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How To File State Taxes

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How To File State Taxes

How to file state taxes Index A Accuracy of deposits rule, Accuracy of Deposits Rule Additional Medicare Tax, Reminders, Additional Medicare Tax withholding. How to file state taxes , Additional Medicare Tax withholding adjustments. How to file state taxes Adjustments, 13. How to file state taxes Reporting Adjustments to Form 941 or Form 944 Aliens, nonresident, Withholding income taxes on the wages of nonresident alien employees. How to file state taxes , Withholding of social security and Medicare taxes on nonresident aliens. How to file state taxes Allocated tips, Allocated tips. How to file state taxes Archer MSAs, Health Savings Accounts and medical savings accounts. How to file state taxes Assistance (see Tax help) B Backup withholding, Nonpayroll Income Tax Withholding Business expenses, employee, Employee business expense reimbursements. How to file state taxes C Calendar, Calendar Certain foreign persons treated as American employers, Foreign persons treated as American employers. How to file state taxes Change of business address or responsible party, Change of Business Address or Responsible Party COBRA premium assistance credit, COBRA premium assistance credit. How to file state taxes Correcting employment taxes, Correcting employment taxes. How to file state taxes Correcting errors, (prior period adjustments) Form 941, Prior Period Adjustments D Delivery services, private, Private Delivery Services Depositing taxes Penalties, Deposit Penalties Rules, 11. How to file state taxes Depositing Taxes Differential wage payments, Differential wage payments. How to file state taxes E E-file, Electronic filing by reporting agents. How to file state taxes Election worker, State and local government employers. How to file state taxes Electronic, Electronic deposit requirement. How to file state taxes Electronic deposit requirement, Electronic deposit requirement. How to file state taxes Electronic Federal Tax Payment System (EFTPS), Electronic deposit requirement. How to file state taxes Electronic filing, Electronic Filing and Payment, Electronic filing by reporting agents. How to file state taxes Eligibility for employment, Hiring New Employees Employees defined, Employee status under common law. How to file state taxes Employer identification number (EIN), 1. How to file state taxes Employer Identification Number (EIN) Employer responsibilities, Paying Wages, Pensions, or Annuities F Family employees, 3. How to file state taxes Family Employees Final return, Final return. How to file state taxes Form 944, 12. How to file state taxes Filing Form 941 or Form 944 Fringe benefits, Fringe benefits. How to file state taxes FUTA tax, 14. How to file state taxes Federal Unemployment (FUTA) Tax G Government employers, Federal Government employers. How to file state taxes H Health insurance plans, Health insurance plans. How to file state taxes Health Savings Accounts (HSAs), Health Savings Accounts and medical savings accounts. How to file state taxes Hiring new employees, Hiring New Employees Household employees, Exceptions. How to file state taxes I Income tax withholding, Income Tax Withholding, 16. How to file state taxes How To Use the Income Tax Withholding Tables Information returns, Information Returns International social security agreements, International social security agreements. How to file state taxes L Long-term care insurance, Health insurance plans. How to file state taxes Lookback period, When To Deposit M Meals and lodging, Meals and lodging. How to file state taxes Medical care, Medical care reimbursements. How to file state taxes Medical savings accounts, Health Savings Accounts and medical savings accounts. How to file state taxes Medicare tax, Social Security and Medicare Taxes Mileage, Per diem or other fixed allowance. How to file state taxes Monthly deposit schedule, Monthly Deposit Schedule Moving expenses, Moving expenses. How to file state taxes N New employees, Hiring New Employees Noncash wages, Wages not paid in money. How to file state taxes Nonemployee compensation, Nonpayroll Income Tax Withholding P Part-time workers, Part-Time Workers Payroll period, 8. How to file state taxes Payroll Period Penalties, Deposit Penalties, Penalties. How to file state taxes Private delivery services, Private Delivery Services Publications (see Tax help) R Reconciling Forms W-2 and Forms 941 or 944, Reconciling Forms W-2, W-3, and 941 or 944. How to file state taxes Recordkeeping, Recordkeeping Reimbursements, Accountable plan. How to file state taxes , Nonaccountable plan. How to file state taxes , Per diem or other fixed allowance. How to file state taxes Repayments, wages, Wage Repayments S Seasonal employers, Exceptions. How to file state taxes Semiweekly deposit schedule, Semiweekly Deposit Schedule Sick pay, Sick pay. How to file state taxes Social security and Medicare taxes, Social Security and Medicare Taxes Social security number, employee, 4. How to file state taxes Employee's Social Security Number (SSN) Spouse, Business Owned and Operated by Spouses Standard mileage rate, Per diem or other fixed allowance. How to file state taxes Statutory employees, Employee status under common law. How to file state taxes Statutory nonemployees, Statutory employees. How to file state taxes Successor employer, Successor employer. How to file state taxes , Successor employer. How to file state taxes Supplemental wages, 7. How to file state taxes Supplemental Wages T Tax help, How To Get Tax Help Telephone help, Telephone Help Third-party sick pay tax adjustment, Adjustment of tax on third-party sick pay. How to file state taxes Tip Rate Determination Agreement, Tip Rate Determination and Education Program. How to file state taxes Tip Rate Determination and Education Program, Tip Rate Determination and Education Program. How to file state taxes Tips, 6. How to file state taxes Tips, Tips treated as supplemental wages. How to file state taxes Trust fund recovery penalty, Trust fund recovery penalty. How to file state taxes TTY/TDD information, How To Get Tax Help U Unemployment tax, federal, 14. How to file state taxes Federal Unemployment (FUTA) Tax V Vacation pay, Vacation pay. How to file state taxes W Wage repayments, Wage Repayments Wages defined, 5. How to file state taxes Wages and Other Compensation Wages not paid in money, Wages not paid in money. How to file state taxes Withholding Backup, Nonpayroll Income Tax Withholding Certificate, Using Form W-4 to figure withholding. How to file state taxes Exemption, Exemption from federal income tax withholding. How to file state taxes Fringe benefits, Withholding on fringe benefits. How to file state taxes Income tax, Income Tax Withholding Levies, Amounts exempt from levy on wages, salary, and other income. How to file state taxes Nonresident aliens, Withholding of social security and Medicare taxes on nonresident aliens. How to file state taxes Pensions and annuities, Nonpayroll Income Tax Withholding Percentage method, Percentage Method Social security and Medicare taxes, Social Security and Medicare Taxes Table instructions, 16. How to file state taxes How To Use the Income Tax Withholding Tables Tips, Tips treated as supplemental wages. How to file state taxes Wage bracket method, Wage Bracket Method Z Zero wage return, Paying Wages, Pensions, or Annuities Prev  Up     Home   More Online Publications
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Law Enforcement Assistance Pilot Program on Identity Theft Activity Involving the IRS

As part of its comprehensive identity theft strategy, the IRS is expanding the law enforcement assistance pilot program designed to help law enforcement obtain tax return data vital to their local efforts in investigating and prosecuting specific cases of identity theft. In addition to the initial State of Florida, this pilot program is expanding to work with law enforcement in eight additional states: Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas.

The IRS launched the initial pilot in Florida in April of 2012.  Over 750 waiver requests have been received through October from roughly 50 state and local law enforcement agencies in Florida participating in the pilot. 

Under the pilot program, state and local law enforcement officials with evidence of identity theft involving fraudulently filed federal tax returns will be able to have identity theft victims complete a special IRS disclosure form. Taxpayers must give their permission for the IRS to provide law enforcement with the returns submitted using their Social Security number. Law enforcement officials will need to contact the identity theft victims in order to request and secure the victims' consent for disclosure of the records. In certain instances, the IRS will assist law enforcement in locating taxpayers and soliciting their consent.

Law enforcement would then submit a disclosure authorization form, which the IRS created solely for use by victims of identity theft for this pilot program, to the Criminal Investigation (CI) Division of the IRS, along with a copy of the police report and the IRS Identity Theft Affidavit if available. It is important that identity theft victims still submit the original copy of the IRS Identity Theft Affidavit to the IRS according to the instructions on the back of the form that fit their specific circumstances.

Federal law imposes restrictions on sharing of taxpayer information, including information that can be shared with state and local law enforcement.  This program allows taxpayers the option to permit information to be shared with state and local law enforcement specifically to assist law enforcement officials with their efforts in pursuing identity theft perpetrators.  During this expanded pilot program, the IRS will process the disclosure forms received and forward the documentation to the law enforcement officer who requested the documents. The documents will not be sent directly to the taxpayer. However, the IRS will continue to work directly with taxpayers to resolve their tax accounts as quickly as possible.

Law enforcement in the nine states in this pilot program who are interested in working with the IRS should contact their local IRS Criminal Investigation field office.

Following the pilot, the IRS will carefully assess the results and performance before deciding on how to proceed with the program.

The IRS comprehensive identity theft strategy comprises a dual effort, focusing both on fraud prevention and victim assistance. On the prevention side, this includes implementing new processes for handling returns, new filters to detect fraud, new initiatives to partner with stakeholders and a continued commitment to investigate the criminals who perpetrate these crimes. As for victim assistance, the IRS is working to accelerate case resolution, provide more training for our employees who assist victims of identity theft, and increase outreach to and education of taxpayers so they can prevent and resolve tax-related identity theft issues quickly.

Taxpayers looking for additional information can consult the Taxpayer Guide to Identity Theft or the IRS Identity Theft Protection page on the IRS website.

Page Last Reviewed or Updated: 06-Dec-2013

The How To File State Taxes

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