a community property state. Form 1040x 2013 They did not file a joint return or transfer any of their earned income between themselves. Form 1040x 2013 During the year their incomes were as follows:   George Sharon Wages $20,000 $22,000 Consulting business 5,000   Partnership   10,000 Dividends from separate property 1,000 2,000 Interest from community property 500 500 Total $26,500 $34,500 Under the community property law of their state, all the income is considered community income. Form 1040x 2013 (Some states treat income from separate property as separate income—check your state law. Form 1040x 2013 ) Sharon did not take part in George's consulting business. Form 1040x 2013 Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). Form 1040x 2013 But because they meet the four conditions listed earlier under Spouses living apart all year , they must disregard community property law in reporting all their income (except the interest income) from community property. Form 1040x 2013 They each report on their returns only their own earnings and other income, and their share of the interest income from community property. Form 1040x 2013 George reports $26,500 and Sharon reports $34,500. Form 1040x 2013 Other separated spouses. Form 1040x 2013    If you and your spouse are separated but do not meet the four conditions discussed earlier under Spouses living apart all year , you must treat your income according to the laws of your state. Form 1040x 2013 In some states, income earned after separation but before a decree of divorce continues to be community income. Form 1040x 2013 In other states, it is separate income. Form 1040x 2013 End of the Community The marital community may end in several ways. Form 1040x 2013 When the marital community ends, the community assets (money and property) are divided between the spouses. Form 1040x 2013 Similarly, a registered domestic partnership may end in several ways and the community assets must be divided between the registered domestic partners. Form 1040x 2013 Death of spouse. Form 1040x 2013    If you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. Form 1040x 2013 For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule does not apply to registered domestic partners). Form 1040x 2013 Example. Form 1040x 2013 Bob and Ann owned community property that had a basis of $80,000. Form 1040x 2013 When Bob died, his and Ann's community property had an FMV of $100,000. Form 1040x 2013 One-half of the FMV of their community interest was includible in Bob's estate. Form 1040x 2013 The basis of Ann's half of the property is $50,000 after Bob died (half of the $100,000 FMV). Form 1040x 2013 The basis of the other half to Bob's heirs is also $50,000. Form 1040x 2013   For more information about the basis of assets, see Publication 551, Basis of Assets. Form 1040x 2013    The above basis rule does not apply if your spouse died in 2010 and the spouse's executor elected out of the estate tax, in which case section 1022 will apply. Form 1040x 2013 See Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, for additional information. Form 1040x 2013 Divorce or separation. Form 1040x 2013    If spouses divorce or separate, the (equal or unequal) division of community property in connection with the divorce or property settlement does not result in a gain or loss. Form 1040x 2013 For registered domestic partners, an unequal division of community property in a property settlement may result in a gain or loss. Form 1040x 2013 For information on the tax consequences of the division of property under a property settlement or divorce decree, see Publication 504. Form 1040x 2013   Each spouse (or each registered domestic partner) is taxed on half the community income for the part of the year before the community ends. Form 1040x 2013 However, see Spouses living apart all year , earlier. Form 1040x 2013 Any income received after the community ends is separate income. Form 1040x 2013 This separate income is taxable only to the spouse (or the registered domestic partner) to whom it belongs. Form 1040x 2013   An absolute decree of divorce or annulment ends the marital community in all community property states. Form 1040x 2013 A decree of annulment, even though it holds that no valid marriage ever existed, usually does not nullify community property rights arising during the “marriage. Form 1040x 2013 ” However, you should check your state law for exceptions. Form 1040x 2013   A decree of legal separation or of separate maintenance may or may not end the marital community. Form 1040x 2013 The court issuing the decree may terminate the marital community and divide the property between the spouses. Form 1040x 2013   A separation agreement may divide the community property between you and your spouse. Form 1040x 2013 It may provide that this property, along with future earnings and property acquired, will be separate property. Form 1040x 2013 This agreement may end the community. Form 1040x 2013   In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Form 1040x 2013 Check your state law. Form 1040x 2013   If you are a registered domestic partner, you should check your state law to determine when the community ends. Form 1040x 2013 Preparing a Federal Income Tax Return The following discussion does not apply to spouses who meet the conditions under Spouses living apart all year , discussed earlier. Form 1040x 2013 Those spouses must report their community income as explained in that discussion. Form 1040x 2013 Joint Return Versus Separate Returns Ordinarily, filing a joint return will give you a greater tax advantage than filing a separate return. Form 1040x 2013 But in some cases, your combined income tax on separate returns may be less than it would be on a joint return. Form 1040x 2013 This discussion concerning joint versus separate returns does not apply to registered domestic partners. Form 1040x 2013 The following rules apply if your filing status is married filing separately. Form 1040x 2013 You should itemize deductions if your spouse itemizes deductions, because you cannot claim the standard deduction. Form 1040x 2013 You cannot take the credit for child and dependent care expenses in most instances. Form 1040x 2013 You cannot take the earned income credit. Form 1040x 2013 You cannot exclude any interest income from qualified U. Form 1040x 2013 S. Form 1040x 2013 savings bonds that you used for higher education expenses. Form 1040x 2013 You cannot take the credit for the elderly or the disabled unless you lived apart from your spouse all year. Form 1040x 2013 You may have to include in income more of any social security benefits (including any equivalent railroad retirement benefits) you received during the year than you would on a joint return. Form 1040x 2013 You cannot deduct interest paid on a qualified student loan. Form 1040x 2013 You cannot take the education credits. Form 1040x 2013 You may have a smaller child tax credit than you would on a joint return. Form 1040x 2013 You cannot take the exclusion or credit for adoption expenses in most instances. Form 1040x 2013 Figure your tax both on a joint return and on separate returns under the community property laws of your state. Form 1040x 2013 You can then compare the tax figured under both methods and use the one that results in less tax. Form 1040x 2013 Separate Return Preparation If you file separate returns, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Form 1040x 2013 Each of you must complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Form 1040x 2013 On the appropriate lines of your separate Form 1040, list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc. Form 1040x 2013 ). Form 1040x 2013 The same reporting rule applies to registered domestic partners. Form 1040x 2013 For a discussion of the effect of community property laws on certain items of income, deductions, credits, and other return amounts, see Identifying Income, Deductions, and Credits , earlier. Form 1040x 2013 Attach your Form 8958 to your separate return showing how you figured the income, deductions, and federal income tax withheld that each of you reported. Form 1040x 2013 Form 8958 is used for married spouses in community property states who choose to file married filing separately. Form 1040x 2013 Form 8958 is also used for registered domestic partners who are domiciled in Nevada, Washington, or California. Form 1040x 2013 A registered domestic partner in Nevada, Washington, or California must follow state community property laws and report half the combined community income of the individual and his or her registered domestic partner. Form 1040x 2013 Extension of time to file. Form 1040x 2013    An extension of time for filing your separate return does not extend the time for filing your spouse's (or your registered domestic partner's) separate return. Form 1040x 2013 If you and your spouse file a joint return, you cannot file separate returns after the due date for filing either separate return has passed. Form 1040x 2013 How To Get Tax Help Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Form 1040x 2013 Free help with your tax return. Form 1040x 2013    You can get free help preparing your return nationwide from IRS-certified volunteers. Form 1040x 2013 The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Form 1040x 2013 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Form 1040x 2013 Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Form 1040x 2013 In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Form 1040x 2013 To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Form 1040x 2013 gov, download the IRS2Go app, or call 1-800-906-9887. Form 1040x 2013   As part of the TCE program, AARP offers the Tax-Aide counseling program. Form 1040x 2013 To find the nearest AARP Tax-Aide site, visit AARP's website at www. Form 1040x 2013 aarp. Form 1040x 2013 org/money/taxaide or call 1-888-227-7669. Form 1040x 2013 For more information on these programs, go to IRS. Form 1040x 2013 gov and enter “VITA” in the search box. Form 1040x 2013 Internet. Form 1040x 2013    IRS. Form 1040x 2013 gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Form 1040x 2013 Download the free IRS2Go app from the iTunes app store or from Google Play. Form 1040x 2013 Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Form 1040x 2013 Check the status of your 2013 refund with the Where's My Refund? application on IRS. Form 1040x 2013 gov or download the IRS2Go app and select the Refund Status option. Form 1040x 2013 The IRS issues more than 9 out of 10 refunds in less than 21 days. Form 1040x 2013 Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Form 1040x 2013 You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Form 1040x 2013 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Form 1040x 2013 Use the Interactive Tax Assistant (ITA) to research your tax questions. Form 1040x 2013 No need to wait on the phone or stand in line. Form 1040x 2013 The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Form 1040x 2013 When you reach the response screen, you can print the entire interview and the final response for your records. Form 1040x 2013 New subject areas are added on a regular basis. Form 1040x 2013  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Form 1040x 2013 gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Form 1040x 2013 You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Form 1040x 2013 The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Form 1040x 2013 When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Form 1040x 2013 Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Form 1040x 2013 You can also ask the IRS to mail a return or an account transcript to you. Form 1040x 2013 Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Form 1040x 2013 gov or by calling 1-800-908-9946. Form 1040x 2013 Tax return and tax account transcripts are generally available for the current year and the past three years. Form 1040x 2013 Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Form 1040x 2013 Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Form 1040x 2013 If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Form 1040x 2013 Check the status of your amended return using Where's My Amended Return? Go to IRS. Form 1040x 2013 gov and enter Where's My Amended Return? in the search box. Form 1040x 2013 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Form 1040x 2013 It can take up to 3 weeks from the date you mailed it to show up in our system. Form 1040x 2013 Make a payment using one of several safe and convenient electronic payment options available on IRS. Form 1040x 2013 gov. Form 1040x 2013 Select the Payment tab on the front page of IRS. Form 1040x 2013 gov for more information. Form 1040x 2013 Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Form 1040x 2013 Figure your income tax withholding with the IRS Withholding Calculator on IRS. Form 1040x 2013 gov. Form 1040x 2013 Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Form 1040x 2013 Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Form 1040x 2013 gov. Form 1040x 2013 Request an Electronic Filing PIN by going to IRS. Form 1040x 2013 gov and entering Electronic Filing PIN in the search box. Form 1040x 2013 Download forms, instructions and publications, including accessible versions for people with disabilities. Form 1040x 2013 Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Form 1040x 2013 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Form 1040x 2013 An employee can answer questions about your tax account or help you set up a payment plan. Form 1040x 2013 Before you visit, check the Office Locator on IRS. Form 1040x 2013 gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Form 1040x 2013 If you have a special need, such as a disability, you can request an appointment. Form 1040x 2013 Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Form 1040x 2013 Apply for an Employer Identification Number (EIN). Form 1040x 2013 Go to IRS. Form 1040x 2013 gov and enter Apply for an EIN in the search box. Form 1040x 2013 Read the Internal Revenue Code, regulations, or other official guidance. Form 1040x 2013 Read Internal Revenue Bulletins. Form 1040x 2013 Sign up to receive local and national tax news and more by email. Form 1040x 2013 Just click on “subscriptions” above the search box on IRS. Form 1040x 2013 gov and choose from a variety of options. Form 1040x 2013    Phone. Form 1040x 2013 You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Form 1040x 2013 Download the free IRS2Go app from the iTunes app store or from Google Play. Form 1040x 2013 Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Form 1040x 2013 gov, or download the IRS2Go app. Form 1040x 2013 Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Form 1040x 2013 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Form 1040x 2013 Most VITA and TCE sites offer free electronic filing. Form 1040x 2013 Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Form 1040x 2013 Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Form 1040x 2013 Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Form 1040x 2013 If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Form 1040x 2013 The IRS issues more than 9 out of 10 refunds in less than 21 days. Form 1040x 2013 Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Form 1040x 2013 Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Form 1040x 2013 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Form 1040x 2013 Note, the above information is for our automated hotline. Form 1040x 2013 Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Form 1040x 2013 Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Form 1040x 2013 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Form 1040x 2013 It can take up to 3 weeks from the date you mailed it to show up in our system. Form 1040x 2013 Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Form 1040x 2013 You should receive your order within 10 business days. Form 1040x 2013 Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Form 1040x 2013 If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Form 1040x 2013 Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Form 1040x 2013 The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Form 1040x 2013 These individuals can also contact the IRS through relay services such as the Federal Relay Service. Form 1040x 2013    Walk-in. Form 1040x 2013 You can find a selection of forms, publications and services — in-person. Form 1040x 2013 Products. Form 1040x 2013 You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Form 1040x 2013 Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Form 1040x 2013 Services. Form 1040x 2013 You can walk in to your local TAC for face-to-face tax help. Form 1040x 2013 An employee can answer questions about your tax account or help you set up a payment plan. Form 1040x 2013 Before visiting, use the Office Locator tool on IRS. Form 1040x 2013 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Form 1040x 2013    Mail. Form 1040x 2013 You can send your order for forms, instructions, and publications to the address below. Form 1040x 2013 You should receive a response within 10 business days after your request is received. Form 1040x 2013 Internal Revenue Service 1201 N. Form 1040x 2013 Mitsubishi Motorway Bloomington, IL 61705-6613   The Taxpayer Advocate Service Is Here to Help You. Form 1040x 2013 The Taxpayer Advocate Service (TAS) is your voice at the IRS. Form 1040x 2013 Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Form 1040x 2013   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Form 1040x 2013 We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Form 1040x 2013 You face (or your business is facing) an immediate threat of adverse action. Form 1040x 2013 You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Form 1040x 2013   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Form 1040x 2013 Here's why we can help: TAS is an independent organization within the IRS. Form 1040x 2013 Our advocates know how to work with the IRS. Form 1040x 2013 Our services are free and tailored to meet your needs. Form 1040x 2013 We have offices in every state, the District of Columbia, and Puerto Rico. Form 1040x 2013   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. Form 1040x 2013 irs. Form 1040x 2013 gov/advocate, or call us toll-free at 1-877-777-4778. Form 1040x 2013   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Form 1040x 2013 If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Form 1040x 2013 irs. Form 1040x 2013 gov/sams. Form 1040x 2013 Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Form 1040x 2013 Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Form 1040x 2013 Visit www. Form 1040x 2013 irs. Form 1040x 2013 gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. Form 1040x 2013 Prev  Up  Next   Home   More Online Publications
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Understanding your CP501 Notice

You have a balance due (money you owe the IRS) on one of your tax accounts.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice carefully — it explains your due date, amount due, and payment options.
  • Make your payment by your due date. Go to the payments page to find out more about your payment options.

You may want to...


Answers to Common Questions

What should I do if I disagree with the changes you made?
If you disagree, contact us immediately at the toll-free number listed on the top right corner of your notice.

What happens if I can't pay the full amount I owe now?
See if you may be able to set up a payment plan through our Online Payment Agreement Application.

What happens if I don't respond to this notice?
If you don't pay the amount due or call us to make payment arrangements, we can file a Notice of Federal Tax Lien on your property at any time, if we haven't already done so. In addition, if you don't pay the amount you owe by the due date on the notice, interest will increase and additional penalties may apply.

If the lien is in place, you may find it difficult to sell or borrow against your property. The tax lien would also appear on your credit report ― which may harm your credit rating ― and your creditors would also be publicly notified that the IRS has priority to seize your property.

Am I charged interest on the money I owe?
Yes. You will continue to be charged interest on any outstanding balance until the amount is paid in full. See the Penalties section that starts on page 2 of the notice.

Will I receive a penalty if I can't pay the full amount?
Yes, you'll receive a late payment penalty. The failure to pay penalty continues to accrue until the amount you owe is paid in full. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.

What if I need to make a correction to my tax return?
You'll need to file Form 1040X, Amended U.S. Individual Income Tax Return.

Page Last Reviewed or Updated: 05-Mar-2014

The Form 1040x 2013

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