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State Tax Forms And Instructions

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State Tax Forms And Instructions

State tax forms and instructions 5. State tax forms and instructions   How To Get Tax Help Table of Contents Low Income Taxpayer Clinics Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. State tax forms and instructions Free help with your tax return. State tax forms and instructions   You can get free help preparing your return nationwide from IRS-certified volunteers. State tax forms and instructions The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. State tax forms and instructions The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. State tax forms and instructions Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. State tax forms and instructions In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. State tax forms and instructions To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. State tax forms and instructions gov, download the IRS2Go app, or call 1-800-906-9887. State tax forms and instructions   As part of the TCE program, AARP offers the Tax-Aide counseling program. State tax forms and instructions To find the nearest AARP Tax-Aide site, visit AARP's website at www. State tax forms and instructions aarp. State tax forms and instructions org/money/taxaide or call 1-888-227-7669. State tax forms and instructions For more information on these programs, go to IRS. State tax forms and instructions gov and enter “VITA” in the search box. State tax forms and instructions Internet. State tax forms and instructions    IRS. State tax forms and instructions gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. State tax forms and instructions Download the free IRS2Go app from the iTunes app store or from Google Play. State tax forms and instructions Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. State tax forms and instructions Check the status of your 2013 refund with the Where's My Refund? application on IRS. State tax forms and instructions gov or download the IRS2Go app and select the Refund Status option. State tax forms and instructions The IRS issues more than 9 out of 10 refunds in less than 21 days. State tax forms and instructions Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. State tax forms and instructions You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. State tax forms and instructions The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. State tax forms and instructions Use the Interactive Tax Assistant (ITA) to research your tax questions. State tax forms and instructions No need to wait on the phone or stand in line. State tax forms and instructions The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. State tax forms and instructions When you reach the response screen, you can print the entire interview and the final response for your records. State tax forms and instructions New subject areas are added on a regular basis. State tax forms and instructions  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. State tax forms and instructions gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. State tax forms and instructions You can use the IRS Tax Map, to search publications and instructions by topic or keyword. State tax forms and instructions The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. State tax forms and instructions When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. State tax forms and instructions Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. State tax forms and instructions You can also ask the IRS to mail a return or an account transcript to you. State tax forms and instructions Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. State tax forms and instructions gov or by calling 1-800-908-9946. State tax forms and instructions Tax return and tax account transcripts are generally available for the current year and the past three years. State tax forms and instructions Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. State tax forms and instructions Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. State tax forms and instructions If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. State tax forms and instructions Check the status of your amended return using Where's My Amended Return? Go to IRS. State tax forms and instructions gov and enter Where's My Amended Return? in the search box. State tax forms and instructions You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. State tax forms and instructions It can take up to 3 weeks from the date you mailed it to show up in our system. State tax forms and instructions Make a payment using one of several safe and convenient electronic payment options available on IRS. State tax forms and instructions gov. State tax forms and instructions Select the Payment tab on the front page of IRS. State tax forms and instructions gov for more information. State tax forms and instructions Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. State tax forms and instructions Figure your income tax withholding with the IRS Withholding Calculator on IRS. State tax forms and instructions gov. State tax forms and instructions Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. State tax forms and instructions Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. State tax forms and instructions gov. State tax forms and instructions Request an Electronic Filing PIN by going to IRS. State tax forms and instructions gov and entering Electronic Filing PIN in the search box. State tax forms and instructions Download forms, instructions and publications, including accessible versions for people with disabilities. State tax forms and instructions Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. State tax forms and instructions gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. State tax forms and instructions An employee can answer questions about your tax account or help you set up a payment plan. State tax forms and instructions Before you visit, check the Office Locator on IRS. State tax forms and instructions gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. State tax forms and instructions If you have a special need, such as a disability, you can request an appointment. State tax forms and instructions Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. State tax forms and instructions Apply for an Employer Identification Number (EIN). State tax forms and instructions Go to IRS. State tax forms and instructions gov and enter Apply for an EIN in the search box. State tax forms and instructions Read the Internal Revenue Code, regulations, or other official guidance. State tax forms and instructions Read Internal Revenue Bulletins. State tax forms and instructions Sign up to receive local and national tax news and more by email. State tax forms and instructions Just click on “subscriptions” above the search box on IRS. State tax forms and instructions gov and choose from a variety of options. State tax forms and instructions Phone. State tax forms and instructions    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. State tax forms and instructions Download the free IRS2Go app from the iTunes app store or from Google Play. State tax forms and instructions Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. State tax forms and instructions gov, or download the IRS2Go app. State tax forms and instructions Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. State tax forms and instructions The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. State tax forms and instructions Most VITA and TCE sites offer free electronic filing. State tax forms and instructions Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. State tax forms and instructions Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. State tax forms and instructions Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. State tax forms and instructions If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. State tax forms and instructions The IRS issues more than 9 out of 10 refunds in less than 21 days. State tax forms and instructions Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. State tax forms and instructions Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. State tax forms and instructions The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. State tax forms and instructions Note, the above information is for our automated hotline. State tax forms and instructions Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. State tax forms and instructions Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. State tax forms and instructions You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. State tax forms and instructions It can take up to 3 weeks from the date you mailed it to show up in our system. State tax forms and instructions Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). State tax forms and instructions You should receive your order within 10 business days. State tax forms and instructions Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. State tax forms and instructions If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. State tax forms and instructions Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. State tax forms and instructions The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. State tax forms and instructions These individuals can also contact the IRS through relay services such as the Federal Relay Service. State tax forms and instructions Walk-in. State tax forms and instructions   You can find a selection of forms, publications and services — in-person. State tax forms and instructions Products. State tax forms and instructions You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. State tax forms and instructions Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. State tax forms and instructions Services. State tax forms and instructions You can walk in to your local TAC for face-to-face tax help. State tax forms and instructions An employee can answer questions about your tax account or help you set up a payment plan. State tax forms and instructions Before visiting, use the Office Locator tool on IRS. State tax forms and instructions gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. State tax forms and instructions Mail. State tax forms and instructions   You can send your order for forms, instructions, and publications to the address below. State tax forms and instructions You should receive a response within 10 business days after your request is received. State tax forms and instructions Internal Revenue Service 1201 N. State tax forms and instructions Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. State tax forms and instructions The Taxpayer Advocate Service (TAS) is your voice at the IRS. State tax forms and instructions Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. State tax forms and instructions   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. State tax forms and instructions We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. State tax forms and instructions You face (or your business is facing) an immediate threat of adverse action. State tax forms and instructions You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. State tax forms and instructions   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. State tax forms and instructions Here's why we can help: TAS is an independent organization within the IRS. State tax forms and instructions Our advocates know how to work with the IRS. State tax forms and instructions Our services are free and tailored to meet your needs. State tax forms and instructions We have offices in every state, the District of Columbia, and Puerto Rico. State tax forms and instructions   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. State tax forms and instructions   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. State tax forms and instructions If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. State tax forms and instructions Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. State tax forms and instructions Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. State tax forms and instructions Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. State tax forms and instructions Prev  Up  Next   Home   More Online Publications
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The State Tax Forms And Instructions

State tax forms and instructions 4. State tax forms and instructions   Farm Business Expenses Table of Contents What's New for 2013 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible ExpensesReasonable allocation. State tax forms and instructions Prepaid Farm Supplies Prepaid Livestock Feed Labor Hired Repairs and Maintenance Interest Breeding Fees Fertilizer and Lime Taxes Insurance Rent and Leasing Depreciation Business Use of Your Home Truck and Car Expenses Travel Expenses Marketing Quota Penalties Tenant House Expenses Items Purchased for Resale Other Expenses Domestic Production Activities Deduction Capital ExpensesForestation and reforestation costs. State tax forms and instructions Nondeductible ExpensesPersonal, Living, and Family Expenses Other Nondeductible Items Losses From Operating a FarmAt-Risk Limits Passive Activity Limits Excess Farm Loss Limit Not-for-Profit FarmingUsing the presumption later. State tax forms and instructions Category 1. State tax forms and instructions Category 2. State tax forms and instructions Category 3. State tax forms and instructions What's New for 2013 Standard mileage rate. State tax forms and instructions  For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. State tax forms and instructions 5 cents. State tax forms and instructions See Truck and Car Expenses , later. State tax forms and instructions Simplified method for business use of home deduction. State tax forms and instructions  The IRS now provides a simplified method to determine your expenses for business use of your home. State tax forms and instructions For more information, see Schedule C (Form 1040), Part II, and its instructions. State tax forms and instructions Introduction You can generally deduct the current costs of operating your farm. State tax forms and instructions Current costs are expenses you do not have to capitalize or include in inventory costs. State tax forms and instructions However, your deduction for the cost of livestock feed and certain other supplies may be limited. State tax forms and instructions If you have an operating loss, you may not be able to deduct all of it. State tax forms and instructions Topics - This chapter discusses: Deductible expenses Domestic production activities deduction Capital expenses Nondeductible expenses Losses from operating a farm Not-for-profit farming Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home 925 Passive Activity and At-Risk Rules 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch F (Form 1040) Profit or Loss From Farming 1045 Application for Tentative Refund 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8903 Domestic Production Activities Deduction See chapter 16 for information about getting publications and forms. State tax forms and instructions Deductible Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. State tax forms and instructions “Ordinary” means what most farmers do and “necessary” means what is useful and helpful in farming. State tax forms and instructions Schedule F, Part II, lists some common farm expenses that are typically deductible. State tax forms and instructions This chapter discusses many of these expenses, as well as others not listed on Schedule F. State tax forms and instructions Reimbursed expenses. State tax forms and instructions   If the reimbursement is received in the same year that the expense is claimed, reduce the expense by the amount of the reimbursement. State tax forms and instructions If the reimbursement is received in a year after the expense is claimed, include the reimbursement amount in income. State tax forms and instructions See Refund or reimbursement under Income From Other Sources in chapter 3. State tax forms and instructions Personal and business expenses. State tax forms and instructions   Some expenses you pay during the tax year may be part personal and part business. State tax forms and instructions These may include expenses for gasoline, oil, fuel, water, rent, electricity, telephone, automobile upkeep, repairs, insurance, interest, and taxes. State tax forms and instructions   You must allocate these mixed expenses between their business and personal parts. State tax forms and instructions Generally, the personal part of these expenses is not deductible. State tax forms and instructions The business portion of the expenses is deductible on Schedule F. State tax forms and instructions Example. State tax forms and instructions You paid $1,500 for electricity during the tax year. State tax forms and instructions You used 1/3 of the electricity for personal purposes and 2/3 for farming. State tax forms and instructions Under these circumstances, you can deduct $1,000 (2/3 of $1,500) of your electricity expense as a farm business expense. State tax forms and instructions Reasonable allocation. State tax forms and instructions   It is not always easy to determine the business and nonbusiness parts of an expense. State tax forms and instructions There is no method of allocation that applies to all mixed expenses. State tax forms and instructions Any reasonable allocation is acceptable. State tax forms and instructions What is reasonable depends on the circumstances in each case. State tax forms and instructions Prepaid Farm Supplies Prepaid farm supplies include the following items if paid for during the year. State tax forms and instructions Feed, seed, fertilizer, and similar farm supplies not used or consumed during the year, but not including farm supplies that you would have consumed during the year if not for a fire, storm, flood, other casualty, disease, or drought. State tax forms and instructions Poultry (including egg-laying hens and baby chicks) bought for use (or for both use and resale) in your farm business. State tax forms and instructions However, include only the amount that would be deductible in the following year if you had capitalized the cost and deducted it ratably over the lesser of 12 months or the useful life of the poultry. State tax forms and instructions Poultry bought for resale and not resold during the year. State tax forms and instructions Deduction limit. State tax forms and instructions   If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). State tax forms and instructions This limit does not apply if you meet one of the exceptions described later. State tax forms and instructions See Chapter 2 for a discussion of the cash method of accounting. State tax forms and instructions   If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. State tax forms and instructions The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. State tax forms and instructions The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry. State tax forms and instructions Example. State tax forms and instructions You may not qualify for the exception described next. State tax forms and instructions During 2013, you bought fertilizer ($4,000), feed ($1,000), and seed ($500) for use on your farm in the following year. State tax forms and instructions Your total prepaid farm supplies expense for 2013 is $5,500. State tax forms and instructions Your other deductible farm expenses totaled $10,000 for 2013. State tax forms and instructions Therefore, your deduction for prepaid farm supplies cannot be more than $5,000 (50% of $10,000) for 2013. State tax forms and instructions The excess prepaid farm supplies expense of $500 ($5,500 − $5,000) is deductible in a later tax year when you use or consume the supplies. State tax forms and instructions Exceptions. State tax forms and instructions   This limit on the deduction for prepaid farm supplies expense does not apply if you are a farm-related taxpayer and either of the following apply. State tax forms and instructions Your prepaid farm supplies expense is more than 50% of your other deductible farm expenses because of a change in business operations caused by unusual circumstances. State tax forms and instructions Your total prepaid farm supplies expense for the preceding 3 tax years is less than 50% of your total other deductible farm expenses for those 3 tax years. State tax forms and instructions   You are a farm-related taxpayer if any of the following tests apply. State tax forms and instructions Your main home is on a farm. State tax forms and instructions Your principal business is farming. State tax forms and instructions A member of your family meets (1) or (2). State tax forms and instructions For this purpose, your family includes your brothers and sisters, half-brothers and half-sisters, spouse, parents, grandparents, children, grandchildren, and aunts and uncles and their children. State tax forms and instructions    Whether or not the deduction limit for prepaid farm supplies applies, your expenses for prepaid livestock feed may be subject to the rules for advance payment of livestock feed, discussed next. State tax forms and instructions Prepaid Livestock Feed If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests. State tax forms and instructions The payment is for the purchase of feed rather than a deposit. State tax forms and instructions The prepayment has a business purpose and is not merely for tax avoidance. State tax forms and instructions Deducting the prepayment does not result in a material distortion of your income. State tax forms and instructions If you meet all three tests, you can deduct the prepaid feed, subject to the limit on prepaid farm supplies discussed earlier. State tax forms and instructions If you fail any of these tests, you can deduct the prepaid feed only in the year it is consumed. State tax forms and instructions This rule does not apply to the purchase of commodity futures contracts. State tax forms and instructions Payment for the purchase of feed. State tax forms and instructions   Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. State tax forms and instructions It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you are not entitled, by contract or business custom, to a refund or repurchase. State tax forms and instructions   The following are some factors that show a payment is a deposit rather than for the purchase of feed. State tax forms and instructions The absence of specific quantity terms. State tax forms and instructions The right to a refund of any unapplied payment credit at the end of the contract. State tax forms and instructions The seller's treatment of the payment as a deposit. State tax forms and instructions The right to substitute other goods or products for those specified in the contract. State tax forms and instructions   A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements will not suggest a deposit. State tax forms and instructions Further, a price adjustment to reflect market value at the date of delivery is not, by itself, proof of a deposit. State tax forms and instructions Business purpose. State tax forms and instructions   The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. State tax forms and instructions The following are some examples of business benefits. State tax forms and instructions Fixing maximum prices and securing an assured feed supply. State tax forms and instructions Securing preferential treatment in anticipation of a feed shortage. State tax forms and instructions   Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful. State tax forms and instructions No material distortion of income. State tax forms and instructions   The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income. State tax forms and instructions Your customary business practice in conducting your livestock operations. State tax forms and instructions The expense in relation to past purchases. State tax forms and instructions The time of year you made the purchase. State tax forms and instructions The expense in relation to your income for the year. State tax forms and instructions Labor Hired You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations. State tax forms and instructions You can pay wages in cash or in noncash items such as inventory, capital assets, or assets used in your business. State tax forms and instructions The cost of boarding farm labor is a deductible labor cost. State tax forms and instructions Other deductible costs you incur for farm labor include health insurance, workers' compensation insurance, and other benefits. State tax forms and instructions If you must withhold social security, Medicare, and income taxes from your employees' cash wages, you can still deduct the full amount of wages before withholding. State tax forms and instructions See chapter 13 for more information on employment taxes. State tax forms and instructions Also, deduct the employer's share of the social security and Medicare taxes you must pay on your employees' wages as a farm business expense on Schedule F, line 29. State tax forms and instructions See Taxes , later. State tax forms and instructions Property for services. State tax forms and instructions   If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. State tax forms and instructions If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property. State tax forms and instructions   Treat the wages deducted as an amount received for the property. State tax forms and instructions You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. State tax forms and instructions Any gain or loss has the same character the exchanged property had in your hands. State tax forms and instructions For more information, see chapter 8. State tax forms and instructions Child as an employee. State tax forms and instructions   You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. State tax forms and instructions Include these wages in the child's income. State tax forms and instructions The child may have to file an income tax return. State tax forms and instructions These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. State tax forms and instructions For more information, see Family Employees in chapter 13. State tax forms and instructions    A Form W-2, Wage and Tax Statement, should be issued to the child employee. State tax forms and instructions   The fact that your child spends the wages to buy clothes or other necessities you normally furnish does not prevent you from deducting your child's wages as a farm expense. State tax forms and instructions The amount of wages paid to the child could cause a loss of the dependency exemption depending on how the child uses the money. State tax forms and instructions Spouse as an employee. State tax forms and instructions   You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. State tax forms and instructions Wages you pay to your spouse are subject to social security and Medicare taxes. State tax forms and instructions For more information, see Family Employees in chapter 13. State tax forms and instructions Nondeductible Pay You cannot deduct wages paid for certain household work, construction work, and maintenance of your home. State tax forms and instructions However, those wages may be subject to the employment taxes discussed in chapter 13. State tax forms and instructions Household workers. State tax forms and instructions   Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers. State tax forms and instructions Construction labor. State tax forms and instructions   Do not deduct wages paid to hired help for the construction of new buildings or other improvements. State tax forms and instructions These wages are part of the cost of the building or other improvement. State tax forms and instructions You must capitalize them. State tax forms and instructions Maintaining your home. State tax forms and instructions   If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. State tax forms and instructions For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. State tax forms and instructions The employee devotes the remaining time to work on your farm. State tax forms and instructions You cannot deduct 5% of the wages and employment taxes you pay for that employee. State tax forms and instructions Employment Credits Reduce your deduction for wages by the amount of any employment credits you claim such as the work opportunity credit for qualified tax-exempt organizations hiring qualified veterans (Form 5884-C). State tax forms and instructions Repairs and Maintenance You can deduct most expenses for the repair and maintenance of your farm property. State tax forms and instructions Common items of repair and maintenance are repainting, replacing shingles and supports on farm buildings, and periodic or routine maintenance of trucks, tractors, and other farm machinery. State tax forms and instructions However, repairs to, or overhauls of, depreciable property that substantially prolong the life of the property, increase its value, or adapt it to a different use are capital expenses. State tax forms and instructions For example, if you repair the barn roof, the cost is deductible. State tax forms and instructions But if you replace the roof, it is a capital expense. State tax forms and instructions For more information, see Capital Expenses , later. State tax forms and instructions Interest You can deduct as a farm business expense interest paid on farm mortgages and other obligations you incur in your farm business. State tax forms and instructions Cash method. State tax forms and instructions   If you use the cash method of accounting, you can generally deduct interest paid during the tax year. State tax forms and instructions You cannot deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. State tax forms and instructions You can, however, deduct the interest when you start making payments on the new loan. State tax forms and instructions For more information, see Cash Method in chapter 2. State tax forms and instructions Prepaid interest. State tax forms and instructions   Under the cash method, you generally cannot deduct any interest paid before the year it is due. State tax forms and instructions Interest paid in advance may be deducted only in the tax year in which it is due. State tax forms and instructions Accrual method. State tax forms and instructions   If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. State tax forms and instructions However, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. State tax forms and instructions For more information, see Accrual Method in chapter 2. State tax forms and instructions Allocation of interest. State tax forms and instructions   If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. State tax forms and instructions Allocate the interest to the following categories. State tax forms and instructions Trade or business interest. State tax forms and instructions Passive activity interest. State tax forms and instructions Investment interest. State tax forms and instructions Portfolio interest. State tax forms and instructions Personal interest. State tax forms and instructions   You generally allocate interest on a loan the same way you allocate the loan proceeds. State tax forms and instructions You allocate loan proceeds by tracing disbursements to specific uses. State tax forms and instructions The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. State tax forms and instructions Secured loan. State tax forms and instructions   The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan. State tax forms and instructions Example. State tax forms and instructions You secure a loan with property used in your farming business. State tax forms and instructions You use the loan proceeds to buy a car for personal use. State tax forms and instructions You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property. State tax forms and instructions If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. State tax forms and instructions The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. State tax forms and instructions However, you can choose to treat the loan as not secured by your home. State tax forms and instructions For more information, see Publication 936. State tax forms and instructions Allocation period. State tax forms and instructions   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. State tax forms and instructions The date the loan is repaid. State tax forms and instructions The date the loan is reallocated to another use. State tax forms and instructions More information. State tax forms and instructions   For more information on interest, see chapter 4 in Publication 535. State tax forms and instructions Breeding Fees You can deduct breeding fees as a farm business expense. State tax forms and instructions However, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. State tax forms and instructions For more information on who must use an accrual method of accounting, see Accrual Method Required under Accounting Methods in chapter 2. State tax forms and instructions Fertilizer and Lime You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. State tax forms and instructions You can also deduct the cost of applying these materials in the year you pay or incur it. State tax forms and instructions However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these materials. State tax forms and instructions If the benefits of the fertilizer, lime, or other materials last substantially more than one year, you generally capitalize their cost and deduct a part each year the benefits last. State tax forms and instructions However, you can choose to deduct these expenses in the year paid or incurred. State tax forms and instructions If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. State tax forms and instructions If you sell farmland on which fertilizer or lime has been applied and if the selling price of the land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. State tax forms and instructions Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. State tax forms and instructions It does not include land you have never used previously for producing crops or sustaining livestock. State tax forms and instructions You cannot deduct initial land preparation costs. State tax forms and instructions (See Capital Expenses , later. State tax forms and instructions ) Include government payments you receive for lime or fertilizer in income. State tax forms and instructions See Fertilizer and Lime under Agricultural Program Payments in chapter 3. State tax forms and instructions Taxes You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. State tax forms and instructions You also can deduct the social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. State tax forms and instructions For information on employment taxes, see chapter 13. State tax forms and instructions Allocation of taxes. State tax forms and instructions   The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. State tax forms and instructions You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). State tax forms and instructions To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. State tax forms and instructions The allocation can be done from the assessed valuations. State tax forms and instructions If your tax statement does not show the assessed valuations, you can usually get them from the tax assessor. State tax forms and instructions State and local general sales taxes. State tax forms and instructions   State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. State tax forms and instructions Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. State tax forms and instructions Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you. State tax forms and instructions State and federal income taxes. State tax forms and instructions   Individuals cannot deduct state and federal income taxes as farm business expenses. State tax forms and instructions Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). State tax forms and instructions However, you cannot deduct federal income tax. State tax forms and instructions Highway use tax. State tax forms and instructions   You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. State tax forms and instructions For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290, Heavy Highway Vehicle Use Tax Return. State tax forms and instructions Self-employment tax deduction. State tax forms and instructions   You can deduct as an adjustment to income on Form 1040 one-half of your self-employment tax in figuring your adjusted gross income. State tax forms and instructions For more information, see chapter 12. State tax forms and instructions Insurance You generally can deduct the ordinary and necessary cost of insurance for your farm business as a business expense. State tax forms and instructions This includes premiums you pay for the following types of insurance. State tax forms and instructions Fire, storm, crop, theft, liability, and other insurance on farm business assets. State tax forms and instructions Health and accident insurance on your farm employees. State tax forms and instructions Workers' compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault. State tax forms and instructions Business interruption insurance. State tax forms and instructions State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law). State tax forms and instructions Insurance to secure a loan. State tax forms and instructions   If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you cannot deduct the premiums as a business expense. State tax forms and instructions In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. State tax forms and instructions Advance premiums. State tax forms and instructions   Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method. State tax forms and instructions Example. State tax forms and instructions On June 28, 2013, you paid a premium of $3,000 for fire insurance on your barn. State tax forms and instructions The policy will cover a period of 3 years beginning on July 1, 2013. State tax forms and instructions Only the cost for the 6 months in 2013 is deductible as an insurance expense on your 2013 calendar year tax return. State tax forms and instructions Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6/36 of $3,000. State tax forms and instructions In both 2014 and 2015, deduct $1,000 (12/36 of $3,000). State tax forms and instructions Deduct the remaining $500 in 2016. State tax forms and instructions Had the policy been effective on January 1, 2013, the deductible expense would have been $1,000 for each of the years 2013, 2014, and 2015, based on one-third of the premium used each year. State tax forms and instructions Business interruption insurance. State tax forms and instructions   Use and occupancy and business interruption insurance premiums are deductible as a business expense. State tax forms and instructions This insurance pays for lost profits if your business is shut down due to a fire or other cause. State tax forms and instructions Report any proceeds in full on Schedule F, Part I. State tax forms and instructions Self-employed health insurance deduction. State tax forms and instructions   If you are self-employed, you can deduct as an adjustment to income on Form 1040 your payments for medical, dental, and qualified long-term care insurance coverage for yourself, your spouse, and your dependents when figuring your adjusted gross income on your Form 1040. State tax forms and instructions Effective March 30, 2010, the insurance can also cover any child of yours under age 27 at the end of 2013, even if the child was not your dependent. State tax forms and instructions Generally, this deduction cannot be more than the net profit from the business under which the plan was established. State tax forms and instructions   If you or your spouse is also an employee of another person, you cannot take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse's employer. State tax forms and instructions   Generally, use the Self-Employed Health Insurance Deduction Worksheet in the Instructions for Form 1040 to figure your deduction. State tax forms and instructions Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions. State tax forms and instructions   For more information, see Deductible Premiums in Publication 535, chapter 6. State tax forms and instructions Rent and Leasing If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. State tax forms and instructions However, you cannot deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses. State tax forms and instructions Advance payments. State tax forms and instructions   Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method. State tax forms and instructions Farm home. State tax forms and instructions   If you rent a farm, do not deduct the part of the rental expense that represents the fair rental value of the farm home in which you live. State tax forms and instructions Lease or Purchase If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. State tax forms and instructions If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they do not represent interest or other charges) are payments for the purchase of the property. State tax forms and instructions Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation. State tax forms and instructions Conditional sales contract. State tax forms and instructions   Whether an agreement is a conditional sales contract depends on the intent of the parties. State tax forms and instructions Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. State tax forms and instructions No single test, or special combination of tests, always applies. State tax forms and instructions However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. State tax forms and instructions The agreement applies part of each payment toward an equity interest you will receive. State tax forms and instructions You get title to the property after you make a stated amount of required payments. State tax forms and instructions The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. State tax forms and instructions You pay much more than the current fair rental value of the property. State tax forms and instructions You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. State tax forms and instructions Determine this value when you make the agreement. State tax forms and instructions You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. State tax forms and instructions The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest. State tax forms and instructions Example. State tax forms and instructions You lease new farm equipment from a dealer who both sells and leases. State tax forms and instructions The agreement includes an option to purchase the equipment for a specified price. State tax forms and instructions The lease payments and the specified option price equal the sales price of the equipment plus interest. State tax forms and instructions Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. State tax forms and instructions For federal income tax purposes, the agreement is a conditional sales contract. State tax forms and instructions You cannot deduct any of the lease payments as rent. State tax forms and instructions You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment. State tax forms and instructions Motor vehicle leases. State tax forms and instructions   Special rules apply to lease agreements that have a terminal rental adjustment clause. State tax forms and instructions In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. State tax forms and instructions If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. State tax forms and instructions For more information, see Internal Revenue Code (IRC) section 7701(h). State tax forms and instructions Leveraged leases. State tax forms and instructions   Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). State tax forms and instructions For more information, see Publication 535, chapter 3, and Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at www. State tax forms and instructions irs. State tax forms and instructions gov/pub/irs-irbs/irb01-19. State tax forms and instructions pdf. State tax forms and instructions Depreciation If property you acquire to use in your farm business is expected to last more than one year, you generally cannot deduct the entire cost in the year you acquire it. State tax forms and instructions You must recover the cost over more than one year and deduct part of it each year on Schedule F as depreciation or amortization. State tax forms and instructions However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction in the year you place it in service. State tax forms and instructions Depreciation, amortization, and the section 179 deduction are discussed in chapter 7. State tax forms and instructions Business Use of Your Home You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly: As the principal place of business for any trade or business in which you engage, As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business, or In connection with your trade or business, if you are using a separate structure that is not attached to your home. State tax forms and instructions Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements. State tax forms and instructions You use it exclusively and regularly for the administrative or management activities of your trade or business. State tax forms and instructions You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. State tax forms and instructions If you use part of your home for business, you must divide the expenses of operating your home between personal and business use. State tax forms and instructions The IRS now provides a simplified method to determine your expenses for business use of your home. State tax forms and instructions For more information, see Schedule C (Form 1040), Part II, and its instructions. State tax forms and instructions Deduction limit. State tax forms and instructions   If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. State tax forms and instructions But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited. State tax forms and instructions   Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), cannot be more than the gross income from farming minus the following expenses. State tax forms and instructions The business part of expenses you could deduct even if you did not use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses). State tax forms and instructions Farm expenses other than expenses that relate to the use of your home. State tax forms and instructions If you are self-employed, do not include your deduction for half of your self-employment tax. State tax forms and instructions   Deductions over the current year's limit can be carried over to your next tax year. State tax forms and instructions They are subject to the deduction limit for the next tax year. State tax forms and instructions More information. State tax forms and instructions   See Publication 587 for more information on deducting expenses for the business use of your home. State tax forms and instructions Telephone expense. State tax forms and instructions   You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. State tax forms and instructions However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. State tax forms and instructions Cell phone charges for calls relating to your farm business are deductible. State tax forms and instructions If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls. State tax forms and instructions Truck and Car Expenses You can deduct the actual cost of operating a truck or car in your farm business. State tax forms and instructions Only expenses for business use are deductible. State tax forms and instructions These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits). State tax forms and instructions Standard mileage rate. State tax forms and instructions   Instead of using actual costs, under certain conditions you can use the standard mileage rate. State tax forms and instructions The standard mileage rate for each mile of business use is 56. State tax forms and instructions 5 cents in 2013. State tax forms and instructions You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or panel truck, you own or lease. State tax forms and instructions   You cannot use the standard mileage rate if you operate five or more cars or light trucks at the same time. State tax forms and instructions You are not using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business. State tax forms and instructions Example. State tax forms and instructions Maureen owns a car and four pickup trucks that are used in her farm business. State tax forms and instructions Her farm employees use the trucks and she uses the car for business. State tax forms and instructions Maureen cannot use the standard mileage rate for the car or the trucks. State tax forms and instructions This is because all five vehicles are used in Maureen's farm business at the same time. State tax forms and instructions She must use actual expenses for all vehicles. State tax forms and instructions Business use percentage. State tax forms and instructions   You can claim 75% of the use of a car or light truck as business use without any records if you used the vehicle during most of the normal business day directly in connection with the business of farming. State tax forms and instructions You choose this method of substantiating business use the first year the vehicle is placed in service. State tax forms and instructions Once you make this choice, you may not change to another method later. State tax forms and instructions The following are uses directly connected with the business of farming. State tax forms and instructions Cultivating land. State tax forms and instructions Raising or harvesting any agricultural or horticultural commodity. State tax forms and instructions Raising, shearing, feeding, caring for, training, and managing animals. State tax forms and instructions Driving to the feed or supply store. State tax forms and instructions   If you keep records and they show that your business use was more than 75%, you may be able to claim more. State tax forms and instructions See Recordkeeping requirements under Travel Expenses , below. State tax forms and instructions More information. State tax forms and instructions   For more information on deductible truck and car expenses, see Publication 463, chapter 4. State tax forms and instructions If you pay your employees for the use of their truck or car in your farm business, see Reimbursements to employees under Travel Expenses next. State tax forms and instructions Travel Expenses You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. State tax forms and instructions You cannot deduct lavish or extravagant expenses. State tax forms and instructions Usually, the location of your farm business is considered your home for tax purposes. State tax forms and instructions You are traveling away from home if: Your duties require you to be absent from your farm substantially longer than an ordinary work day, and You need to get sleep or rest to meet the demands of your work while away from home. State tax forms and instructions If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses. State tax forms and instructions The following are some types of deductible travel expenses. State tax forms and instructions Air, rail, bus, and car transportation; Meals and lodging; Dry cleaning and laundry; Telephone and fax; Transportation between your hotel and your temporary work or business meeting location; and Tips for any of the above expenses. State tax forms and instructions Meals. State tax forms and instructions   You ordinarily can deduct only 50% of your business-related meals expenses. State tax forms and instructions You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. State tax forms and instructions You cannot deduct any of the cost of meals if it is not necessary for you to rest, unless you meet the rules for business entertainment. State tax forms and instructions For information on entertainment expenses, see Publication 463, chapter 2. State tax forms and instructions   The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. State tax forms and instructions You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses. State tax forms and instructions    Recordkeeping requirements. State tax forms and instructions You must be able to prove your deductions for travel by adequate records or other evidence that will support your own statement. State tax forms and instructions Estimates or approximations do not qualify as proof of an expense. State tax forms and instructions   You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. State tax forms and instructions Generally, it is best to record the expense and get documentation of it at the time you pay it. State tax forms and instructions   If you choose to deduct a standard meal allowance rather than the actual expense, you do not have to keep records to prove amounts spent for meals and incidental items. State tax forms and instructions However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel. State tax forms and instructions More information. State tax forms and instructions   For detailed information on travel, recordkeeping, and the standard meal allowance, see Publication 463. State tax forms and instructions Reimbursements to employees. State tax forms and instructions   You generally can deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. State tax forms and instructions Employees may be reimbursed under an accountable or nonaccountable plan. State tax forms and instructions Under an accountable plan, the employee must provide evidence of expenses. State tax forms and instructions Under a nonaccountable plan, no evidence of expenses is required. State tax forms and instructions If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. State tax forms and instructions If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. State tax forms and instructions For more information, see Publication 535, chapter 11. State tax forms and instructions Marketing Quota Penalties You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. State tax forms and instructions However, if you do not pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. State tax forms and instructions Do not take a separate deduction for the penalty. State tax forms and instructions Tenant House Expenses You can deduct the costs of maintaining houses and their furnishings for tenants or hired help as farm business expenses. State tax forms and instructions These costs include repairs, utilities, insurance, and depreciation. State tax forms and instructions The value of a dwelling you furnish to a tenant under the usual tenant-farmer arrangement is not taxable income to the tenant. State tax forms and instructions Items Purchased for Resale If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. State tax forms and instructions You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. State tax forms and instructions However, see Chickens, seeds, and young plants , below. State tax forms and instructions Example. State tax forms and instructions You use the cash method of accounting. State tax forms and instructions In 2013, you buy 50 steers you will sell in 2014. State tax forms and instructions You cannot deduct the cost of the steers on your 2013 tax return. State tax forms and instructions You deduct their cost on your 2014 Schedule F, Part I. State tax forms and instructions Chickens, seeds, and young plants. State tax forms and instructions   If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it does not distort income. State tax forms and instructions You also can deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you do not figure your income on the crop method. State tax forms and instructions However, see Prepaid Farm Supplies , earlier, for a rule that may limit your deduction for these items. State tax forms and instructions   If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. State tax forms and instructions You cannot also deduct the cost from the selling price. State tax forms and instructions   You cannot deduct the cost of seeds and young plants for Christmas trees and timber as an expense. State tax forms and instructions Deduct the cost of these seeds and plants through depletion allowances. State tax forms and instructions For more information, see Depletion in chapter 7. State tax forms and instructions   The cost of chickens and plants used as food for your family is never deductible. State tax forms and instructions   Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. State tax forms and instructions These rules are discussed in chapter 6. State tax forms and instructions Example. State tax forms and instructions You use the cash method of accounting. State tax forms and instructions In 2013, you buy 500 baby chicks to raise for resale in 2014. State tax forms and instructions You also buy 50 bushels of winter wheat seed in 2013 that you sow in the fall. State tax forms and instructions Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2013. State tax forms and instructions Election to use crop method. State tax forms and instructions   If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. State tax forms and instructions You must get IRS approval to use the crop method. State tax forms and instructions If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. State tax forms and instructions For more information, see Crop method under Special Methods of Accounting in chapter 2. State tax forms and instructions Choosing a method. State tax forms and instructions   You can adopt either the crop method or the cash method for deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants. State tax forms and instructions   Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. State tax forms and instructions Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. State tax forms and instructions For more information, see Change in Accounting Method in chapter 2. State tax forms and instructions Other Expenses The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. State tax forms and instructions These expenses must be for business purposes and  (1) paid, if you use the cash method of accounting, or (2) incurred, if you use an accrual method of accounting. State tax forms and instructions Accounting fees. State tax forms and instructions Advertising. State tax forms and instructions Business travel and meals. State tax forms and instructions Commissions. State tax forms and instructions Consultant fees. State tax forms and instructions Crop scouting expenses. State tax forms and instructions Dues to cooperatives. State tax forms and instructions Educational expenses (to maintain and improve farming skills). State tax forms and instructions Farm-related attorney fees. State tax forms and instructions Farm magazines. State tax forms and instructions Ginning. State tax forms and instructions Insect sprays and dusts. State tax forms and instructions Litter and bedding. State tax forms and instructions Livestock fees. State tax forms and instructions Marketing fees. State tax forms and instructions Milk assessment. State tax forms and instructions Recordkeeping expenses. State tax forms and instructions Service charges. State tax forms and instructions Small tools expected to last one year or less. State tax forms and instructions Stamps and stationery. State tax forms and instructions Subscriptions to professional, technical, and trade journals that deal with farming. State tax forms and instructions Tying material and containers. State tax forms and instructions Loan expenses. State tax forms and instructions   You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan. State tax forms and instructions Tax preparation fees. State tax forms and instructions   You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business. State tax forms and instructions You may be able to deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. State tax forms and instructions   You also can deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business. State tax forms and instructions Domestic Production Activities Deduction Generally, you are allowed a deduction for income attributable to domestic production activities. State tax forms and instructions You can deduct 9% of the lesser of your qualified production activities income or your taxable income (adjusted gross income for individuals) for the tax year. State tax forms and instructions Your deduction is limited to 50% of the Form W-2 wages you paid for the tax year that are properly allocable to domestic production gross receipts. State tax forms and instructions For this purpose, Form W-2 wages do not include noncash wages paid for agricultural labor, such as compensation paid as commodities. State tax forms and instructions Also, excluded from Form W-2 wages are wages paid to your children under age 18 and nontaxable fringe benefits. State tax forms and instructions Income from cooperatives. State tax forms and instructions   If you receive a patronage dividend or qualified per-unit retain allocation from a cooperative which is engaged in the manufacturing, production, growth, or extraction in whole or in significant part of any agricultural or horticultural product or in the marketing of agricultural or horticultural products, your income from the cooperative can give rise to a domestic production activities deduction. State tax forms and instructions This deduction amount is reported on Form 1099-PATR, box 6. State tax forms and instructions In order for you to qualify for the deduction, the cooperative is required to send you a written notice designating your portion of the domestic production activities deduction. State tax forms and instructions More information. State tax forms and instructions   For more information on the domestic production activities deduction, see the Instructions for Form 8903. State tax forms and instructions Capital Expenses A capital expense is a payment, or a debt incurred, for the acquisition, improvement, or restoration of an asset that is expected to last more than one year. State tax forms and instructions You include the expense in the basis of the asset. State tax forms and instructions Uniform capitalization rules also require you to capitalize or include in inventory certain other expenses. State tax forms and instructions See chapters 2  and 6. State tax forms and instructions Capital expenses are generally not deductible, but they may be depreciable. State tax forms and instructions However, you can elect to deduct certain capital expenses, such as the following. State tax forms and instructions The cost of fertilizer, lime, etc. State tax forms and instructions (See Fertilizer and Lime under Deductible Expenses , earlier. State tax forms and instructions ) Soil and water conservation expenses. State tax forms and instructions (See chapter 5. State tax forms and instructions ) The cost of property that qualifies for a deduction under section 179. State tax forms and instructions (See chapter 7. State tax forms and instructions ) Business start-up costs. State tax forms and instructions (See Business start-up and organizational costs , later. State tax forms and instructions ) Forestation and reforestation costs. State tax forms and instructions (See Forestation and reforestation costs , later. State tax forms and instructions ) Generally, the costs of the following items, including the costs of material, hired labor, and installation, are capital expenses. State tax forms and instructions Land and buildings. State tax forms and instructions Additions, alterations, and improvements to buildings, etc. State tax forms and instructions Cars and trucks. State tax forms and instructions Equipment and machinery. State tax forms and instructions Fences. State tax forms and instructions Draft, breeding, sport, and dairy livestock. State tax forms and instructions Repairs to machinery, equipment, trucks, and cars that prolong their useful life, increase their value, or adapt them to different use. State tax forms and instructions Water wells, including drilling and equipping costs. State tax forms and instructions Land preparation costs, such as: Clearing land for farming, Leveling and conditioning land, Purchasing and planting trees, Building irrigation canals and ditches, Laying irrigation pipes, Installing drain tile, Modifying channels or streams, Constructing earthen, masonry, or concrete tanks, reservoirs, or dams, and Building roads. State tax forms and instructions Business start-up and organizational costs. State tax forms and instructions   You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. State tax forms and instructions The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. State tax forms and instructions Any remaining costs must be amortized. State tax forms and instructions See chapter 7. State tax forms and instructions   You elect to deduct start-up or organizational costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. State tax forms and instructions 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). State tax forms and instructions Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms and instructions 9100-2” at the top of the amended return. State tax forms and instructions File the amended return at the same address you filed the original return. State tax forms and instructions The election applies when figuring taxable income for the current tax year and all subsequent years. State tax forms and instructions   You can choose to forgo the election by clearly electing to capitalize your start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. State tax forms and instructions For more information about start-up and organizational costs, see chapter 7. State tax forms and instructions Crop production expenses. State tax forms and instructions   The uniform capitalization rules generally require you to capitalize expenses incurred in producing plants. State tax forms and instructions However, except for certain taxpayers required to use an accrual method of accounting, the capitalization rules do not apply to plants with a preproductive period of 2 years or less. State tax forms and instructions For more information, see Uniform Capitalization Rules in chapter 6. State tax forms and instructions Timber. State tax forms and instructions   Capitalize the cost of acquiring timber. State tax forms and instructions Do not include the cost of land in the cost of the timber. State tax forms and instructions You must generally capitalize direct costs incurred in reforestation. State tax forms and instructions However, you can elect to deduct some forestation and reforestation costs. State tax forms and instructions See Forestation and reforestation costs next. State tax forms and instructions Reforestation costs include the following. State tax forms and instructions Site preparation costs, such as: Girdling, Applying herbicide, Baiting rodents, and Clearing and controlling brush. State tax forms and instructions The cost of seed or seedlings. State tax forms and instructions Labor and tool expenses. State tax forms and instructions Depreciation on equipment used in planting or seeding. State tax forms and instructions Costs incurred in replanting to replace lost seedlings. State tax forms and instructions You can choose to capitalize certain indirect reforestation costs. State tax forms and instructions   These capitalized amounts are your basis for the timber. State tax forms and instructions Recover your basis when you sell the timber or take depletion allowances when you cut the timber. State tax forms and instructions See Depletion in chapter 7. State tax forms and instructions Forestation and reforestation costs. State tax forms and instructions   You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. State tax forms and instructions Any remaining costs can be amortized over an 84-month period. State tax forms and instructions See chapter 7. State tax forms and instructions If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. State tax forms and instructions The accounts should include all reforestation treatments and the dates they were applied. State tax forms and instructions Any qualified timber property that is subject to the deduction or amortization election cannot be included in any other timber account for which depletion is allowed. State tax forms and instructions The timber account should be maintained until the timber is disposed of. State tax forms and instructions For more information, see Notice 2006-47, 2006-20 I. State tax forms and instructions R. State tax forms and instructions B. State tax forms and instructions 892, available at  www. State tax forms and instructions irs. State tax forms and instructions gov/irb/2006-20_IRB/ar11. State tax forms and instructions html. State tax forms and instructions   You elect to deduct forestation and reforestation costs by claiming the deduction on the income tax return filed by the due date (including extensions) for the tax year in which the expenses were paid or incurred. State tax forms and instructions If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV. State tax forms and instructions If you are not filing Form T (Timber), attach a statement to your return with the following information. State tax forms and instructions The unique stand identification numbers. State tax forms and instructions The total number of acres reforested during the tax year. State tax forms and instructions The nature of the reforestation treatments. State tax forms and instructions The total amounts of the qualified reforestation expenditures eligible to be amortized or deducted. State tax forms and instructions   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). State tax forms and instructions Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms and instructions 9100-2” at the top of the amended return. State tax forms and instructions File the amended return at the same address you filed the original return. State tax forms and instructions    For more information about forestation and reforestation costs, see chapter 7. State tax forms and instructions    For more information about timber, see Agriculture Handbook Number 731, Forest Landowners' Guide to the Federal Income Tax. State tax forms and instructions You can view this publication on the Internet at  www. State tax forms and instructions fs. State tax forms and instructions fed. State tax forms and instructions us/publications. State tax forms and instructions Christmas tree cultivation. State tax forms and instructions   If you are in the business of planting and cultivating Christmas trees to sell when they are more than 6 years old, capitalize expenses incurred for planting and stump culture and add them to the basis of the standing trees. State tax forms and instructions Recover these expenses as part of your adjusted basis when you sell the standing trees or as depletion allowances when you cut the trees. State tax forms and instructions For more information, see Timber Depletion under Depletion in chapter 7. State tax forms and instructions   You can deduct as business expenses the costs incurred for shearing and basal pruning of these trees. State tax forms and instructions Expenses incurred for silvicultural practices, such as weeding or cleaning, and noncommercial thinning are also deductible as business expenses. State tax forms and instructions   Capitalize the cost of land improvements, such as road grading, ditching, and fire breaks, that have a useful life beyond the tax year. State tax forms and instructions If the improvements do not have a determinable useful life, add their cost to the basis of the land. State tax forms and instructions The cost is recovered when you sell or otherwise dispose of it. State tax forms and instructions If the improvements have a determinable useful life, recover their cost through depreciation. State tax forms and instructions Capitalize the cost of equipment and other depreciable assets, such as culverts and fences, to the extent you do not use them in planting Christmas trees. State tax forms and instructions Recover these costs through depreciation. State tax forms and instructions Nondeductible Expenses You cannot deduct personal expenses and certain other items on your tax return even if they relate to your farm. State tax forms and instructions Personal, Living, and Family Expenses You cannot deduct certain personal, living, and family expenses as business expenses. State tax forms and instructions These include rent and insurance premiums paid on property used as your home, life insurance premiums on yourself or your family, the cost of maintaining cars, trucks, or horses for personal use, allowances to minor children, attorneys' fees and legal expenses incurred in personal matters, and household expenses. State tax forms and instructions Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family is not deductible. State tax forms and instructions Other Nondeductible Items You cannot deduct the following items on your tax return. State tax forms and instructions Loss of growing plants, produce, and crops. State tax forms and instructions   Losses of plants, produce, and crops raised for sale are generally not deductible. State tax forms and instructions However, you may have a deductible loss on plants with a preproductive period of more than 2 years. State tax forms and instructions See chapter 11 for more information. State tax forms and instructions Repayment of loans. State tax forms and instructions   You cannot deduct the repayment of a loan. State tax forms and instructions However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. State tax forms and instructions See Interest , earlier. State tax forms and instructions Estate, inheritance, legacy, succession, and gift taxes. State tax forms and instructions   You cannot deduct estate, inheritance, legacy, succession, and gift taxes. State tax forms and instructions Loss of livestock. State tax forms and instructions   You cannot deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense. State tax forms and instructions Losses from sales or exchanges between related persons. State tax forms and instructions   You cannot deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. State tax forms and instructions For more information, see chapter 2 of Publication 544, Sales and Other Dispositions of Assets. State tax forms and instructions Cost of raising unharvested crops. State tax forms and instructions   You cannot deduct the cost of raising unharvested crops sold with land owned more than one year if you sell both at the same time and to the same person. State tax forms and instructions Add these costs to the basis of the land to determine the gain or loss on the sale. State tax forms and instructions For more information, see Section 1231 Gains and Losses in chapter 9. State tax forms and instructions Cost of unharvested crops bought with land. State tax forms and instructions   Capitalize the purchase price of land, including the cost allocable to unharvested crops. State tax forms and instructions You cannot deduct the cost of the crops at the time of purchase. State tax forms and instructions However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops. State tax forms and instructions Cost related to gifts. State tax forms and instructions   You cannot deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. State tax forms and instructions The costs are not deductible in the year of the gift or any later year. State tax forms and instructions For example, you cannot deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children. State tax forms and instructions Club dues and membership fees. State tax forms and instructions   Generally, you cannot deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. State tax forms and instructions This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. State tax forms and instructions Exception. State tax forms and instructions   The following organizations will not be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities. State tax forms and instructions Boards of trade. State tax forms and instructions Business leagues. State tax forms and instructions Chambers of commerce. State tax forms and instructions Civic or public service organizations. State tax forms and instructions Professional associations. State tax forms and instructions Trade associations. State tax forms and instructions Real estate boards. State tax forms and instructions Fines and penalties. State tax forms and instructions   You cannot deduct fines and penalties, except penalties for exceeding marketing quotas, discussed earlier. State tax forms and instructions Losses From Operating a Farm If your deductible farm expenses are more than your farm income, you have a loss from the operation of your farm. State tax forms and instructions The amount of the loss you can deduct when figuring your taxable income may be limited. State tax forms and instructions To figure your deductible loss, you must apply the following limits. State tax forms and instructions The at-risk limits. State tax forms and instructions The passive activity limits. State tax forms and instructions The following discussions explain these limits. State tax forms and instructions If your deductible loss after applying these limits is more than your other income for the year, you may have a net operating loss. State tax forms and instructions See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. State tax forms and instructions If you do not carry on your farming activity to make a profit, your loss deduction may be limited by the not-for-profit rules. State tax forms and instructions See Not-for-Profit Farming, later. State tax forms and instructions At-Risk Limits The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. State tax forms and instructions These rules limit the losses you can deduct when figuring your taxable income. State tax forms and instructions The deductible loss from an activity is limited to the amount you have at risk in the activity. State tax forms and instructions You are at risk in any activity for: The money and adjusted basis of property you contribute to the activity, and Amounts you borrow for use in the activity if: You are personally liable for repayment, or You pledge property (other than property used in the activity) as security for the loan. State tax forms and instructions You are not at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest. State tax forms and instructions For more information, see Publication 925. State tax forms and instructions Passive Activity Limits A passive activity is generally any activity involving the conduct of any trade or business in which you do not materially participate. State tax forms and instructions Generally, a rental activity is a passive activity. State tax forms and instructions If you have a passive activity, special rules limit the loss you can deduct in the tax year. State tax forms and instructions You generally can deduct losses from passive activities only up to income from passive activities. State tax forms and instructions Credits are similarly limited. State tax forms and instructions For more information, see Publication 925. State tax forms and instructions Excess Farm Loss Limit For tax years beginning after 2009, excess farm losses (defined below) are not deductible if you received certain applicable subsidies. State tax forms and instructions This limit applies to any farming businesses, other than a C corporation, that received a direct or counter-cyclical payment (or any payment in lieu of such payments) under title I of the Food, Conservation, and Energy Act of 2008, or from a Commodity Credit Corporation loan. State tax forms and instructions Your farming losses are limited to the greater of: $300,000 ($150,000 for a married person filing a separate return), or The total net farm income for the prior five tax years. State tax forms and instructions Farming losses from casualty losses or losses by reason of disease or drought are disregarded for purposes of figuring this limitation. State tax forms and instructions Also, the limitation on farm losses should be applied before the passive activity loss rules are applied. State tax forms and instructions For more details, see IRC section 461(j). State tax forms and instructions Excess farm loss. State tax forms and instructions   Generally, an excess farm loss is the amount of your farming loss that exceeds the amount of the limitation (as described above). State tax forms and instructions This loss can be determined by taking the excess of: The total deductions for the tax year from your farming businesses, over The total gross income or gain for the tax year from your farming businesses, plus the greater of: $300,000 ($150,000 for a married person filing a separate return), or The excess (if any) of the total gross income or gain from your farming businesses for the prior five tax years over the total deductions from your farming businesses for the prior five tax years. State tax forms and instructions   Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a deduction from that year. State tax forms and instructions Not-for-Profit Farming If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. State tax forms and instructions However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Form 1040, line 21, and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). State tax forms and instructions Also, there is a limit on the deductions you can take. State tax forms and instructions You cannot use a loss from that activity to offset income from other activities. State tax forms and instructions Activities you do as a hobby, or mainly for sport or recreation, come under this limit. State tax forms and instructions An investment activity intended only to produce tax losses for the investors also comes under this limit. State tax forms and instructions The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. State tax forms and instructions It does not apply to corporations other than S corporations. State tax forms and instructions In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. State tax forms and instructions No one factor alone is decisive. State tax forms and instructions Among the factors to consider are whether: You operate your farm in a businesslike manner; The time and effort you spend on farming indicate you intend to make it profitable; You depend on income from farming for your livelihood; Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming; You change your methods of operation in an attempt to improve profitability; You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business; You were successful in making a profit in similar activities in the past; You make a profit from farming in some years and the amount of profit you make; and You can expect to make a future profit from the appreciation of the assets used in the farming activity. State tax forms and instructions Presumption of profit. State tax forms and instructions   Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. State tax forms and instructions Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. State tax forms and instructions The activity must be substantially the same for each year within this period. State tax forms and instructions You have a profit when the gross income from an activity is more than the deductions for it. State tax forms and instructions   If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer's death. State tax forms and instructions   If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. State tax forms and instructions This means the limits discussed here do not apply. State tax forms and instructions You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. State tax forms and instructions You can rely on this presumption in every case, unless the IRS shows it is not valid. State tax forms and instructions   If you fail the 3- (or 2-) years-of-profit test, you still may be considered to operate your farm for profit by considering the factors listed earlier. State tax forms and instructions Using the presumption later. State tax forms and instructions   If you are starting out in farming and do not have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test. State tax forms and instructions   You can choose to do this by filing Form 5213. State tax forms and instructions Filing this form postpones any determination that your farming activity is not carried on for profit until 5 (or 7) years have passed since you first started farming. State tax forms and instructions You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity. State tax forms and instructions   The benefit gained by making this choice is that the IRS will not immediately question whether your farming activity is engaged in for profit. State tax forms and instructions Accordingly, it will not limit your deductions. State tax forms and instructions Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. State tax forms and instructions If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. State tax forms and instructions If you do not have 3 (or 2) years of profit (and cannot otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss. State tax forms and instructions   Filing Form 5213 automatically extends the period of limitations on any year