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Military Discount

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Military Discount

Military discount 5. Military discount   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Military discount Short-term lease. Military discount Retail space. Military discount Qualified long-term real property. Military discount Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Military discount If there is a connection between any income you receive and your business, the income is business income. Military discount A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Military discount You can have business income even if you are not involved in the activity on a regular full-time basis. Military discount Income from work you do on the side in addition to your regular job can be business income. Military discount You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Military discount But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Military discount For information on selling business assets, see chapter 3. Military discount Nonemployee compensation. Military discount Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Military discount This includes amounts reported as nonemployee compensation in box 7 of the form. Military discount You can find more information in the instructions on the back of the Form 1099-MISC you received. Military discount Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Military discount In most cases, your business income will be in the form of cash, checks, and credit card charges. Military discount But business income can be in other forms, such as property or services. Military discount These and other types of income are explained next. Military discount If you are a U. Military discount S. Military discount citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Military discount S. Military discount law. Military discount If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Military discount For details, see Publication 54, Tax Guide for U. Military discount S. Military discount Citizens and Resident Aliens Abroad. Military discount Bartering for Property or Services Bartering is an exchange of property or services. Military discount You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Military discount If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Military discount Example 1. Military discount You are a self-employed lawyer. Military discount You perform legal services for a client, a small corporation. Military discount In payment for your services, you receive shares of stock in the corporation. Military discount You must include the fair market value of the shares in income. Military discount Example 2. Military discount You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Military discount You must include the fair rental value of the apartment in your gross receipts. Military discount Your landlord must include the fair market value of the work of art in his or her rental income. Military discount Example 3. Military discount You are a self-employed accountant. Military discount Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Military discount Members get in touch with other members directly and bargain for the value of the services to be performed. Military discount In return for accounting services you provided for the house painter's business, the house painter painted your home. Military discount You must include in gross receipts the fair market value of the services you received from the house painter. Military discount The house painter must include the fair market value of your accounting services in his or her gross receipts. Military discount Example 4. Military discount You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Military discount As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Military discount You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Military discount The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Military discount It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Military discount See Publication 15 (Circular E), Employer's Tax Guide. Military discount Example 5. Military discount You operate a plumbing business and use the cash method of accounting. Military discount You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Military discount Each member has access to a directory that lists the members of the club and the services available. Military discount Members contact each other directly and request services to be performed. Military discount You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Military discount You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Military discount Information returns. Military discount   If you are involved in a bartering transaction, you may have to file either of the following forms. Military discount Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Military discount Form 1099-MISC, Miscellaneous Income. Military discount For information about these forms, see the General Instructions for Certain Information Returns. Military discount Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Military discount , who provides services (maid services, etc. Military discount ) for guests, report the rental income and expenses on Schedule C or C-EZ. Military discount If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Military discount For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Military discount Real estate dealer. Military discount   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Military discount Rent you receive from real estate held for sale to customers is subject to SE tax. Military discount However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Military discount Trailer park owner. Military discount   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Military discount    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Military discount Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Military discount   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Military discount   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Military discount Hotels, boarding houses, and apartments. Military discount   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Military discount   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Military discount An example of a service that is not normally provided for the convenience of the occupants is maid service. Military discount However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Military discount Prepaid rent. Military discount   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Military discount This is true no matter what accounting method or period you use. Military discount Lease bonus. Military discount   A bonus you receive from a lessee for granting a lease is an addition to the rent. Military discount Include it in your gross receipts in the year received. Military discount Lease cancellation payments. Military discount   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Military discount Payments to third parties. Military discount   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Military discount A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Military discount Settlement payments. Military discount   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Military discount Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Military discount ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Military discount Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Military discount If you receive any of those payments, include them in your gross receipts as explained in that discussion. Military discount Interest and Dividend Income Interest and dividends may be considered business income. Military discount Interest. Military discount   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Military discount Interest received on loans is business income if you are in the business of lending money. Military discount Uncollectible loans. Military discount   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Military discount If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Military discount See Bad Debts in chapter 8. Military discount Unstated interest. Military discount   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Military discount See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Military discount Dividends. Military discount   Generally, dividends are business income to dealers in securities. Military discount For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Military discount If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Military discount   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Military discount To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Military discount Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Military discount General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Military discount Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Military discount If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Military discount Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Military discount Price reduced after purchase. Military discount   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Military discount Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Military discount Deductible debt. Military discount   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Military discount Example. Military discount You get accounting services for your business on credit. Military discount Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Military discount Your accountant forgives part of the amount you owe for the accounting services. Military discount How you treat the canceled debt depends on your method of accounting. Military discount Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Military discount Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Military discount   For information on the cash and accrual methods of accounting, see chapter 2. Military discount Exclusions Do not include canceled debt in income in the following situations. Military discount However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Military discount For more information, see Form 982. Military discount The cancellation takes place in a bankruptcy case under title 11 of the U. Military discount S. Military discount Code (relating to bankruptcy). Military discount See Publication 908, Bankruptcy Tax Guide. Military discount The cancellation takes place when you are insolvent. Military discount You can exclude the canceled debt to the extent you are insolvent. Military discount See Publication 908. Military discount The canceled debt is a qualified farm debt owed to a qualified person. Military discount See chapter 3 in Publication 225, Farmer's Tax Guide. Military discount The canceled debt is a qualified real property business debt. Military discount This situation is explained later. Military discount The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Military discount See Form 982. Military discount If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Military discount If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Military discount Debt. Military discount   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Military discount Qualified real property business debt. Military discount   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Military discount If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Military discount Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Military discount However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Military discount Cancellation of qualified real property business debt. Military discount   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Military discount It was incurred or assumed in connection with real property used in a trade or business. Military discount It was secured by such real property. Military discount It was incurred or assumed at either of the following times. Military discount Before January 1, 1993. Military discount After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Military discount It is debt to which you choose to apply these rules. Military discount   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Military discount   You cannot exclude more than either of the following amounts. Military discount The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Military discount The total adjusted bases of depreciable real property held by you immediately before the cancellation. Military discount These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Military discount Do not take into account depreciable real property acquired in contemplation of the cancellation. Military discount Election. Military discount   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Military discount You must file your return by the due date (including extensions). Military discount 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). Military discount For more information, see When To File in the form instructions. Military discount Other Income The following discussion explains how to treat other types of business income you may receive. Military discount Restricted property. Military discount   Restricted property is property that has certain restrictions that affect its value. Military discount If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Military discount However, you can choose to be taxed in the year you receive the property. Military discount For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Military discount Gains and losses. Military discount   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Military discount Instead, you must report these gains and losses on other forms. Military discount For more information, see chapter 3. Military discount Promissory notes. Military discount   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Military discount In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Military discount Lost income payments. Military discount   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Military discount Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Military discount Damages. Military discount   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Military discount Patent infringement. Military discount Breach of contract or fiduciary duty. Military discount Antitrust injury. Military discount Economic injury. Military discount   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Military discount Your deduction is the smaller of the following amounts. Military discount The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Military discount Your loss from the injury that you have not yet deducted. Military discount Punitive damages. Military discount   You must also include punitive damages in income. Military discount Kickbacks. Military discount   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Military discount However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Military discount Recovery of items previously deducted. Military discount   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Military discount However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Military discount If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Military discount Example. Military discount Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Military discount He also had 2 personal exemptions for a total of $7,800. Military discount He would not pay income tax even if he did not deduct the bad debt. Military discount Therefore, he will not report as income any part of the $300 he may recover in any future year. Military discount Exception for depreciation. Military discount   This rule does not apply to depreciation. Military discount You recover depreciation using the rules explained next. Military discount Recapture of depreciation. Military discount   In the following situations, you have to recapture the depreciation deduction. Military discount This means you include in income part or all of the depreciation you deducted in previous years. Military discount Listed property. Military discount   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Military discount You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Military discount Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Military discount For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Military discount That chapter explains how to determine whether property is used more than 50% in your business. Military discount Section 179 property. Military discount   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Military discount You do this by including in income on Schedule C part of the deduction you took. Military discount Use Part IV of Form 4797 to figure the amount to include on Schedule C. Military discount See chapter 2 in Publication 946 to find out when you recapture the deduction. Military discount Sale or exchange of depreciable property. Military discount   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Military discount You figure the income due to depreciation recapture in Part III of Form 4797. Military discount For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Military discount Items That Are Not Income In some cases the property or money you receive is not income. Military discount Appreciation. Military discount   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Military discount Consignments. Military discount   Consignments of merchandise to others to sell for you are not sales. Military discount The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Military discount Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Military discount Merchandise you have shipped out on consignment is included in your inventory until it is sold. Military discount   Do not include merchandise you receive on consignment in your inventory. Military discount Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Military discount Construction allowances. Military discount   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Military discount Under a short-term lease of retail space. Military discount For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Military discount Amount you can exclude. Military discount   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Military discount Short-term lease. Military discount   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Military discount The following rules apply in determining whether the lease is for 15 years or less. Military discount Take into account options to renew when figuring whether the lease is for 15 years or less. Military discount But do not take into account any option to renew at fair market value determined at the time of renewal. Military discount Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Military discount Retail space. Military discount   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Military discount Qualified long-term real property. Military discount   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Military discount Exchange of like-kind property. Military discount   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Military discount This means that the gain is not taxable and the loss is not deductible. Military discount A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Military discount For more information, see Form 8824. Military discount Leasehold improvements. Military discount   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Military discount However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Military discount Loans. Military discount   Money borrowed through a bona fide loan is not income. Military discount Sales tax. Military discount   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Military discount Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Military discount Direct seller. Military discount   You must report all income you receive as a direct seller on Schedule C or C-EZ. Military discount This includes any of the following. Military discount Income from sales—payments you receive from customers for products they buy from you. Military discount Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Military discount Prizes, awards, and gifts you receive from your selling business. Military discount You must report this income regardless of whether it is reported to you on an information return. Military discount   You are a direct seller if you meet all the following conditions. Military discount You are engaged in one of the following trades or businesses. Military discount Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Military discount Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Military discount Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Military discount Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Military discount Executor or administrator. Military discount   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Military discount A nonprofessional fiduciary (personal representative) and both of the following apply. Military discount The estate includes an active trade or business in which you actively participate. Military discount Your fees are related to the operation of that trade or business. Military discount A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Military discount    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Military discount Fishing crew member. Military discount    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Military discount Insurance agent, former. Military discount   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Military discount You received payments after your agreement to perform services for the company ended. Military discount You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Military discount You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Military discount The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Military discount The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Military discount Insurance agent, retired. Military discount   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Military discount Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Military discount   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Military discount Newspaper carrier or distributor. Military discount   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Military discount You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Military discount Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Military discount You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Military discount   This rule applies whether or not you hire others to help you make deliveries. Military discount It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Military discount Newspaper or magazine vendor. Military discount   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Military discount You sell newspapers or magazines to ultimate consumers. Military discount You sell them at a fixed price. Military discount Your earnings are based on the difference between the sales price and your cost of goods sold. Military discount   This rule applies whether or not you are guaranteed a minimum amount of earnings. Military discount It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Military discount Notary public. Military discount   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Military discount These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Military discount Public official. Military discount   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Military discount This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Military discount Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Military discount   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Military discount Real estate agent or direct seller. Military discount   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Military discount Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Military discount You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Military discount Securities dealer. Military discount   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Military discount For more information, see sections 1256 and 1402(i). Military discount Securities trader. Military discount   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Military discount As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Military discount However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Military discount For more information about securities traders, see Publication 550, Investment Income and Expenses. Military discount Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Military discount This section discusses some of the more common differences that may affect business transactions. Military discount Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Military discount If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Military discount Dealers in real estate are not allowed to use inventories. Military discount For more information on inventories, see chapter 2. Military discount Income paid to a third party. Military discount   All income you earn is taxable to you. Military discount You cannot avoid tax by having the income paid to a third party. Military discount Example. Military discount You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Military discount The amount paid to your son is gross income to you. Military discount Cash discounts. Military discount   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Military discount For income tax purposes, you can use either of the following two methods to account for cash discounts. Military discount Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Military discount Credit the cash discount to a discount income account. Military discount You must use the chosen method every year for all your purchase discounts. Military discount   If you use the second method, the credit balance in the account at the end of your tax year is business income. Military discount Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Military discount When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Military discount Trade discounts. Military discount   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Military discount Do not enter these discounts on your books of account. Military discount Instead, use only the net amount as the cost of the merchandise purchased. Military discount For more information, see Trade discounts in chapter 6. Military discount Payment placed in escrow. Military discount   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Military discount However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Military discount Sales returns and allowances. Military discount   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Military discount Advance payments. Military discount   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Military discount Insurance proceeds. Military discount   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Military discount You cannot deduct the reimbursed part of a casualty or theft loss. Military discount   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Military discount Prev  Up  Next   Home   More Online Publications
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Military discount 8. Military discount   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Military discount Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Military discount It is similar to the straight line method of depreciation. Military discount The various amortizable costs covered in this chapter are included in the list below. Military discount However, this chapter does not discuss amortization of bond premium. Military discount For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Military discount Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Military discount How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Military discount To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Military discount For example, in 2012, you began to amortize a lease. Military discount In 2013, you began to amortize a second lease. Military discount Report amortization from the new lease on line 42 of your 2013 Form 4562. Military discount Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Military discount If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Military discount Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Military discount Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Military discount Generally, you recover costs for particular assets through depreciation deductions. Military discount However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Military discount For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Military discount For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Military discount The costs that are not deducted currently can be amortized ratably over a 180-month period. Military discount The amortization period starts with the month you begin operating your active trade or business. Military discount You are not required to attach a statement to make this election. Military discount You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Military discount Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Military discount See Regulations sections 1. Military discount 195-1, 1. Military discount 248-1, and 1. Military discount 709-1. Military discount For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Military discount Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Military discount If the election is made, you must attach any statement required by Regulations sections 1. Military discount 195-1(b), 1. Military discount 248-1(c), and 1. Military discount 709-1(c), as in effect before September 9, 2008. Military discount Note. Military discount You can apply the provisions of Regulations sections 1. Military discount 195-1, 1. Military discount 248-1, and 1. Military discount 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Military discount Otherwise, the provisions under Regulations sections 1. Military discount 195-1(b), 1. Military discount 248-1(c), and 1. Military discount 709-1(c), as in effect before September 9, 2008, will apply. Military discount For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Military discount See How To Make the Election , later. Military discount The cost must qualify as one of the following. Military discount A business start-up cost. Military discount An organizational cost for a corporation. Military discount An organizational cost for a partnership. Military discount Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Military discount Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Military discount Qualifying costs. Military discount   A start-up cost is amortizable if it meets both of the following tests. Military discount It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Military discount It is a cost you pay or incur before the day your active trade or business begins. Military discount   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Military discount Advertisements for the opening of the business. Military discount Salaries and wages for employees who are being trained and their instructors. Military discount Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Military discount Salaries and fees for executives and consultants, or for similar professional services. Military discount Nonqualifying costs. Military discount   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Military discount See Research and Experimental Costs , later. Military discount Purchasing an active trade or business. Military discount   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Military discount These are costs that help you decide whether to purchase a business. Military discount Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Military discount Example. Military discount On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Military discount They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Military discount In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Military discount The letter stated that a binding commitment would result only after a purchase agreement was signed. Military discount The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Military discount On October 22nd, you signed a purchase agreement with XYZ, Inc. Military discount All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Military discount Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Military discount Disposition of business. Military discount   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Military discount However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Military discount Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Military discount Qualifying costs. Military discount   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Military discount   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Military discount   Examples of organizational costs include: The cost of temporary directors. Military discount The cost of organizational meetings. Military discount State incorporation fees. Military discount The cost of legal services. Military discount Nonqualifying costs. Military discount   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Military discount Costs associated with the transfer of assets to the corporation. Military discount Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Military discount Qualifying costs. Military discount   A partnership can amortize an organizational cost only if it meets all the following tests. Military discount It is for the creation of the partnership and not for starting or operating the partnership trade or business. Military discount It is chargeable to a capital account (see chapter 1). Military discount It could be amortized over the life of the partnership if the partnership had a fixed life. Military discount It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Military discount However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Military discount It is for a type of item normally expected to benefit the partnership throughout its entire life. Military discount   Organizational costs include the following fees. Military discount Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Military discount Accounting fees for services incident to the organization of the partnership. Military discount Filing fees. Military discount Nonqualifying costs. Military discount   The following costs cannot be amortized. Military discount The cost of acquiring assets for the partnership or transferring assets to the partnership. Military discount The cost of admitting or removing partners, other than at the time the partnership is first organized. Military discount The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Military discount The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Military discount These “syndication fees” are capital expenses that cannot be depreciated or amortized. Military discount Liquidation of partnership. Military discount   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Military discount However, these costs can be deducted only to the extent they qualify as a loss from a business. Military discount How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Military discount You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Military discount Once you choose an amortization period, you cannot change it. Military discount To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Military discount The result is the amount you can deduct for each month. Military discount Cash method partnership. Military discount   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Military discount However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Military discount How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Military discount You may also be required to attach an accompanying statement (described later) to your return. Military discount For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Military discount Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Military discount 195-1, 1. Military discount 248-1, and 1. Military discount 709-1, you must also attach an accompanying statement to elect to amortize the costs. Military discount If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Military discount See Starting a Business , earlier, for more information. Military discount Generally, you must file the return by the due date (including any extensions). Military discount 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). Military discount For more information, see the instructions for Part VI of Form 4562. Military discount You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Military discount Note. Military discount The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Military discount If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Military discount A shareholder or partner cannot make this election. Military discount You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Military discount Only the corporation or partnership can amortize these costs. Military discount However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Military discount These costs qualify as business start-up costs if you acquire the partnership interest. Military discount Start-up costs election statement. Military discount   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Military discount A description of the business to which the start-up costs relate. Military discount A description of each start-up cost incurred. Military discount The month your active business began (or was acquired). Military discount The number of months in your amortization period (which is generally 180 months). Military discount Filing the statement early. Military discount   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Military discount If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Military discount Revised statement. Military discount   You can file a revised statement to include any start-up costs not included in your original statement. Military discount However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Military discount You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Military discount Organizational costs election statement. Military discount   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Military discount A description of each cost. Military discount The amount of each cost. Military discount The date each cost was incurred. Military discount The month your corporation or partnership began active business (or acquired the business). Military discount The number of months in your amortization period (which is generally 180 months). Military discount Partnerships. Military discount   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Military discount   You do not need to separately list any partnership organizational cost that is less than $10. Military discount Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Military discount   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Military discount Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Military discount The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Military discount However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Military discount For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Military discount How to amortize. Military discount   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Military discount Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Military discount You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Military discount You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Military discount See Anti-Churning Rules, later. Military discount Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Military discount The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Military discount You cannot deduct amortization for the month you dispose of the intangible. Military discount If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Military discount You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Military discount Tax-exempt use property subject to a lease. Military discount   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Military discount Cost attributable to other property. Military discount   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Military discount For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Military discount Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Military discount Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Military discount You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Military discount Goodwill. Military discount   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Military discount Going concern value. Military discount   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Military discount It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Military discount It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Military discount Workforce in place, etc. Military discount   This includes the composition of a workforce (for example, its experience, education, or training). Military discount It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Military discount   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Military discount Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Military discount Business books and records, etc. Military discount   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Military discount It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Military discount Patents, copyrights, etc. Military discount   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Military discount Customer-based intangible. Military discount   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Military discount For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Military discount A customer base. Military discount A circulation base. Military discount An undeveloped market or market growth. Military discount Insurance in force. Military discount A mortgage servicing contract. Military discount An investment management contract. Military discount Any other relationship with customers involving the future provision of goods or services. Military discount   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Military discount Supplier-based intangible. Military discount   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Military discount The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Military discount Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Military discount Also, see Assets That Are Not Section 197 Intangibles below. Military discount Government-granted license, permit, etc. Military discount   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Military discount For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Military discount Covenant not to compete. Military discount   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Military discount An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Military discount   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Military discount Franchise, trademark, or trade name. Military discount   A franchise, trademark, or trade name is a section 197 intangible. Military discount You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Military discount For information on currently deductible contingent payments, see chapter 11. Military discount Professional sports franchise. Military discount   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Military discount Contract for the use of, or a term interest in, a section 197 intangible. Military discount   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Military discount It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Military discount Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Military discount Any interest in a corporation, partnership, trust, or estate. Military discount Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Military discount Any interest in land. Military discount Most computer software. Military discount (See Computer software , later. Military discount ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Military discount An interest in a film, sound recording, video tape, book, or similar property. Military discount A right to receive tangible property or services under a contract or from a governmental agency. Military discount An interest in a patent or copyright. Military discount Certain rights that have a fixed duration or amount. Military discount (See Rights of fixed duration or amount , later. Military discount ) An interest under either of the following. Military discount An existing lease or sublease of tangible property. Military discount A debt that was in existence when the interest was acquired. Military discount A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Military discount Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Military discount Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Military discount You generally must use the straight line method over its useful life. Military discount For certain intangibles, the depreciation period is specified in the law and regulations. Military discount For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Military discount For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Military discount Computer software. Military discount   Section 197 intangibles do not include the following types of computer software. Military discount Software that meets all the following requirements. Military discount It is, or has been, readily available for purchase by the general public. Military discount It is subject to a nonexclusive license. Military discount It has not been substantially modified. Military discount This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Military discount Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Military discount Computer software defined. Military discount   Computer software includes all programs designed to cause a computer to perform a desired function. Military discount It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Military discount Rights of fixed duration or amount. Military discount   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Military discount However, this does not apply to the following intangibles. Military discount Goodwill. Military discount Going concern value. Military discount A covenant not to compete. Military discount A franchise, trademark, or trade name. Military discount A customer-related information base, customer-based intangible, or similar item. Military discount Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Military discount You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Military discount If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Military discount Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Military discount Amortize these costs using the rules of Revenue Procedure 2004-36. Military discount For more information, see Revenue Procedure 2004-36, 2004-24 I. Military discount R. Military discount B. Military discount 1063, available at  www. Military discount irs. Military discount gov/irb/2004-24_IRB/ar16. Military discount html. Military discount A change in the treatment of creative property costs is a change in method of accounting. Military discount Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Military discount These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Military discount Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Military discount You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Military discount You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Military discount You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Military discount This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Military discount See Related person , later, for more information. Military discount Exceptions. Military discount   The anti-churning rules do not apply in the following situations. Military discount You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Military discount The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Military discount This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Military discount The gain-recognition exception, discussed later, applies. Military discount Related person. Military discount   For purposes of the anti-churning rules, the following are related persons. Military discount An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Military discount ), and lineal descendants (children, grandchildren, etc. Military discount ). Military discount A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Military discount Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Military discount (For an exception, see section 1. Military discount 197-2(h)(6)(iv) of the regulations. Military discount ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Military discount The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Military discount The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Military discount The executor and beneficiary of an estate. Military discount A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Military discount A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Military discount Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Military discount Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Military discount A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Military discount Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Military discount When to determine relationship. Military discount   Persons are treated as related if the relationship existed at the following time. Military discount In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Military discount In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Military discount Ownership of stock. Military discount   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Military discount Rule 1. Military discount   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Military discount Rule 2. Military discount   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Military discount Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Military discount Rule 3. Military discount   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Military discount Rule 4. Military discount   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Military discount Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Military discount Gain-recognition exception. Military discount   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Military discount That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Military discount That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Military discount See chapter 2 in Publication 544 for information on making this choice. Military discount   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Military discount Notification. Military discount   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Military discount Anti-abuse rule. Military discount   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Military discount To avoid the requirement that the intangible be acquired after August 10, 1993. Military discount To avoid any of the anti-churning rules. Military discount More information. Military discount   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Military discount 197-2(h). Military discount Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Military discount See Amended Return , next. Military discount If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Military discount See Changing Your Accounting Method , later. Military discount Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Military discount A mathematical error made in any year. Military discount A posting error made in any year. Military discount An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Military discount When to file. Military discount   If an amended return is allowed, you must file it by the later of the following dates. Military discount 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Military discount (A return filed early is considered filed on the due date. Military discount ) 2 years from the time you paid your tax for that year. Military discount Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Military discount File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Military discount The following are examples of a change in method of accounting for amortization. Military discount A change in the amortization method, period of recovery, or convention of an amortizable asset. Military discount A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Military discount A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Military discount Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Military discount An adjustment in the useful life of an amortizable asset. Military discount Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Military discount Any change in the placed-in-service date of an amortizable asset. Military discount See Regulations section 1. Military discount 446-1(e)(2)(ii)(a) for more information and examples. Military discount Automatic approval. Military discount   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Military discount For a list of automatic accounting method changes, see the Instructions for Form 3115. Military discount Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Military discount For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Military discount See Revenue Procedure 2006-12, 2006-3 I. Military discount R. Military discount B. Military discount 310, available at  www. Military discount irs. Military discount gov/irb/2006-03_IRB/ar14. Military discount html. Military discount  See Revenue Procedure 2006-37, 2006-38 I. Military discount R. Military discount B. Military discount 499, available at  www. Military discount irs. Military discount gov/irb/2006-38_IRB/ar10. Military discount html. Military discount  See Revenue Procedure 2008-52, 2008-36 I. Military discount R. Military discount B. Military discount 587, available at www. Military discount irs. Military discount gov/irb/2008-36_IRB/ar09. Military discount html. Military discount  See Revenue Procedure 2009-39, 2009-38 I. Military discount R. Military discount B. Military discount 371, available at  www. Military discount irs. Military discount gov/irb/2009-38_IRB/ar08. Military discount html. Military discount  See Revenue Procedure 2011-14, 2011-4 I. Military discount R. Military discount B. Military discount 330, available at  www. Military discount irs. Military discount gov/irb/2011-04_IRB/ar08. Military discount html. Military discount  See Revenue Procedure 2011-22, 2011-18 I. Military discount R. Military discount B. Military discount 737, available at  www. Military discount irs. Military discount gov/irb/2011-18_IRB/ar08. Military discount html. Military discount Also, see Revenue Procedure 2012-39, 2012-41 I. Military discount R. Military discount B. Military discount 470 available at www. Military discount irs. Military discount gov/irb/2012-41_IRB/index. Military discount html. Military discount Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Military discount If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Military discount If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Military discount Any remaining gain, or any loss, is a section 1231 gain or loss. Military discount If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Military discount For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Military discount Nondeductible loss. Military discount   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Military discount Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Military discount Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Military discount The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Military discount The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Military discount Covenant not to compete. Military discount   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Military discount Nonrecognition transfers. Military discount   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Military discount You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Military discount Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Military discount   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Military discount Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Military discount Example. Military discount You own a section 197 intangible you have amortized for 4 full years. Military discount It has a remaining unamortized basis of $30,000. Military discount You exchange the asset plus $10,000 for a like-kind section 197 intangible. Military discount The nonrecognition provisions of like-kind exchanges apply. Military discount You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Military discount You amortize the other $10,000 of adjusted basis over a new 15-year period. Military discount For more information, see Regulations section 1. Military discount 197-2(g). Military discount Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Military discount See Reforestation Costs in chapter 7. Military discount You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Military discount There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Military discount The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Military discount A partner, shareholder, or beneficiary cannot make that election. Military discount A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Military discount , of a partnership or S corporation. Military discount The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Military discount Qualifying costs. Military discount   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Military discount Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Military discount They include costs for the following items. Military discount Site preparation. Military discount Seeds or seedlings. Military discount Labor. Military discount Tools. Military discount Depreciation on equipment used in planting and seeding. Military discount Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Military discount Qualified timber property. Military discount   Qualified timber property is property that contains trees in significant commercial quantities. Military discount It can be a woodlot or other site that you own or lease. Military discount The property qualifies only if it meets all of the following requirements. Military discount It is located in the United States. Military discount It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Military discount It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Military discount Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Military discount Amortization period. Military discount   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Military discount You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Military discount Life tenant and remainderman. Military discount   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Military discount Any remainder interest in the property is ignored for amortization purposes. Military discount Recapture. Military discount   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Military discount See chapter 3 of Publication 544 for more information. Military discount How to make the election. Military discount   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Military discount A description of the costs and the dates you incurred them. Military discount A description of the type of timber being grown and the purpose for which it is grown. Military discount Attach a separate statement for each property for which you amortize reforestation costs. Military discount   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Military discount 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). Military discount Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Military discount 9100-2” on Form 4562. Military discount File the amended return at the same address you filed the original return. Military discount Revoking the election. Military discount   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Military discount Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Military discount Please provide your daytime telephone number (optional), in case we need to contact you. Military discount You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Military discount    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Military discount NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Military discount These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Military discount For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Military discount If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Military discount Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Military discount However, see Atmospheric pollution control facilities for an exception. Military discount The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Military discount Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Military discount You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Military discount See chapter 3 of Publication 946. Military discount A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Military discount The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Military discount The facility must be certified by state and federal certifying authorities. Military discount The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Military discount Also, it must not significantly change the nature of the manufacturing or production process or facility. Military discount The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Military discount The federal certifying authority will describe the nature of the potential cost recovery. Military discount You must then reduce the amortizable basis of the facility by this potential recovery. Military discount New identifiable treatment facility. Military discount   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Military discount It does not include a building and its structural components unless the building is exclusively a treatment facility. Military discount Atmospheric pollution control facilities. Military discount   Certain atmospheric pollution control facilities can be amortized over 84 months. Military discount To qualify, the following must apply. Military discount The facility must be acquired and placed in service after April 11, 2005. Military discount If acquired, the original use must begin with you after April 11, 2005. Military discount The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Military discount If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Military discount Basis reduction for corporations. Military discount   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Military discount More information. Military discount   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Military discount Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Military discount If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Military discount The amortization period begins the month you first receive an economic benefit from the costs. Military discount For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Military discount Optional write-off method. Military discount   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Military discount For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Military discount Costs you can amortize. Military discount   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Military discount You paid or incurred the costs in your trade or business. Military discount You are not deducting the costs currently. Military discount How to make the election. Military discount   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Military discount Generally, you must file the return by the due date (including extensions). Military discount 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). Military discount Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Military discount 9100-2” on Form 4562. Military discount File the amended return at the same address you filed the original return. Military discount   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Military discount Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Military discount If you make this election, there is no AMT adjustment. Military discount The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Military discount How to make the election. Military discount   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Military discount   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Military discount 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). Military discount Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Military discount 9100-2” on Form 4562. Military discount File the amended return at the same address you filed the original return. Military discount Revoking the election. Military discount   You must obtain consent from the IRS to revoke your election. Military discount Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Military discount The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Military discount If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Military discount Prev  Up  Next   Home   More Online Publications